A purely technical view of application programming interfaces (API) has given way to a new perspective: In a more and more digitized economy, APIs are becoming a central enabler for companies to build and expand scalable digital business models. The potential is huge. Technical interfaces are becoming the core of global digital value networks.
Who doesn't know the feeling of freedom and creativity when standing in front of a large box with a wide variety of Lego building blocks. Anything is possible. Good APIs are like Lego building blocks, which developers can use to build new digital products and services. The quick and easy combination of API building blocks accelerates development time, significantly shortening time-to-market.
Companies like FreeNow or Uber have recognized the advantage early on. Instead of developing map or payment services on their own, they integrate them via API from external providers.
This modular structure allows developers to (a) focus on the enhancement of core processes that differentiate them from competitors and (b) outsource supporting functions to specialized service providers ("micro-outsourcing"). New features can be integrated and the company's core value proposition can be boosted without much additional effort. This is a great advantage in times of scarce development resources. The following is true: The more competencies (data, processes, functions) a company has that can be addressed internally via APIs, the better the development of digital product innovations scales within the company.
If companies consistently rely on the use of scalable APIs for the development of digital products, the result will be zero marginal cost effects: With each new call of the digital product, the variable costs for provisioning strive toward zero. If a company also shares access to its own (core) competencies externally via APIs, its own partner capability is strengthened as well. Third parties can integrate the competencies offered into their own value chain via the API. A win-win situation is the result: The provider can monetize its services directly or indirectly. The consumer saves costs and gains development speed.
The emergence of API ecosystems
In contrast to the "analog world," where corporate partnerships are often preceded by long initiation processes, APIs enable entirely new forms of flexible collaboration models (e.g., "open innovation") in the digital space. One example is the Expedia Group: The provider of travel services allows external parties to integrate its functionality into their own applications, thus expanding market penetration. In this process, flexible networks emerge from value chains, in which the various players come together in loosely coupled formations and jointly create economic ecosystems.
APIs are at the heart of these digital ecosystems: they allow the market participants of a platform to interact with each other. For companies, the provision of these digital API ecosystems offers the opportunity to focus on their own core competencies.
Platforms as hubs
API management systems are at the core of API-based ecosystems and their underlying platforms - e.g., internal as well as external API marketplaces or developer portals. They connect API providers and consumers and provide the necessary governance and processes (e.g., monetization and billing functions or documentation). This makes the interaction as simple as possible on both the technical and organizational level.
Based on the concept of user experience (UX), e.g. in the e-commerce sector, the term developer experience (DX) has emerged as a key success factor for these platforms. It is used to measure the degree of comfort with which developers - as the primary users - interact with the platform and its APIs. It is of no consequence whether the APIs are shared internally or externally to the company.
It is the simplicity of participating that allows ecosystems to grow around platforms. The easier the access and the better the developer experience, the more developers are willing to use an API. The supply grows, network effects kick in and make them more attractive for new participants - both on the consumer and on the provider side.
Shaping the digital transformation
In regard to companies, APIs on the one hand have the potential to optimize existing business models (e.g., through shorter development times) or to expand them on the other (e.g., through simplified partner capability and ecosystems). In sum, the consistent use of APIs will lead to the emergence of entirely new scalable digital business models.
This is closely associated with the formation of value networks and ecosystems where companies with complementary and competing offerings can easily collaborate and create mutual win-win situations. APIs enable access to these ecosystems, which, depending on their design, can end at company boundaries or extend beyond them in a regulated manner.
Established companies such as Lufthansa, Mercedes-Benz and Commerzbank are already taking this approach via their developer portals. Innovative start-ups such as FinTech Plaid are pursuing an "API-first strategy": their products are APIs and the underlying software that can be easily integrated. Companies that want to participate in these value networks need to answer one question for themselves:
Do they want to join existing API ecosystems or establish, operate and design their own API ecosystem?
