Welcome to API Economy

Welcome to API Economy

Nowadays, APIs are ruling the internet and business worlds, it’s continue to do in the future as well. APIs are the main driving forces of modern business growths and the backbone of almost all of the business applications exists in the universe. We are living in a very competitive world so it requires disruptive innovations (especially for startups) and time to market are primary things required to do the sustainable business in this competitive world. APIs are enabling us to do the sustainable business and early adopters always have a competitive advantage.

APIs are great connectors of different technology ecosystems and organizations. It creates new opportunities like profitable partnership with other organizations by consuming other’s data or selling data to others or white labeling of APIs. They also help organizations to create their own ecosystem.

APIs are simplifiers, they help to achieve the time to market and improves the operational efficiency, which intern enables the innovation for their consumers: with the help of APIs consumers can create new products or quickly turn their project ideas into products.

APIs are gatekeepers, they abstract or hide the complex business processes, infrastructures, data management, data protection (with regulation, compliance), overall security and operational management behind the wall.

Mantra for success is to derive our business digital strategy with APIs, it will allow us to make sustained business. Now this is your chance, it is never too late to start adopting APIs if not already.

To get the better understanding on API economy, we should understand the API value chains and business models, in this article we are going to discuss these topics one by one.

The API Value Chain

The value chain is a continuous process of transformation, such as a factory assembly line and it extends across all industries to allow different organizations to be involved to create value. Each organization is dedicated to a particular transformation task and deserves its place in the chain.  The API value chain is a software driven and automated specialization of the value chain. The value chain is formed as an end-to-end path, as shown in the following image as a blue line. The value increases through the value chain from left to right.

End user starts using the application. The application consumes APIs, which intern uses Business Assets to deliver its functionality. The end user consumption creates an API value chain from the Business Asset to the End user, as shown in the picture above as an orange line. The value increases incrementally through the API value chain from left to right.

Business assets are the starting point in the API value chain. Business assets are the fuel for any business and they can by any data or business functions (services, products). APIs create a channel to expose our business assets to consumers so organizations need to identify their business assets to expose, their value and target audiences to convert them into APIs products. To identify asset value and target audience organization can ask the following questions:

  • What are business assets can be exposed as an APIs and what is the value to the organization?
  • How does this benefit API provider (API provider can be third party or asset owner)?
  • Who are the potential users of these assets, and how would the users get the access to these assets?
  • How does the end-user benefit from using these assets?
  • How easily can the end user access and use it?

Once an organization decides to open assets to expose, API producer discovers opportunities, build APIs to use these assets. API producer can be the same organization or other organization who consume the business assets. APIs are broadly categorized into two, private and public APIs. Private APIs purely for internal purpose or integration with partners so private APIs further categorized into internal APIs and Partner APIs. Public APIs are can any access these APIs to build their own products or consuming them in the existing products.

API Consumers build the business applications by using APIs for their end users. Here, API consumers can be same organization or parters or Application developers (who wants to build applications for their customers) depends on the API types.

End users participate in the last part of the API value chain, they consume the business applications which built with APIs.

API value chain can increase from the starting to end (left to right), it means there are lots of additional API producers, consumers and end users can be participated in both vertically and horizontally. As it increases left to right, it brings lots of business opportunities across different organizations.

Here are the few API value chain variations,

  • Extended API value chain – two or more API producers will be involved horizontally to produce required APIs for consumers.
  • Long value chain – in this variation more and more API producers will be involved horizontally to produce required APIs for consumers.
  • Network value chain – in this variation, all three actors (API producers, consumers and end users) will be participating in both vertically and horizontally. Basically, it creates a network across small value chains.

Business Models for APIs

The API Economy enables organizations to expose their business assets with simple APIs to consumers and this brings lots of innovative ways to use the assets which intern creates more revenues and this is called as API Monetization. When API Monetization is a success, then it will have benefits all parties involved in the Value chain otherwise there is no point in exposing the business assets so API monetization is one of the key elements in API Economy. The monetization model should be selected based on the exposed assets’ value and usage. Broadly, API monetization model classified into four models and those are,

Free – normally this model used to expose the low value assets to try out or marketing purpose. Sometimes high value assets also included in this model. This model helps the organization to market through different channels and devices.

Fee based – this model used when exposed assets are high value to the consumer. The consumer will pay for consumption depends on the pricing model.

Revenue Sharing – in this model organization share the revenue earned through the use of APIs with the consumers, this encourages the consumers to expand their business applications and customer base to bring more revenue to the API producers and consumers.

Indirect – in this model both API producer and consumer mutually benefit. The benefits may not a direct revenue, possibly they can get assets (data through collection) or cost cuttings ,etc.

The following diagram shows the different models of API monetization and sub models.

Wrap up

The API economy creates an evolutionary impact in the way how business applications/products are built and consumed. The highest degree of reusability is an invitation to various business models participate in the API economy. Now, it is time to call for action, “let us participate in the API economy to gain our competitive advance of sustainable business.”

Thanks for reading this article and in this article we have discussed the importance of modern APIs and API economy. It could be an eye-opening article if you’re new to API economy. The objective of this article to showcase importance of API economy and relevant information. I hope you found something use full and in the next article we are going to see about API development pain points and how we can manage well with API management.

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