The API Economy
API Monetization
An API (Application Programming Interface) is a set of definitions and protocols for building and integrating application software. APIs provide opportunities for innovation, by facilitating the design of new tools and products. In other words, APIs are the mechanism that make digital assets (functionality, data, access to certain product inventories, user bases, etc) available to developers.
But APIs are not just system integrators, they are valuable products that can be monetized giving birth to the API Economy.
The API Economy value chain has three participants:
- API Provider - In charge of choosing which digital assets are available as APIS
- API Consumer - Also known as a developer or third party provider, uses the API under certain terms and conditions
- End User/Customer - Benefit from the API usage through an application
While APIs can create opportunities for new revenue streams for existing companies, API first companies such as Twilio and Contenful have built businesses entirely around the usage of their services via APIs. In this new API Economy, the largest companies are the ones that aggregate the most data smartly. Salesforce generates 50% of its revenues via APIs and in the
case of Expedia5 the percentage goes up to 90%. The number of public APIs6 have increased
exponentially in recent years. IBM Institute for Business Value Analysis estimated that 1 million APIs will be used by the end of 2020 up from about 20,000 at the end of 2015.
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For a successful API monetization all three parties must benefit from the use of the exposed API. The relationship is symbiotic; all participating parties generate value in a dynamic environment.