What is the API Economy?
The API Economy can be seen as a digital, automated exchange of business competencies allowing organizations to integrate core services with one another to develop and expand business cases and new markets.
It is a growing economic force in today’s business environment. API’s have been promoted from technology to business model. The concept has outgrown the software development meetings and reached the agenda of business strategy sessions and executive planning.
The API Economy is driven by the connected economy philosophy and by the rapid advancement of technology. From a market perspective, there are many influencers that sustain the “API Big Bang”, but a few stand out probably as key. If “software is eating the world” as Marc Andreessen pointed out, then it needs a plate. Within the next years, I see this plate as a combination between “as a Service” model and the Internet of Everything.
Considering API’s are powering the following markets, the future of integration is linked to the success of:
- the M2M (machine-to-machine) market, which globally is expected to reach 27 billion connections in 2024, with over US$1.6 trillion in revenue
- the Internet of Things, which McKinsey forecasts will account to 20 billion to 30 billion connected devices in 2020
- Software as a Service market. Centaur Partners forecasts that by 2016, Software-as-a-Service revenue. This is important as SaaS products are highly effective in developing and monetizing API’s.
- Fog Computing, the technology that will battle Cloud Computing, will most likely thrive with the rise of the connected/intelligent devices. How, when, who … all questions to yet be answered.
The common factor uniting and connecting the new world is the API. Be it public, restricted, private, secure or not, easy or complex to integrate, API’s are the backbone of the new infrastructure.
How can financial companies leverage APIs?
In our internal discussions and brainstorming sessions, we identified several specific opportunities for monetizing API’s. Two generic ideas are most common: one for direct monetisation and one for enriching the product while reducing the product investment.
One service can expand and be customized for different markets
Create and publish an API for your product. Promote it, maintain it, and this will encourage third party developers / organizations to reuse your code base and expand into own functionality and new markets.
These integrators can create highly customized applications that appeal to user segments that are simply outside your focus or reach. This enables your product to generate revenue from markets that would not otherwise be considered.
Suppose you launched a platform that handles B2C digital invoices for enterprises in North America and Europe. The core offers the creation, delivery and management of invoices. The technical solution is a SaaS platform that is feature focused towards enterprise users: drill down reporting, user management, high volume data per single customers, etc.
Would it make business sense aiming to generate additional revenue in Latin American or Asian markets for P2P credit notes or small loans? Absolutely not.
However your platform does one thing well: tracks, delivers and manages money owed.
If this core platform is offered through an API service, local or global players in adjacent markets could integrate and reuse your code and infrastructure to launch a P2P loan management solution in South America, a B2B invoicing solution for Central America or a mobile service for P2P credit management in Asia.
The benefit is that with every new integration, your computing costs per transaction decrease. Not only will you increase the profitability of your core business, but selling access to your API can create a profitable, automated business engine.
Advanced features and product enhacement
Developing a complex software product can be daunting and the time-frame and associated costs might sometimes be discouraging. We recommend Agile combined with Minimum Viable Product development as an approach. Companies need to focus on the core proposition, and additional features can be quickly implemented reusing services and data through API integration from established services.
Consider a data analysis system for financial transactions. It can be predictive analysis for retail consumer behavior or a transaction analysis and forecast platform for B2B. The technical focus of this solution should be on the data analysis engine and the predictive algorithms. However, in reality between 30% and 50% of the development time will be spent in payment processing, account authorizations or storing / managing payment data.
Instead of implementing a payment processor with analysis capabilities, you can use API’s to systems that already tackled these features, passed accreditation, solved authorization problems and have a good payment processing system and procedures in place. Your company should focus on the core service, and as it scales, you can replace (if needed) the integration with your own code base.
API integration become thus a strategy for speed and cost effectiveness, and allow the organization to synchronize revenue and cost growth.
The road to enable API value in the business
Implementing an API driven approach requires a transformation in the way the organization delivers software. Therefore, managing this transformation process is key to successfully enable APIs.
The prerequisites are simple to pinpoint and harder to implement: being agile, catering for flexibility and thinking scale need to be prioritized and become critical points in both business and development teams.
Product planning includes API consideration
Each line of code, module or new feature should be considered from an API perspective before the development starts, and the business team needs to understand and research the potential of such API enabled features when prioritizing the development backlog.
Development focused on API characteristics
Allowing other players to use internal resources is a new challenge that needs to be added to top of mind for development teams. First the system should have a secure transaction channel (transaction being an exchange of information, and not a financial transaction). Second, each deployment should track usage analytics and cater for optimized performance as the number of connections and requests grow.
API business features / analytics should be in place for direct monetisation
Driving the API business is not a hard game, but needs to be carefully understood and managed. The shift from selling licenses or seats to selling individual, granular transactions may not be as easy as it sounds. Pricing and billing should be embedded in the platform, and so is metering, usage analytics, performance data or authentication provisioning for integration.
The difficult task is creating a product development process, and build up the right distribution / business development channels. Once achieved this will remove barriers for growth and allow the company to implement new revenue channels.
The role of API’s has been acknowledged by large technology companies. A simple example to showcase the importance is the strategic partnerships formed with, or full acquisition of small, API driven companies for driving competitive advantage. Think Intel’s acquisition of Mashery, and API Management Company and Aepona an API monetisation platform, or SAP’s partnership with Apigee, an API management and monetisation company, focused also on predictive analytics that was funded by Accenture among others.
If we were to draw a simple conclusion on API Economy, it is that organizations can reuse, share or monetize core technology assets. In doing so they increase their market advantage and extend business models and reach of services, or reduce development cost. Your API is your new product!
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