What is an API Economy?

API economy
What is an API Economy?

For those unfamiliar with the term, API Economy (also known as API-driven economy) simply refers to the exchange of value between consumers and providers through APIs. 

API Economy examples

Take Uber, for example. This simple mobile app disrupted the entire transportation industry by combining public APIs with their proprietary processes. This ride-sharing company started by consuming the API of Google Maps without having to build its own mapping system.

Another example is McDonald’s partnering with Uber Eats to get food delivered to hungry customers without deploying its own delivery services. Or Twilio, a platform that now runs the telecommunications infrastructure for major corporations. All this is possible due to APIs. This exchange of value is what makes up the API Economy. It’s about how companies can work together to create more value than either of them could independently.

Benefits

The API Economy has enabled organizations to transform new ways to create value and extend their services and the results. Successful organizations that participate in the API Economy gain many benefits:

  • Improved customer experience
  • Continuous innovation
  • Increased efficiency: Participants in the API Economy focus on making their digital assets readily accessible. This makes it easier for all participants to develop unique products, services and functionality quickly and with less cost.
  • Fast delivery: having open, modern industry-accepted development tools means it’s faster to build and bring products to market and to realize new opportunities for revenue more quickly.

Risks

As with any remarkable idea, the API Economy also comes with a few downsides:

  • Data breach: One of the consequences of the explosion in the adoption of APIs is that they attract more attention to data misuse and abuse by criminals wishing to take advantage of weak API security Without strong security in place, criminals can easily gather data using public APIs and use it in ways the businesses had not originally imagined would be possible.
  • Data hostage: Another potential downside of the API Economy is the power held by “aggregator” firms. Once they aggregate a critical mass of global digital users, such firms are in a position to dictate the terms of data access and API usage, which can confine businesses whose apps depend on these APIs for one function or another.

Discover how LUXHUB is connecting banks to the API economy.

Closing thoughts

The beauty of the API Economy is that it is not only for tech companies. By extending this data-sharing structure to non-software companies, it unlocks a lot of possibilities of how business can be built and operated. Every company is becoming a software company and extending the API Economy into various industries.

Learn more about an API Management strategy supports digital transformation.

What are your thoughts on the API Economy?

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