API-First Companies are Entering Their Renaissance

APIs have changed how companies go to market and accelerated innovation by connecting the dots between capability and the software to support it. API-first companies have rapidly become an integral part of our lives in one way or another. Let’s explore what this shift from SaaS means and what companies might expect.

The first API is widely attributed to Salesforce with its web-based automation tool that launched in February of 2000. APIs developed and expanded alongside the web as companies realized the efficacy of delivering a suite of tools through APIs. Software began modeling real-world tasks and providing more active service to humans, so it makes sense that APIs would grow as well.

That was the world of Web 1.0 and Web 2.0. We’re now entering the Web 3.0 era where distributed systems rule, seamless experiences make all the difference, and machines and humans integrate with IoT, artificial intelligence, and machine learning. APIs are a critical piece of this movement, alongside cloud migration, and help bridge the gap between what a company offers and what a company can do.

See also: Are Industry-Specific APIs the New Norm?

What is an API-first company?

According to GGV Capital, an API-first company delivers its main value proposition through an API or is built to use APIs for data transference. API-led companies raised over $5 billion in funding in 2021, and a significant portion resides in FinTech. This makes sense as FinTech reinvents itself post-pandemic to attract newer, younger customers and offer flexible services that customers demand. However, companies from other industries are catching up because of the benefits APIs offer to nearly every business model.

An API enables two pieces of software to communicate, something that companies can’t always replicate or develop on their own. An API-first company enables a specific action or automation to facilitate business value, whether customer-facing or internal. The company uses this to move a deployment forward, and an action is born.

API-first companies are born for the cloud

As more companies migrate to the cloud and become more distributed, APIs enable disparate services to talk to each other. Suddenly, companies can adopt a nimble approach to development without in-house teams. It enables innovation by facilitating a company’s primary value-prop by taking care of other tasks.

For example, API-first company Stripe enables new businesses to process online payments quickly and effectively. Big companies might be able to build a payment engine in-house, but smaller startups don’t have the same capability. Stripe steps in and builds a bridge between the consumer and the company through an API.

That doesn’t mean big companies wouldn’t look at Stripe. When upgrading a legacy payment system, they might decide to engage with Stripe, saving time and money. The big company can reallocate resources to other value-producing activities.

Companies need APIs to connect services and abstract complexity. More startups have recognized the swift value of offering an API as their primary tool, and the ecosystem is flourishing.

The primary benefits APIs bring

APIs enable value, but how? All tangential and related benefits created by an API-first company can be traced back to two very fundamental ideas:

• They reduce or eliminate a complexity that stands in the way of an essential business operation: Solving a critical problem for companies means allowing them to move forward. There’s no longer a bottleneck or an obstacle in the way. For example, Plaid eliminated an onerous and outdated way to connect with fragmented banking data.

• They facilitate a transformation that encourages new types of business: Without Plaid, companies like Acorns or even Venmo might not exist. Consumers can now connect more easily with banks, and an entirely new generation of FinTech and financial service companies exist. This type of API-first company has applications for many companies and their challenges.

API-first companies also understand the importance of documentation and support. This fosters collaboration with developers working within the API and enables onboarding. In fact, documentation is so critical that many of these companies, including Plaid, actively focus efforts on ensuring an open documentation process.

What’s driving the API-first market?

Web 3.0, cloud migration, and changes wrought by the global disruption of COVID-19 are driving this market. Here are a few specific ones:

• Digital transformation: Of course, companies will restructure to make the most of exploding data, make lofty customer personalization goals, and push for predictive rather than reactive analytics. APIs reduce overwhelm. They bridge gaps in a company’s tech talent and ability. They also help companies reorient daily tasks back to what the company actually offers instead of pouring resources into an in-house solution.

• Customer experience practices: Speaking of personalization, customer experience is now at the forefront of company value. This drive to eliminate friction and personalize each interaction from start to finish utilizes APIs to help software communicate. It’s a critical component.

• The drive to share data: Companies are quickly realizing that data silos—including those created by third and fourth-party data—are preventing real insights into customer behavior, market trends, and predictions. APIs provide ways for multiple apps, tools, and systems to communicate even outside the company’s internal networks. The connected ecosystem drives actionable insights, and companies that access them will survive.

• Reduced costs and usage-based pricing: Where SaaS often leads to multi-year contracts based on a set number of seats, APIs typically have usage-based pricing. This model makes it easier for companies to scale and control investment costs. They often have a shorter onboarding process and fewer months spent in the sales cycle to get to deployment.

A trend that is here to stay

The next generation of API-first companies will utilize these communication tools to integrate systems, offer unprecedented data sharing, and create valuable customer experiences. Thanks to the rise of API-first, we’re seeing new industries pop up and innovations that improve our lives. The field will continue to grow, causing a significant shift with impacts that reverberate for years after.