How ‘APIfication’ Changes the Way Businesses Innovate


Software has become the driving force behind an ongoing digital transformation across industries. Application programming interfaces (APIs) are redefining how those software and IT systems are constructed and delivered.

When software first emerged as a business tool, most enterprises used it to make their existing business processes more efficient. Whether internally developed or purchased, traditional business software systems were standalone software solutions disconnected from each other. Deployment processes were long and involved, and integration among components and systems could involve years of work. Customers seldom saw any of it. Software was basically something the IT department dealt with in the back office. Enter ‘APIfication.’

Today, software is at the forefront of nearly everything we do. We shop, pay, and even bank using software apps on our phones. Technology has become central to most front- and back-office business processes, products, and services. Customer experience has become the focal point of competition. The ability to use software and IT systems to connect and automate business processes across company borders has become key to winning and keeping customers. In essence, software has become the driving force behind an ongoing digital transformation across industries. 

The way in which software and IT systems are built is redefining how businesses innovate and grow–not only in consumer-facing businesses but also in B2B businesses in almost any sector. Application programming interfaces (APIs) are redefining how those software and IT systems are constructed and delivered.

Driving the trend toward increasingly modular, reusable business service building blocks 

An API is a software module specifically designed so that other software can integrate with it via a published interface. An API hides the functional complexities of the underlying service, revealing a simplified interactive model to the user. Using APIs, business services, competencies, and assets can be encapsulated into highly reusable, modular software building blocks, which can be leveraged repeatedly. New functionality can be quickly and easily built on these APIs, enabling new opportunities to be addressed rapidly.

APIs also affect how a company can be organized internally, as development teams using APIs can be small and agile. Organizations can even use APIs to quickly experiment and iterate on their business models. They can more easily figure out what to build internally and what to buy externally. And they can scale their technologies a lot faster. If a development team builds a technology for internal use, they can publish an API for it, enabling it to scale within the company for rapid process adoption. If a purchased solution is modular, built with well-structured and easy-to-use APIs, it can be quickly implemented, adapted, and scaled to meet changing business needs. 

APIs are changing the way software is purchased. In a traditional software purchase model, enterprises go through a long, drawn-out RFI/RFQ/RFP process to document needs and evaluate alternatives, negotiate complex contracts and SLAs, and can end up locked into a single software vendor, often in a dysfunctional relationship. With software components delivered as best-of-breed APIs, developers can read API specs and commentary in places like StackOverflow and GitHub, go through quick trials, proofs-of-concept, and pilot implementations to make sure a solution meets company needs, and only involve the procurement team when usage of a particular system or product gets to the point where a relationship makes sense to both the enterprise and the software vendor.

APIs have been around forever, as have modular software development practices. Still, recent technology advances in areas like cloud computing and SaaS (software as a service), combined with a growing need for agility and rapid innovation to meet fast-moving customer expectations, are giving APIs a new and more powerful role in the way software is developed and delivered. It is easier than ever to build and scale business capabilities, without heavy investment or the need to create economies of scale. Now any company can simply acquire business capabilities through APIs. 

Powering a new wave of disruption 

The internet and the ongoing software revolution have disrupted incumbents across numerous industries. As trends, such as an accelerated focus on software, cloud computing, and more advanced API tools and capabilities come together organizations have been able to build their software in a much more modular way. Lego brick upon Lego brick, with everything integrated together. In addition, the growing demand for APIs is fuelling growth in supply, with an ever-increasing selection of different kinds of Lego bricks being offered by API-first SaaS companies.

On the enterprise side, as more and more business systems and IT platforms are modularized and API-enabled, companies can innovate faster and are able to adapt to changing customer needs more quickly. On the technology side, more tools, processes, and systems for creating and consuming APIs are hitting the market, making it easier than ever to build and use APIs. 

This is particularly true of SaaS companies providing key business capabilities as services. What used to be massive SaaS apps and platforms (ERP, CRM) are evolving into products that offer complex IT and business capabilities as easy-to-use APIs, driving a new wave of business opportunities in a variety of industries. Taking it to the next step, API-first SaaS software – modular software designed specifically for cross-company integration and high-quality customer experiences – promises to enable fully automated machine-to-machine business processes, as well as company-crossing transactions, driving significant changes to business models. 

What are the implications of APIfication?

APIs remove a huge amount of friction, which is an economic factor on both a micro and a macro level. APIs affect how a company can be organized internally. They enable companies to experiment and iterate on their business models faster. They improve team collaboration and minimize the friction that can come from workforce coordination and learning customer needs. They allow corporations to figure out what to build internally and what to buy externally, which is a huge economic factor.

Teams can empower their APIs by utilizing the right metrics and analytics, setting KPIs and measuring things like uptime, responsiveness, and latency. Knowing how often the service has failed, for example, for how long, and understanding what purpose it is currently serving, all contribute to improving the service. APIs also enable companies to scale their technologies a lot faster. If a team builds a great technology for internal use, they can publish an API for that technology, enabling it to scale within the company and achieve rapid process adoption. API driven methods abstract away complexity, increase experimentation and deployment speed. They also accelerate adoption. 

Take Twilio as an example. Twilio was early on advocating the developer as a customer, and it remains the business’s mantra today, 12 years after founding. As CEO and co-Founder Jeff Lawson wrote in Twilio’s annual report in 2019: “We started Twilio with a belief in the power of builders. That no matter what the problem, builders could pick up their tools and solve the world’s problems. In business, in government, in non-profits, and sometimes just for fun, builders see things that need fixing and get to work. That is why all our press releases say, “We can’t wait to see what you build.” That is why our billboard says, “Ask your Developer.”

There are an estimated 18 million developers in the world today. Many of them will likely be working on services and applications for 5G and private LTE in the years to come. Let us, therefore, re-think the role of a developer and treat them as well as we treat our customers. Let’s make APIfication more developer-centric, standardizing the infrastructure we give our developers to code on and make those infrastructures more interchangeable and easier to integrate. Ensuring the emergence of distributed and containerized software and low-code technologies means we have the chance to further accelerate the opportunities for widespread use of APIs, and future software functionalities become more flexible and available, as a result.

We are very excited about the API trend and the key role that developers will have in this mix. I would love anyone who is excited as me to drop me a line on Twitter @ilsoe.

Bo Ilsoe

About Bo Ilsoe

Bo Ilsoe, NGP Capital Partner, has more than 30 years of experience in venture capital and the technology sector. A technologist at heart, he believes in the positive transformative effects technology has on society and always comes with a global view of business. From his current base in Geneva, Switzerland, he has developed NGP Capital from initial commitments of $25M to more than $1B investing in the US, Europe, China, and India. Bo has through his portfolio exits created more than $3.0B in shareholder value during his time as an investor. His current investment interests lie within the enterprise, transport, logistics, and digital health. At present he is overseeing investments in Shippeo, Hysolate, NILT, Scandit, GetYourGuide, Deliveroo, GetAround, and Innovis. He graduated with honors with a Masters in Electronics Engineering from Aalborg University, Denmark.

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