The new API economy is fast gaining appeal. According to statistics, cloud computing giant Salesforce generates half of its revenue through the use of APIs, while Expedia is reportedly deriving a staggering 90 percent of revenue from APIs. Understandably, more and more companies from a wide range of industries are seeking to jump on the API bandwagon. But in order to become a successful player within the API economy and open up new sales channels, companies must first of all adopt an entirely new mindset; without this, they will fail before they even set out. Rivo Uibo, Chief Business Officer of Estonian fintech, Modularbank, explains how companies can best prepare for this business model of the future.
A brave new world
APIs are the most important catalysts of our time. Let’s take an example to illustrate why: A large multinational wholesale company has connections to tens of thousands of suppliers as well as hundreds of thousands of B2B customers. As a result, this company has a unique insight into the movement of goods and payment processing.
These insights and data sets are important for the wholesaler, but they can be just as invaluable to other companies too. The wholesaler recognizes this and makes certain information available to external users by using its own APIs. The result for everyone involved is a classic win-win situation.
While other companies can benefit from the extensive information of these datasets and draw value from them for themselves, the wholesale company not only opens up new sources of income, but also create a completely different relevance for itself - even beyond its own market sector.
Other companies that are now following this sort of API strategy include TransferWise, MarketInvoice, Barclays, BBVA, and Solarisbank. A very recent example is the takeover of Plaid by VISA. Plaid offers the best infrastructure and technology to create a seamless connection between fintechs, financial institutions and consumers.
But the large companies that make their resources available in the form of data, services and business processes are not the only ones who can draw added value from the API economy. Start-ups in particular really stand to benefit; by sourcing data sets through third parties, they do not have to work these out themselves. This is a huge advantage for start-ups, since limited time and budgets would prohibit them from sourcing this themselves.
US driver service company Uber is a prime example of the smart usage of APIs. Instead of developing its own solutions for driver/passenger communication, location visualization or payments, which would cost huge sums of money, Uber simply uses a number of existing APIs. Thus, opportunities to create new business models that would otherwise be unimaginable, are unleashed through the use of APIs.
Business case first, technology second
Any company looking to benefit from the API economy, should not start directly with the implementation of technology but should firstly look at their business model and identify exactly where they want to develop new channels. What data does the company already hold? What special processes or skills does it have? And which of their assets could be of significant value to other parties?
Only by taking this methodical approach will companies ensure their strategy for joining the API community will deliver long-term gain and succeed in identifying new sales channels, open up new sources of income and, in turn, shape the future of the business.
Once the business case is clear, businesses can start to tackle implementation. Setting up APIs is a big step for any business. Companies are advised to start out gradually and to build up their APIs steadily and over time. It is also recommended that they do not rely on multiple services, but rather that they source a comprehensive solution that is secure and well-equipped with the testing tools to set up the APIs on the best possible foundations. In order to build trust, new partners should be involved in the implementation process from day one. This is the only way to really achieve growth and incite new and unique applications and value propositions.
Ultimately, the success of any company investing in the API economy depends on how much effort it has to put into making its own resources available to others. Those who take the time to make their data accessible are setting themselves up with a business model for the future.
Getting set for growth
The new API economy offers extensive possibilities. However, gaining added value from these opportunities is not automatic and there are some basic requirements that companies must meet in order to do this.
To make your own data available via a programming interface (or the other way around, to make use of it yourself) requires companies to be genuinely open to new partnerships and to be willing to give up a degree of control.
In the future, companies that stand out from the competition will increasingly be made up of mash-ups of other concepts. They will no longer control every single process within the value chain - only part of it. Traditional companies have to learn to understand that times are changing and that they must evolve to keep up. It is simply no longer possible to operate in isolation and to continue working in the same old ways of the past.
In today’s digital world, which is steadily becoming more complex, businesses can no longer remain in complete control of everything. Equally, they can no longer strive for infinite growth purely from within their own core business.
Understandably, adopting an API mentality may seem unsettling for some, but the API economy is the future. If companies want to seize the opportunities that it has to offer, they need to leave their comfort zones and think outside of the box. The starting point is the recognition that their own data, processes and skills can also be of interest to others. Failure to do this, will deny them of the chance to grow in this new economy. Breaking away from tradition in order to set up new channels and seek out new opportunities is the major hurdle that has to be overcome to succeed.
Rivo Uibo, Chief Business Officer, Modularbank