6 industry trends driving the API economy

While terms like “the API economy” have emerged recently, APIs (Application Programming Interfaces) themselves have existed in the software industry for decades. Even longer if you include their predecessors, Web Services. Simply put, APIs enable businesses to communicate with each other programmatically in order to combine their customer value into a single, seamless experience.

What has changed recently is that companies are now starting to view APIs as a critical part of their overall strategy, whereas APIs were previously perceived as a matter of technology solely relevant to IT departments.

This article will cover 6 trends in the software industry that are driving the API economy.

1. The number of developers worldwide is increasing

The total number of developers worldwide is over 24 million and expected to reach 28.7 million people by 2024. (source)

The amount of time developers spend working on APIs is also increasing. According to the Postman 2022 State of the API Report, 51% of respondents say that more than half of their organization’s development effort is spent on APIs, up from 40% in 2020.

The barrier to entry is much lower today. Before you needed a Computer Science degree to be considered for entry-level positions. Now there is a proliferation of coding bootcamps from places like General Assembly, as well as online educational video series aimed at teaching the next generation of developers. Companies like Google, Apple and IBM have officially announced that they no longer require four-year degrees for new candidates. (source)

Despite more and more software engineers entering the job market, we’re still seeing the salary of engineers continue to increase, albeit in localised areas of the world. Salary pressure is causing more tech hubs to emerge around the world, with Bengaluru, India being the fastest growing region.

2. Every company is becoming a technology company

All companies are either intentionally transforming their products and services with technology or are being forced to by their competition. Notable examples include Domino’s and Starbucks.

Domino’s is best known for their pizza. But when they were nearing bankruptcy they managed to turn their fate around by becoming a technology company and went on to become one of the most successful brands globally. In 2011 the then-CEO Patrick Doyle challenged the company to make it possible for any customer to order a pizza while waiting at the traffic lights. The company re-engineering their entire supply chain, online ordering experience and delivery tracking systems. Today customers are more likely to order online via a digital experience than via the phone.

Starbucks is the largest coffee chain in the world, but may also be the biggest banks in the world thanks to their digital rewards card and mobile app. The Starbucks Rewards program allows customers to purchase drinks using preloaded funds stored in their app to earn points which can be redeemed for drinks at some point in the future. Starbucks now has more than $1 billion in stored value on its platform, effectively operating as an interest free loan.

These are two transformative examples, but technology plays a role in every company. Every company has a website. Most retailers have an e-commerce site (arguably all need to nowadays). All interactions with a brand like browsing products, adding items to a shopping cart, checking out, paying, tracking delivery, and obtaining referrals, reviews, feedback are all now digital experiences. We are even seeing the rise of Internet-native retailers like Brosa, which have brick and mortar locations that only operate as showrooms, with all other customer interactions online.

Every company is becoming a technology company, but not all can afford to invest in their own technology teams. Companies will be turning to buy or partner with technology services delivered via APIs to build out their own high-quality digital experiences efficiently while keeping investment in in-house technology teams lean.

3. The rise of the developer-as-buyer persona

As technology forms a larger role in product strategy, developers are no longer confined to service-based IT departments and are migrating into product teams adopting agile methodologies. With this comes much more autonomy in how teams choose to design and build solutions, including what technologies to pick. Developers have increasing influence over purchase decisions. And in some cases they are even the primary decision maker.

According to the Stack Overflow 2022 Developer Survey, “66% of Professional Developers have at least some influence over their organization’s purchases of new technologies.” up from 56% in 2020.

Agile development is characterised by lightweight planning and fast product iteration cycles. Lengthy upfront planning processes are avoided in favour of continuous improvement, which means that API platforms that enable frictionless, rapid onboarding will be favored. Gone are the days where the only way to see an API was to talk to a sales representative. Having documentation that is publicly available is now a necessity during the buying process, so that developers can properly evaluate your product. Even better is to provide the ability for developers to self-serve and start using the API to build prototypes without needing to talk to anyone.

This means that APIs, and specifically API documentation, are now as much a sales and marketing tool as they are an implementation tool. APIs will be successful in this environment if they effectively communicate to developers how the technical components connect to the business value that they provide.

4. Unbundling of services means modern digital experiences are assembled rather than built

There has been a mass unbundling of essential capabilities into individual services – all communicating with each other via APIs. Companies like Stripe, Twilio, Auth0, Okta, WorkOS, Plaid, Algolia and thousands more are all B2B companies that have capitalised on providing essential capabilities to developers, such as payments, messaging, identity and authentication, bank integration and search. The top 10 API-first companies and products are now valued at over $1.56 trillion.

Any successful digital product will provide unique value that is sufficiently differentiated from its competitors, which is supported by capabilities that are essential to the functioning of the product but aren’t unique and don't provide any differentiation. For example, most enterprise applications require single-sign-on integration, find-grained roles and permissions and audit logs. These features aren’t actually what is being sold, but a product that lacks them will not make it past a Chief Information Officer.

Traditionally developers had no choice but to build out all supporting capabilities as well as their differentiated value. Today developers have the benefit to pick and choose from a variety of services, which they can assemble together, allowing them to spend more time focusing on their core business.

This means that developers won’t just be integrating with your API but potentially dozens others, and their expectations are continuously rising. Having customer-centric APIs, a great developer experience and mature community is critical to gain the attention of developers.

5. Cloud-native applications are driving microservice and serverless architectures, connected by APIs

Many companies are on the journey to transform their monolith application into microservices. Whether microservice architecture is intrinsically better than monolith architecture is debatable. Nevertheless, microservices are on the rise.

The proliferation of microservice architecture now means that an application that was self-contained in a single codebase is now composed of multiple services all communicating with each other via APIs.

While many of the problems solved by microservices are technological, an often overlooked aspect is the human one. Often once the number of people working on a product gets to a certain size it becomes difficult to coordinate the actions of multiple different teams when they are working inside a single codebase that gets deployed as a single unit. Microservices enable these teams to retain sole ownership of their respective services and work more autonomously. In this context, APIs provided by each team through their microservice not only facilitate data transfer between microservices, but are also the way product teams communicate with each other within the organisation.

Design APIs to be customer-centric helps ensure that the team structure of your organization accurately mirrors the value your product delivers to your customers.

6. No-code tools are becoming more popular and more sophisticated

Until recently you needed to be a developer in order to consume an API. This is no longer the case. Entire businesses exist to facilitate the integration of multiple APIs together.

Zapier was one of the first companies to do this. Zaper enables anyone to create seamless workflows called Zaps that automate tasks across multiple silos. Every app that connects to the Zapier platform does so via an API that Zapier integrates with. Nowadays there are many more workflow automation platforms. What they have in common is that they are all no-code builders.

While workflow automation platforms allow anyone to stitch together complex workflows, companies like Bubble and Retool allow the so-called citizen developers to build entire data-driven applications without writing any code. These no-code platforms open up the reach of APIs to an entirely new audience. An audience that may not directly integrate with the API, but definitely do care about the capabilities offered by them.

Whether it's workflow automation, or data-driven applications, no-code platforms are all powered by an underlying marketplace of APIs. The difference between the traditional developer and the citizen developer is that only the traditional developer needs to evaluate the API’s technology. However both types of developers want to understand the value provided by the API. Designing APIs not just from a technology perspective but to be customer-centric is critical to reach this citizen developer.

Conclusion

The API landscape is constantly changing and this article hasn’t even touched on new paradigms like web3 or blockchain. The trends driving the API economy act as a flywheel. The larger the API economy becomes, the more these trends become accelerated, which in turn fuels the API economy further.

What is common amongst these trends is that APIs are now strategic. Criteria is a collaborative API design tool for teams building customer-centric APIs. Bring business and technical stakeholders together to design APIs that deliver real impact.