What is an API Economy?

The importance of managing resources in a connected world

A mostly blue graphic showing a laptop and a smartphone with a digital link between the two.

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An Application Programming Interface (API) lets software interact with disparate apps and services across networks and platforms. As more and more developers and companies find uses for APIs, the term “API economy” has started to come to prominence, but what do we mean when we refer to an API economy and why does it matter?

The Definition of an API Economy

Traditionally, APIs were nothing more than a technical fix for incompatible software.

Companies tasked developers with creating the equivalent of digital bridges, allowing information to pass between applications that would otherwise be unable to communicate.

Over time, developers have used APIs to break down complicated software into containers, allowing for better efficiencies within a program. By segmenting code, programmers can strip away extraneous software and offer more direct paths to essential data.

This process has led to other opportunities, including the ability to offer third-party access to specific services and datasets without interfering with critical infrastructure. Because of this, companies can provide a platform for outside developers to build their own apps and services, using APIs to plug into containerized data and features. Managing those connections — both internally and externally — is what we refer to when talking about the API economy.

How the API Economy Works

The rise of smartphones, wearables, and other connected devices has led to the creation of countless apps and services that have seemingly become essential to modern life. 

From checking maps and the weather to booking transport and movie tickets, we’re able to quickly complete a whole host of tasks using a single device. But it’s not the hardware alone that makes this possible — it’s also the apps and their underlying APIs that provide services so seamless we rarely even acknowledge how recent a phenomenon this all is. 

For instance, when using Uber to book a ride, the company will use APIs to pull your geolocation from your smartphone, place you on a map, and charge your credit card. Throughout the whole process, Uber is using data from a variety of other firms to provide its service to you. 

Additionally, the platforms themselves are serving more than just Uber. They'll be responding to any number of API requests from other apps, often providing data at the same time Uber is making its API calls. How efficiently those platforms manage that volume of data matters not just to the company itself, but also to its app customers and their respective users.

Essentially, the success of a company’s API economy depends not only on its ability to respond to all API requests it receives, but to do so promptly without negatively impacting its operations.

The Future of API Economies

While more and more companies are establishing API platforms for app developers, many app companies are also becoming platforms themselves.

An excellent example of this is China-based WeChat, a messaging app that also offers so-called Mini-Programs — third-party services running within the main app itself. For instance, Tesla provides a Mini-Program within We Chat to let users find nearby charging stations, while e-commerce firm JD.com lets customers shop inside WeChat. As with other platforms, these Mini-Programs use APIs to pull in data from those services, but without the user needing to open another app or a web browser.

As more organizations see the benefits of establishing their own platforms, developers will likely find even more uses for APIs and their associated API economies.