In the digital economy, how can you leverage APIs to seize new business opportunities?

By connecting information systems, APIs are the cornerstone of business transactions in today’s increasingly digital economy.

In brief

• APIs are the cornerstone of the digital economy by connecting information systems
• Harnessing the power of APIs allows organization to create more integrated and omnichannel services with their ecosystem of clients, partners, providers and regulators 
• Carefully managing the API lifecycle is a strategic advantage for organizations willing to differentiate themselves in an ever more competitive digital economy

We’re living in an increasingly digital economy, driven by technological advances and growing digital interactions and transactions. As people embrace this new world, they expect a smooth customer experience. This article explores the effort needed behind the scenes to encode information in the digital economy and meet users’ expectations.

To understand more, let’s first take a step back. Our physical economy consists of stakeholders across three main categories: people, private companies and public entities. They are connected by business transactions, whether these are purchasing a product like buying a house, or a phone, or consuming a service like getting lunch delivered, having a medical appointment. In fact, whenever products or services are consumed, these transactions consist in a flow of value between stakeholders. It’s this that connects us all in the physical economy and forms the foundations of a functioning ecosystem.

But what about the digital economy? Stakeholders are not replaced, but represented by information systems. People use web browsers or apps, companies sell goods in their online shops and public entities such as schools or tax departments are increasingly embracing e-portals. Business transactions in the digital economy consist of exchanges of information, i.e., data flows, which represent a transfer of value between stakeholders.

What is the main challenge of business interactions in the digital world?

This is where the parallels end, however.

1. Interfaces

In the physical economy, humans interact and process information with the same standard set of biological interfaces they’ve been using for millennia: the mouth, ears, eyes, nose, hands and feet. Information systems in the digital economy, on the other hand, don’t have a standardized set of interfaces. There is a wide range of heterogeneous communication endpoints and protocols (e.g. SMTP, HTTP, RFC).

2. Communication channels

The way humans and information systems use these interfaces to interact is also different. Humans use voice and physical behavior as communication channels through their biological interfaces, while information systems use data envelopes (e.g. XML, JSON, CSV) through their communication endpoints. And again, for information systems, they are not natively compatible between each other’s.

3. Semantic structures

And what about the data itself? Humans have developed several semantic structures to communicate: languages. And just as humans need to “translate” between languages, information systems also need help to “understand” each other. But unlike humans, information systems do not have a finite list of normalized semantic structures. Even worse, all of them have structured their data according to their specific needs, leading to millions of semantic structures.

After all, the absence of standardized interfaces, protocols, data envelopes, structures and formats, makes any business transaction (i.e. exchange of information) between two stakeholders on different systems complicated and costly. Fortunately, the exploding number and complexity of data exchanges have pushed companies to converge toward common endpoints. API – standing for Application Programming Interface – has become over the years the most used, and de facto the standard interface on the market for information systems to communicate. And through APIs, further standardization is on the way: 65% of APIs use the JSON format and we expect this trend to continue.

What are the business benefits of using APIs?

APIs play a key role in both augmenting traditional business models and enabling completely new, fully digital ones through five main value vectors:

How do businesses harness the full potential of APIs?

1. Defining and executing an APIfication strategy

The first challenge is defining and executing an APIfication strategy. As many systems work together, businesses should prioritize and identify the best return on investment to APIfy their systems.

2. Managing at scale the increasing number of APIs everywhere, inside and outside the enterprise

Next, businesses need to manage at scale the increasing number of APIs everywhere, both inside and outside the enterprise. As the number of APIs grows exponentially, and multiple versions co-exist, it can be difficult to keep an overview, or make changes safely without unintended consequences.

3. Defining an API segmentation strategy and architecture

The third challenge is how to structure and segment the API catalog and corresponding architecture. A good starting point is to distinguish between the three main categories and consider the specific features and requirements of each:

• Internal APIs – non-production environments for internal stakeholders, without exposure to the internet
  Considerations: Restricted access, detailed access management, low to medium utilization and workload
• Ecosystem APIs – for external but trusted stakeholders (partners, providers, clients).
  Considerations: Restricted access, consumption and performance monitoring, potential API monetization and need for strong protection against cyber attacks
• Public APIs – for non-identified external stakeholders (public or private) 
  Considerations: Strong security, resilient to huge work load and utilization.

4. Defining an API organization and governance

A final challenge is how to define the API organization and governance. If not managed properly, you end up with an anarchic mess. There needs to be a common vision and strategy, guiding principles, good documentation, harmonized technology and data formats, and a strong development community and communication culture.  To achieve this, organizations should define the main stakeholders and their roles:

In an ideal setup, an API core team is in place to connect services owners, which produce APIs, to consumers, who use APIs and flag issues. This core team is responsible for ensuring the success of the API strategy by managing all aspects of the API lifecycle.

What’s next?

Like any technology, APIs are constantly evolving and new challenges are already emerging. Companies are increasingly taking advantage of different forms of hosting, with hybrid and multi-cloud solutions adding a whole new layer of complexity to APIs as data is scattered across platforms and hosts. Also, APIs only normalize the interfaces between systems, i.e., they facilitate the exchange of information between interfaces. But what if that information is coded differently? Data mediation in the sense of translation will be essential to ensure that systems not only communicate, but also understand each other.

Finally, APIs have the potential for monetization – but target users are not always aware of the possibilities. A next step could be an API marketplace to showcase and centralize APIs as digital services for sale or subscription, including their documentation, purpose and utilization.