API economy - the Crash Course

Are you ready to monetize your data or open your sales channel on the public web? Read this article to understand why you should.

API economy - crash course

API Economics is a generic term for a business strategy where the use of Application Programming Interfaces (APIs) positively affects a company's profitability. The idea is to open up a part of a company's business processes, functions or data to third parties.

The goal of a business strategy based on the API economy is multifaceted: Make your own money by opening it up via APIs to the public network and selling it. Enable the emergence of new services by combining one's knowledge with others' open mash-ups Enable new business by opening your subscription channel to the public network.

SalesForce, Amazon, Facebook, Twitter, and Google, among others, have achieved significant economic growth through interfaces. Examples of how to open a subscription channel to an API are for example different taxi and ride companies. For example, the Lähitaksi mobile application Taksini calls the orderTaxi API published in the FRENDS integration platform. The same interface can be opened securely to the public network side according to the OpenApi standard so that the taxi button in the reception desk of office complexes or hotels is just a static call to the public API.

How did you end up with the API economy?

For most companies, business decisions are not yet significantly influenced by the API economy. However, as more and more companies begin to embrace the API economy as part of their business model, critical mass is gaining ground, and at that point, interfaces are almost a must for successful businesses.

Although companies and organizations have been using interfaces for a long time, the API economy has been limited to smaller players because of the huge investment required to publish functional interfaces.

Smaller start-ups tend to adopt an API-centric strategy from the outset. For example, if you are googling start-up companies offering products and services, I can assure you that most of them also provide interfaces where the products and services of those companies can be viewed or used.

The medium and large companies with large investments in their own IT systems can be seen as a brake on the development of the API economy. Such companies have traditionally found it difficult to make the radical changes needed to transition to the API economy, as the changes needed to existing systems and processes can be extremely costly. Fortunately, new technologies such as API management tools and other application tools are becoming more common. They can automate the use of the same interfaces and provide the opportunity for more and more companies to join the API economy.

Why should I?

The economic benefits of an API economy can be roughly divided into three categories:

  • Interface Monetization

  • Creating a new business (eg space taxi service)

  • Developing existing products and services.

Interface Monetization

The monetization of interfaces is based on the idea that a company has data or functions that are of value to others. A good example of this is the huge variety of weather services - accurate weather information when useful for many business processes. Frequently monetization starts with the fact that some data is provided free of charge, and once the consumer is hooked to the service, the charge for the use of the data is slowly starting to be charged. Payment is often based on call volumes or similar pre-agreed metrics, which are then logged and updated automatically by the API publishing platform to the billing program.

Creating a New Business

In the next phase of interface monetization, the actual business processes, services, and products are provided directly through the interfaces to the global market for the API economy. So, in theory, your business could operate in a purely digital world; for example, incoming orders could only be created through interfaces and also delivered through the same interfaces.

The benefit is that your business could be scaled endlessly through other market players who would like to package your company's products and services into value-added entities.

A good real-life example of this is the many services that combine flights and hotel reservations packets and provide them with the sale on the website of a third party. Do a Google search for "cheap flights and hotels," so you understand what I mean. Then, imagine that your company could sell any product and service in the same way through interfaces to millions of other companies who would be eager to sell it for you while creating more value for themselves.

Developing existing products and services

You may also be operating on the other side of the table in the API economy, the consumer of interfaces. In this case, you will not sell your existing products and services directly, but you can increase their value and attractiveness by packing them with other products and services through the API economy.

A good example of this is all the physical product delivery networks that have emerged with the growth of e-commerce. When you choose an online shipping method for your ordered product, you also order shipping through the shipping company API.

How is this different from the current situation?

At this point, it becomes really interesting. There have been undoubtedly similar synergies in the digital market for some time now, but the API economy needs a new way of thinking: instead of developing synergies yourself and deploying technical capacity afterward, in the API economy you should instead standardize everything and offer it to the world as it is.

So you don't have to think about the best way to grow your business, but leave it to the market. This way, new and unexpected innovations will emerge like magic, and your business can expand into areas you didn't previously think possible.

Developers and third-party application developers are your company's most important resource - if they find your interfaces difficult to use or find, you have lost your potential in the API economy market even before you get started. A successful company will, therefore, ensure that its interfaces are:

  • Easily discoverable

  • Easy to use

  • Well documented

One of the pioneers in the industry is Twitter, whose interfaces are often cited as the basis for the global development of API technology. It is supported by a variety of technologies, such as global service reserves, where you can offer your interfaces, and tools to create developer portals to use your interfaces.

Where does this lead?

The key conclusion is that the sooner you acquire enough capacity to join the API economy, the better. In this case, the first players will reap the biggest benefits: whatever service you provide through API or any information, these markets are currently being heavily shared. At the same time, it's a good idea to position your company's interfaces as products, not just technical tools to grow your business.

Asmo Urpilainen
Director of Product Development, Frends

Director of Product Development, FRENDS


About this project

Antti Toivanen
Frends integrationsantti.toivanen@hiq.fi+358 40 715 1935