How APIs Became the Building Blocks for Software

APIs have been around for decades, but it’s only in recent years that we’ve seen the API economy come full circle. To understand the important roles APIs play today, it is important to understand their history and the context in which they originated.

The early days

In the 1970s, companies like IBM dominated the relatively small market by developing and selling mainframe computers. They created and sold complete systems – fully integrated hardware and software. However, as the market grew, more companies specializing in making operating systems emerged, apart from those developing the hardware. Thus, the market split into operating system companies and hardware companies.

With the maturing of operating systems and market expansion, new companies emerged that developed applications for these operating systems. The market was large enough to support independent software vendors creating specialized applications. This era led to the creation of many applications that we still use today, and turned application development into a profitable business.

As you can see, a pattern is clearly emerging. As the market gets bigger, the unit of product gets smaller. Where once companies made complete computers with hardware and software, companies continued to develop just the software and later only small parts of that software – individual applications.

APIs now, in a mature market

Now APIs are emerging as a new smaller unit of product. The market has reached such a size that there are companies focused on creating and selling APIs that support applications. Billion dollar companies have filled niches in software development by creating APIs for specialized tasks, such as payment processing, messaging or authentication. This phenomenon is not unique to the software industry. As industries grow, demand increases and more specialized suppliers can be supported. Consider, for example, the car industry.

Car companies initially created every car part from scratch and carried out every part of the manufacturing process. As the industry matured, other companies were established to manufacture specific parts such as windshields, tires or paint. Today there is a complete supply chain for the automotive industry. Car manufacturers primarily pool all the parts and can invest more resources in design and innovation now that a third party supplies the parts. This reflects the trend we see with software and APIs.

Why APIs, and why now?

APIs have been around in one form or another for decades – so why is this transformation happening now? As the demand for applications grows and developers’ resources are limited, APIs enable companies to bridge the developer gap by using APIs as building blocks to speed up and simplify the software development process. Alternatively, resources once devoted to creating basic functionality can now be spent on other initiatives. This shift to APIs enables software companies to be incredibly agile and enables rapid innovation and iteration.

The introduction of technologies such as service mesh, dockerization, and serverless – in addition to new API standards such as GraphQL, gRPC and AsyncAPIs (Kafka) – is also contributing to the way APIs are used and managed. In fact, the RapidAPI State of APIs survey found that the types of APIs companies use continue to diversify. REST APIs are the most common, with nearly 60% of developers using REST in production. Newer types of APIs are emerging, with the use of GraphQL tripling in the last three years and the use of asynchronous APIs quadrupling.

APIs are critical for all businesses (not just technology companies)

Most of our discussion focused on how tech companies create and use APIs. However, as the API economy evolves, APIs have become critical for businesses across all industries to accelerate their business, streamline processes, and deliver a better overall customer experience.

For example, consider how APIs have become essential for the insurance industry to unlock new revenue streams. Modern customers expect services to be integrated into their existing buying flows. For example, imagine how a property management company could use an insurance company’s APIs to purchase rental insurance when a new resident rents an apartment.

By integrating an insurance API into the existing rental stream, residents can customize the details of their insurance plan without ever leaving the property management website or tenant portal. Behind the scenes, an insurance company’s partner API ecosystem drives this process and enables this revenue stream.

The insurance industry isn’t the only industry turning to APIs to expand its business offerings. Retail brands also rely on it to enable the seamless digital and personalized experiences that modern consumers demand. The shift to e-commerce has been remarkable and has been further exacerbated by the COVID-19 pandemic. In addition, consumers expect digital communication with companies, including chatbots, emails and even text messages. These channels allow businesses to provide quick updates about a customer’s order and resolve any issues.

The Future of APIs

More than 20 years have passed since the development of modern web APIs. Since then, the API economy has evolved and matured at an astonishing pace. Businesses and developers are managing increasing amounts of APIs. We’ve also seen new partnerships and business models unlocked through APIs.

This massive growth of the API economy is expected to accelerate through 2022 and beyond. The API health survey found that 68.5% of developers expect to rely more on APIs in 2022 than in 2021. Another 22.1% expect to rely on APIs about the same. Only 3.8% expect to use them less and the other 5.6% are unsure.

To manage the growing complexity and number of APIs, companies across all industries are looking to next-generation API hubs. An API hub makes it possible to grant access and enables sharing between teams and organizations. This type of platform is also critical for creating, maintaining, and adopting partner APIs. As these partnerships grow in popularity, we expect more organizations to turn to API hubs to solve the challenges of the next era of APIs.

Iddo Ginno is CEO and Founder of RapidAPI†