Innovation

APIs Aren’t Just for Tech

Companies
by Tiffany Xingyu Wang and Matt McLarty

April 13, 2021

Cactus Creative Studio/Stocksy

Summary. APIs are building blocks for digital transformation, but determining
which APIs to develop and what products and solutions they’ll enable requires a
digital mindset. You don’t have to be a tech company to reap the benefits of APIs,
and they would particularly... more

Application programming interfaces — more commonly known

as APIs — are at the heart of the most successful digital
companies, powering everything from Amazon’s cloud business
to Google ads to Facebook likes. APIs enable mobile experiences,
connect companies on the web, and enable platform business
models. The idea of an “API economy,” in which APIs create new
value for companies, is over a decade old, and many established
enterprises correctly view APIs as a key to unlocking their digital
transformations. But it’s not just the digital giants that can benefit
from APIs.

While we’re firmly living in the digital age, companies whose

success predated the web have struggled to adapt to the digital
business paradigm, a fact underlined by the urgent need for
digital transformation brought about by the Covid-19 pandemic.
These companies were designed for pre-web business, and their
leaders’ mental models exist within those structures. To digitally
transform their businesses, leaders need to transform their own
mindsets to lead digital organizations.

Jeff Lawson, CEO and co-founder of Twilio, recently wrote about

the importance of embracing software delivery as a core
competency for every business. This is certainly true, but at the
same time, it won’t be enough for, say, a logistics company to start
shipping code instead of shipping freight. Leaders need to learn
how to build digital solutions, but more importantly, they need to
ensure they’re building the right ones.

Twilio itself presents an interesting case. Born in the wake of

Apple’s iPhone and App Store launches, they struck digital gold
by focusing on a very specific need: App developers’ need to take
advantage of a smartphone’s carrier services like voice, text, and
billing. They’ve since achieved unicorn status, gone public, and
even recently made a $3.2 billion acquisition. The core products
that met this demand and fueled this growth were web APIs.
You don’t have to be a tech company to reap the benefits of APIs
— the opportunity exists in every industry. Some sectors are
being compelled to offer APIs due to regulation (like healthcare
and banking), whereas others are prompted by industry
interoperability (like telecommunications) or disruption (like
retail, media, and entertainment).

A transformation toward APIs would particularly benefit small to

midsize companies that now struggle to reach digital audiences
through saturated and tightly controlled ad networks and
ecommerce markets. APIs would position them to more easily
offer products and services through emerging platforms,
unbundle and re-bundle their core competencies, and offload
non-core competencies to third-party providers (like Lyft’s use of
Google Maps, Stripe, Twilio, and Amazon Web Services).

Any business with a website or mobile app already has much of

what’s needed to offer APIs, but it’s not enough to arbitrarily open
up APIs to the web. Companies that have been most successful
with APIs display common thinking patterns and practices,
something we call the “ways of the API.” Following are three of
the most impactful of these patterns.

The Unbundling Way: Dismantling and Rebuilding

Business Capabilities Through APIs
Jeff Bezos published a corporate edict around 2002 mandating
that from that point forward, all product teams were required to
expose their data and functionality through APIs. Not only that,
he insisted that teams were only allowed to communicate with
each other through these APIs. It was an extreme step intended to
promote team autonomy and product agility. It was a few years
before the mandate took hold, but it created an unprecedented
platform for growth. As a result of the mandate, Amazon
decomposed its internal infrastructure-provisioning services
through web-friendly interfaces and was able to launch what is
now its most profitable business unit: AWS.

Unbundling software functionality into API-accessible business

capabilities is a hallmark of leading digital companies. They then
re-bundle these capabilities to extend their reach or open up new
customer segments. APIs helped Netflix achieve screen ubiquity
and accelerated Uber’s move into food delivery. But non-tech
companies wanting to move at the pace of digital business also
need to follow the “unbundling way of the API.” For example,
when the pandemic hit Australia, New South Wales Health
Pathology was able to stand up testing infrastructure within two
weeks to support hundreds of thousands of tests and
communicate their results thanks in large part to their already
unbundled, API-enabled software services.

The Outside-In Way: Designing and Developing with the

API Consumers in Mind
Stripe entered a crowded payments market in 2010. Identifying
mobile app developers as an underserved customer segment,
Stripe focused on delivering the most useful and usable APIs
possible. It worked. Stripe has close to 20% of the online
payments market share (a number that’s growing), and the
company is valued at over $100 billion. One of the pillars of their
success has been an unwavering commitment to designing their
products outside-in from the consumer’s perspective. In other
words, they put themselves in their consumers’ (in this case, the
developers’) shoes, then created intuitive, efficient interfaces for
developers building apps that use the API, and provided
documentation and tools to support them.
Many fast-growing companies can overload their consumers with
too many product features as they bring new ones to the market.
Stripe has avoided this problem by continually evolving its API
products to streamline the developer experience. This “jobs-to-be-
done” thinking is another important characteristic of how
successful digital companies use APIs. A non-tech company that
applied this approach is Pilot Flying J, a North American truck
stop chain. By digitizing capabilities such as shower reservations,
parking availability, and prepaid fueling through APIs, they
allowed mobile app developers to quickly and conveniently
package these services for their customers — truck drivers. To
build loyalty with the developers who will build the applications
that provide the digital touchpoints for their customers,
companies must follow this “outside-in way of the API.”

The Ecosystem Way: Cultivating a Digital Ecosystem with

APIs
Twilio invented a new business model for the app economy.
Recognizing that app developers would want low-friction services
and global coverage, Twilio became a retailer for the carriers’
wholesale APIs. Where did that recognition come from?

Borrowing another Clayton Christensen concept, Twilio

envisioned the “value network” for mobile applications, the
digital ecosystem within which apps would exist. By looking at
the various stakeholders (app users, app developers, third-party
service providers) and the value exchanges between them, Twilio
identified a gap that could be filled — combining and accelerating
carrier services — to the benefit of all ecosystem members. Twilio
helped put useful services in apps for app users, sped up delivery
time for developers, and drove higher consumption for carrier
services.
Digital innovators use ecosystem thinking to chart strategies for
sustainable growth and use APIs as conduits for value exchange
within the value network. Companies that want to stay adaptable
enough to survive and thrive in the digital economy should
embrace this “ecosystem way of the API.” For example, Airbus
recognized an issue in the aviation industry where critical flight
and operational data was locked away in siloes. Being a supplier
to most airlines and thus having strong relationships across the
ecosystem, Airbus launched an API-enabled data platform called
Skywise to help the airlines reduce maintenance issues and
prevent technical delays.

A Heavy Lift, but Not Necessarily a Costly One

A mental model is one of the hardest things for a leader to change,
but it doesn’t have to be the most expensive. IDC projects that
organizations will spend $6.8 trillion on digital transformation
between 2020 and 2023. Large enterprises funding
transformational programs can align their already budgeted
spending with these new approaches.

Companies in industries where API-related regulations and

standards are being implemented (PSD2 in financial services,
FHIR in healthcare, TM Forum Open APIs in
telecommunications) can use their compliance initiatives to
strategic advantage. Smaller companies, whose customer and
product focus is more specialized, could have an agility advantage
in unbundling their capabilities, designing for their consumers,
and exploiting opportunities in their respective ecosystems. The
beauty of working with digital building blocks is that you don’t
have to demolish the old factory and build a new one.

The best way to get started with APIs and API thinking is to start
small and iterate. Form a small, cross-functional team of business
and technology experts. Use the outside-in way to analyze
customer experiences and identify digital opportunities. Use the
ecosystem way to define target business models and external
dependencies. Finally, use the unbundling way to define the API-
enabled capabilities and infrastructure required to deliver
innovative solutions. Measure, apply learning, and repeat. This
approach can allow the organization to innovate with low risk and
low net cost. The seed investment required would be funding for
the team, plus money for API-specific infrastructure. This could
likely be found in existing digital transformation budgets.
Spending can scale up in alignment with delivered business
value, protecting the organization from making too big of a bet
too soon.

A lot of work is required to naturalize an established company for

the digital economy. But all that work will be in vain if the
thinking doesn’t change first. APIs are building blocks for digital
transformation, but determining which APIs to develop and what
products and solutions they’ll enable requires a digital mindset.
Digital pioneers have created a template for success. Adherent
organizations must pay attention to the how and why in addition
to the what.

Tiffany Xingyu Wang is Chief Strategy Officer

at Spectrum Labs. She is also the Co-Founder
and GM of Oasis Consortium, a nonprofit
working to create governance for our digital
world. She is the host of the Brand Safety
Exchange pod/vodcast, and a reputable speaker
on API business models, digital governance,
and AI for trust & safety.
Matt McLarty is Global Leader of API Strategy
at Mulesoft, a Salesforce company; coauthor of
Microservice Architecture (O’Reilly); and co-
host of the APIs Unplugged podcast.