APIs being represented by green ropes linked by silver balls

What is API economy?

The API economy refers to the benefits APIs provide towards the profitability of companies. Instead of viewing APIs simply as technology, companies can reap immense gains by anchoring their digital strategies and business models around them.
Inspr team
2021/12/05 • 6 min read

What is an API?

Imagine if you lived in the 17th century, in a lovely city by the river. Your best friend lives in another town that is 10 miles away. One day you decide you want to bake a special cake. The only problem is your best friend has the secret recipe you need. So, you send a horse rider who carries your urgent request to the friend. The horse rider races off, delivers your request to the friend, and then gallops back and delivers the recipe to you. Everyone is happy.

In this scenario, the horse rider would be the API.

Why Do You Need An API?

APIs are crucial because they work as the middlemen. They make it easier for developers to build interactions between different applications. More importantly, they allow for flexible development without necessarily tinkering with the source code of each application. In many ways, they’re just like LEGO blocks. Except instead of creating colorful houses, APIs help simplify the process of building applications. And just like LEGO blocks, APIs offer some degree of flexibility. Users can mix and match multiple APIs to achieve different end goals.

Consider this. PayPal offers an API for managing payments, Twilio provides a messaging API, and Google Maps supports web-mapping applications. You have three completely different components.

Nevertheless, if you want to build a ride-sharing app, you could use the PayPal API for payments and Google Maps for navigation. You could also integrate the Twilio WhatsApp API for notifications and messages. None of this would require tinkering. You won’t need to alter the code for PayPal, Google Map, or Twilio. You simply plug the separate software components into your application, and they’d share the data you need.

That is just one example. APIs work in countless other ways across different industries, such as:

  • Streaming platforms like Netflix use APIs to share content
  • Financial companies use private APIS to manage and track accounts and credit cards
  • Retail companies use APIs to track packages across a courier network
  • Car companies use APIs for software updates

The API Economy

The API economy refers to the benefits APIs provide towards the profitability of companies. Instead of viewing APIs simply as technology, companies can reap immense gains by anchoring their digital strategies and business models around them.

By leveraging the scalability offered by APIs, companies and organizations worldwide can adapt faster to growth while creating new business channels and achieving more effective solutions. Businesses can transform their platforms into digital solutions that other partners can build on. This advantage extends beyond non-software companies.

Correctly applied, APIs can empower companies by providing greater agility to their business structure, whether it is creating an API as a product or leveraging APIs for business solutions. Its emergence also allows for near-seamless scalability, maintenance, and upgrades.

APIs aren’t exactly new. They’ve been in existence for decades. However, advancements in cloud computing combined with blistering data speeds have transformed APIs into a significant force within corporate circles and the economy. APIs are now a key component in many business valuations and acquisitions. For instance, in 2014, Facebook made waves when it purchased WhatsApp in a record-breaking $16 billion deal, and in 2021, Salesforce announced the acquisition of Slack, a business communication platform, in a massive $27.7 billion deal.

The Benefits of the API Economy

  1. Equalizes the Business Field:
    APIs make it easier for small- and medium-sized businesses to adopt emerging tech solutions without investing a fortune. For instance, small business owners can create robust monetized eCommerce stores using Shopify API, and software developers can adapt robust solutions without developing their code. APIs also make it easier for non-tech businesses to take advantage of digital tools that can help improve their business.

  2. Ensures Technological Flexibility and Continuous Improvement:
    Most APIs rarely remain the same. As more companies leverage a solution, API providers get to enjoy a steady stream of feedback from shareholders and customers. This in turn leads to more customizations and customers designed to improve the user experience. All of which results in improved software architecture and a solution that adds greater value to the product.

  3. Improves Competitive Strength:
    Companies that leverage API solutions gain an invaluable advantage over their competition. Using APIs to improve their business solutions makes it easier for businesses to deliver customer-friendly applications.

  4. Allows for Faster Upgrades and Product Delivery:
    Yet another benefit of the API economy is the speed it offers. Instead of building every unit from scratch, companies can cut down on time spent on development. Think of the ride-sharing example above. Consider the amount of time and resource a company would ordinarily need to invest without an API. An API allows for faster results. More importantly, it provides companies with more time to focus on other vital issues—such as looking for ways of boosting revenue.

The Challenges of the API Economy

Although the emergence of the APIs economy has accelerated global digital transformation, its adoption isn't without a few challenges.


One of the advantages of the API economy is that businesses get to choose and pick between multiple competing API solutions within the same sectors. However, sometimes an API can become so popular that it grows to monopolize its sector, stifling the competition and limiting the options available to business. Monopolies may also lead to API providers becoming less innovative because they dominate their field.

Security Risk of Data Theft or Abuse

The steady flow of data in an API economy also means that companies are vulnerable to possible data theft or abuse. In 2016, Cambridge Analytica was caught in a data hijack scandal when a whistleblower revealed the company had illegally harvested data sourced from over 85 million Facebook accounts to tilt the tide in its election campaign. Cases like this hammer home the importance of data security. Poorly protected APIs may leave companies exposed to man-in-the-middle attacks—a situation where a malicious actor steals information passing between two parties. Other possible vulnerabilities include SQL injections, XSS attacks, RBAC privilege escalations, CSRF attacks, and distributed denial-of-service (DDoS) attacks.

Closing Thoughts

The API economy isn't a buzzword. It’s the future. As more companies make the transition to hybrid work-from-home models and more businesses make the shift to digital applications, the world will become increasingly interconnected. 2010 marked the dawn of the age of the consumer. According to GSMA real-time intelligence data, in 2021, nearly 7 out of 10 persons owned a mobile phone. 8 out of every household in developed countries owned a personal computer. By positioning themselves as value API providers or leveraging APIs to add new dynamism to their structure, companies can ensure that they maintain their edge over the competition while driving their profitability and growth.