The API economy, the phenomenon of APIs contributing significant business value, isn’t new – it’s been around for well over a decade, and the phrase itself has been trending since at least 2016. The API economy is always evolving, expanding into an ever-growing range of industries and functions. What worked in the past for a successful API program may not work as well today.
If you’re already building APIs or you plan to soon, you should pay close attention to API economy trends over time. APIs can be an investment in growth, but not all investments pay off. To grow sustainably, study trends in the API economy so you can build for the ever-changing landscape.
API Economy Trends
We’re seeing some promising trends in the current API economy. These trends encompass API growth, investments in APIs, API business models, and the use of AI.
API Growth
Tech companies and tech professionals face a great deal of uncertainty these days. This year, we saw the tech sector go through massive layoffs and a banking crisis kick-started by Silicon Valley Bank. Despite the uncertainty in the tech industry, the API economy continues to grow. Rapid’s 2022 State of APIs Report says that:
- 70% of survey respondents expect to use more APIs in 2023 than the previous year.
- 40% of the largest companies — those with 10,000+ employees — have more than 250 internal APIs.
- 49% of developers work on partner-facing APIs (up from 44% in 2021), and 54% work on third-party APIs (up from 49% in 2021).
Many industries and time-worn businesses have struggled to adapt to the extraordinary pace of change in the global economy recently. The good news for API companies is that design-first APIs are built to handle change, and flexible, lightweight, purpose-built products will hold their value. No matter what happens in tech, you can count on the API economy pushing forward.
Investments in APIs
We’ve heard talk of a recession for quite a while now, and recently the stocks of FAANG companies — Facebook (now Meta), Amazon, Apple, Netflix, and Google (now Alphabet) — took a pretty big hit. However, companies across tech continue to invest in APIs.
- According to Cleo’s 2023 Global Supply Chain Executive Report, 49% of senior executives who responded said making proactive investments in integration technology increased their company’s agility, allowing them to gain $1 million or more additional revenue in 2022.
- Postman’s 2023 State of the API Report states that 92% of respondents say investments in APIs will rise or remain the same over the next 12 months. Last year that figure was 89%.
Companies continue to invest in APIs for many reasons. One reason is to integrate siloed applications. Organizations today use more than 1,000 applications on average, but 70% remain disconnected from each other, creating costly and time-consuming data silos. APIs enable companies to connect these applications, making them a worthwhile investment.
Another major driver for API investment is the ability to customize tools and data. Companies are increasingly aware that differentiation is essential – not merely a “nice to have” – and APIs are a cost-effective way to make that possible. This thinking extends to other business levels: strategy and product, with the idea of a composable business model; operations, as monoliths give way to microservices; and even in marketing, with increasing demand for personalization. All of these customizations rely on APIs.
API Businesses Models
Before you choose a business model for your API, you need to answer some questions first, such as:
- What is my business?
- Who is this API for?
- Why do they need this API?
- How could they use this API?
- What data should we open up?
These questions will help you understand which business model best suits your API. They will also help you understand how best to monetize your API. There are two main types of monetization for an API, direct and indirect. How you monetize depends on how consumers use it.
In 2013, John Musser gave a presentation where he went over 20 API business models that developers can use to earn money from their APIs (see the below graphic from that):
The base models — developer pays, developer gets paid, and indirect —still exist today in various forms. Plus, companies now have nearly 40 API business models to choose from.
- MuleSoft’s 2023 Connectivity Benchmark Report states that 38% of organizations’ revenue-generating digital assets use APIs. That figure was 35% 12 months ago.
- 65% of Postman survey respondents said their APIs generate revenue, and 43% of those respondents said their APIs generate more than 25% of the business’s total revenue.
We expect API monetization efforts to continue to rise as companies discover more modern business models for their APIs.
AI and APIs
Developers are increasingly using AI, like large language models (LLMs), to improve the creation and maintenance of websites, applications, and APIs.
- A recent joint survey by GitHub and Wakefield Research found that 92% of US-based developers working at large companies already use AI coding tools for work and projects outside of work.
- 70% of developers say AI coding tools will give them an advantage at work, citing some of the top expected benefits, which include better code quality and completion time, per the joint survey.
- The GitHub and Wakefield Research report also states that 81% of developers surveyed say AI coding tools will help increase collaboration among their teams and organizations.
AI allows companies to automate and streamline parts of their workflows. It has the potential to fundamentally change how companies build products and operate their businesses. AI will remain a topic of conversation for a long time to come, with companies worldwide deciding on how and where to use it. APIs will undoubtedly be part of the delivery mechanism, though, putting a premium on your team’s API expertise now and in the future.
Driving Business Growth with APIs
So why is the API economy still growing while other areas of the tech industry face cutbacks? Why are so many companies still investing in APIs, embracing new and existing API business models, and using AI for APIs despite tech industry cutbacks and uncertainty?
Because APIs help drive business growth. They enable adaptability, composable business models, and future-proof investments. Are you using APIs in all the ways that can drive business growth?
Smart, informed API investments will set you up to overcome industry uncertainty, better grow your business, boost profitability, and take advantage of new technology like AI.
Overcome Uncertainty with Flexible API Products
When you provide flexible API products that solve specific customer problems, you can better overcome adverse economic circumstances and uncertainty in the market. Flexibility comes in many forms. For example, you could offer an API product that offers flexibility in the types of features or data it provides.
How do you design and build flexible API products?
You start by embracing an API-first approach. This means that your organization treats APIs with the utmost importance and understands that APIs are critical business assets necessary to the operation of your organization. You design products around APIs from the ground up instead of building products and adding APIs to them later.
An API-first approach involves designing every API around a contract written in an API description language such as OpenAPI. Starting with an API contract allows you to better plan the design of your API and get feedback from stakeholders early in the design process.
Moving to an API-first approach requires company-wide buy-in — a difficult thing to achieve as not everyone at your organization may understand the value APIs can bring to the business. You need to educate company leaders on the ultimate value of this approach and get them to understand the company-wide commitment needed to go API-first.
Getting everyone on the same page about APIs is a great challenge, but one that is well worthwhile for your organization.
Set Smart Goals for Smart Growth
In urban planning, smart growth means sustainable development and strategic investment in places people want to live – could we apply that concept to the API economy?
The short answer — yes.
No doubt you can think of a nearly unlimited number of ways to spend time and money on your API programs. After all, every vendor and stakeholder has their own list of small and large things they’d like to see or ideas they’d like to try. Recognize that it’s impossible to do everything, and acknowledge that opportunities in the API economy can be fleeting. So how can you guarantee that you optimize your limited time and resources by making wise investments?
It’s practically a Stoplight mantra: treat your API as a product, and set goals that enhance the value of that product.
You can make your API product developers want to use with SMART goals:
- Specific: Set a narrow target related to a core aspect of your API’s developer experience or product value.
- Measurable: Shape your goal around metrics that will let you track your progress.
- Achievable: Make sure you have the human and monetary resources needed to achieve your goals. Spend the resources you have on work you can successfully complete.
- Relevant: Share the goals and metrics with other stakeholders to ensure you’re investing in work that will have value to others.
- Timely: Set a realistic end date for when the goal should be achieved. The API economy is always evolving, and you don’t want to be working on yesterday’s trends!
Metrics matter – they keep you accountable and help you articulate the economic value of your API programs. You might have a Platform Ops team who handles the infrastructure, and the metrics for this team would include uptime, memory usage, and CPU usage. You may also have an applications team, and the metrics relevant to them would include Requests per Minute (RPM), average and max latency, and errors per minute.
When it comes to APIs, there are at least 13 metrics platform teams should track. You can collaborate with stakeholders in other verticals like finance, marketing, or customer success to help develop additional goals and metrics that reflect the unique business value of your API programs.
SMART is flexible — you can assign different meanings to each of the letters to suit your needs. Every company building API products will have different goals, but the point of SMART goals is to keep focused on improvements to the features and factors that matter most to your stakeholders. The sustained growth of the API economy is the result of how nimble APIs have proven to be, and there is less room than ever for waste. Setting — and achieving — the right goals will help you rise to the top of the API marketplace, growing smarter and making your APIs products people want to use.
Monetize API Products with A Modern Business Model
Choosing an API business model is a lengthy and complicated topic, more than we can explain in this blog article. However, in 2020, ProgrammableWeb published a comprehensive guide to API Business Models, which is currently available on the MuleSoft website and referenced in the image below.
The guide covers internal, external, and outlier APIs. It breaks down external APIs into four main business models:
- Partner: APIs for selected partners or partner integrations.
- Standardization: APIs that aim to implement standardization due to factors like regulatory requirements or government influence.
- Productized: APIs that are products and monetized directly, enabling a reliable revenue stream for the provider.
- Marketing: Some companies create API programs solely for marketing efforts. These models generate revenue indirectly.
These main business models have sub-groupings for additional models and monetization methods. For example, the productized business model includes the sub-grouping “coin-operated,” which has fourteen monetization attributes for pricing an API. These attributes include volume-based, pay-as-you-go, and per-request.
You might also consider usage-based or subscription-based billing for your APIs. Usage-based or consumption-based billing means that you charge consumers based on how much of the product or service they use. Subscription-based billing usually involves a free trial followed by the choice to subscribe and pay monthly, quarterly, or annually.
A modern approach to monetizing your APIs will help your business generate more revenue, as well as help your company succeed despite adverse economic and industry conditions.
Incorporate AI Into API Development
AI, especially LLMs, can help you improve API programs dramatically. Nearly every aspect of API design and development can benefit from AI models. For example, you could use LLMs for a wide range of tasks, such as:
- Generate SDKs in different programming languages so developers can easily integrate your API.
- Automatically create or update API documentation based on the source code and comments.
- Analyze API usage patterns and developer feedback, identifying areas where you could improve the API design.
- Analyze API code to identify potential errors, inconsistencies, or areas for improvement.
To succeed in the API economy, you need to leverage modern tools, and your toolbox should include AI. Explore the potential of AI and see what it can accomplish for you. Discover how AI can enhance your APIs and enable you to create AI APIs for your applications.
An Exciting Time for APIs
Today we have countless innovative tools at our disposal to design and build better APIs. We have AI models like LLMs and collaborative API design tools such as Stoplight. So, no matter what happens in the tech industry — good or bad — you can leverage these tools to create high-quality APIs that pave the way for achieving business success.
Want to learn more about the Stoplight platform? Check out our interactive demo!
