An Application Programming Interface (API) is a software interface that enables another application to use a specific functionality. For example, flight bookings can be made by a certain software within an application that provides the booking functionality. An API is the digital glue that connects services, applications, and systems. When several applications are combined to form a complete system, the result is an API ecosystem. There must be a common description language for the interfaces and coordination of the overall system for it to work.
Gartner defines the API economy as, “a set of business models and channels based on secure access of functionality and exchange of data. APIs make it easier to integrate and connect people, places, systems, data, things and algorithms, create new user experiences, share data and information, authenticate people and things, enable transactions and algorithms, leverage third-party algorithms, and create new product/services and business models."
In an API economy, partners in an API ecosystem are autonomous companies or organizations, each with its own economic interests. To understand an API economy, it’s necessary to consider the API’s technical aspects, coordination issues, and the economic interests of suppliers and users.
API providers prevail in the long term when their solutions help companies achieve true added value, such as in customer communication. At the same time, an API economy offers API users the chance to better focus on their core competencies, as they don’t have to develop applications that are not part of their core business.
Overall, demand for external expertise is growing as it becomes less worthwhile to build up in-house expertise for API services that can be obtained much faster and cheaper via an API ecosystem – and are often functionally better. These can easily be integrated into one's own IT infrastructure, taking into account legal guidelines and framework conditions.
It is almost mandatory for companies in most industries to adapt to the all-encompassing digitalization of the economy and society. That is reinforced by customers’ and users’ rising expectations, for instance regarding response times and user ease in communication. Today, it’s common practice to authenticate yourself via a personal social media account or use an online payment tool. All of that works because of the intelligent use of APIs.
Technologically, API is not a novelty, but its use has developed in an innovative way in recent years. APIs used to function mainly as programming interfaces between two systems within one company (i.e., the data only moved internally), but now they enable new business models that involve several parties with different interests. There is a change in perspective from an exclusively internal interaction to one with the outside world, meaning involving third-party applications and systems.
Microservices are an architectural and organizational approach to software development, where software consists of small independent services that communicate via carefully defined APIs.
Microservices-based architectures simplify scalability, reduce application development time, enable innovation, and shorten time to market for new features.
Source: Amazon AWS