How APIs became the building blocks for software

APIs have been around for decades, but it’s only in the last few years that we have seen the API economy arrive in full force. To understand the significant roles APIs play today, it’s important to understand their history and the context in which they have 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 entire systems — fully integrated hardware and software. As the market grew, however, more companies popped up that specialized in creating operating systems — separate from the companies developing the hardware. Thus the market bifurcated to operating system companies and hardware companies. 

With the maturation of operating systems and market expansion, new companies popped up developing applications for these operating systems. The market was large enough to support independent software vendors that created specialized applications. This era led to the creation of many applications that we still use today, and made application development a profitable business.

As you can see — a pattern clearly emerges. As the market expands — the product unit gets smaller. Where once companies created entire computers with hardware and software, companies proceeded to develop just the software and later just small parts of that software — individual applications.

APIs now, in a mature market

Now, APIs are emerging as a new smaller product unit. The market has reached a vast enough scale that there are companies focusing on creating and selling APIs that support applications. Billion-dollar companies have filled niches in software development by creating APIs to handle specialized tasks, like payment processing, messaging or authentication. This phenomenon is not unique to the software industry. As industries grow, demand expands and can support more specialized vendors. For instance, consider the car industry.

Car companies initially created every car component from scratch and ran every part of the manufacturing process. As the industry matured, other companies formed to produce specific pieces like windshields, tires or paint. Today, a complete supply chain exists for the automotive industry. Car manufacturers are primarily just putting all of the pieces together and can invest more resources into design and innovation now that a third party provides the parts. This mirrors the trend we are seeing with software and APIs. 

Why APIs, and why now?

APIs have been around in some form or another for several decades — so why is this transformation happening now? As the demand for applications is on the rise and developer resources are constrained, APIs enable companies to bridge the developer gap by using APIs as building blocks to expedite and simplify the software development process. Alternatively, resources once dedicated to creating basic functionality can now be devoted to other initiatives. This shift toward APIs allows software companies to be incredibly agile and enables rapid innovation and iteration. 

The introduction of technologies like service mesh, dockerization and serverless – alongside new API standards like GraphQL, gRPC and AsyncAPIs (Kafka) — is also contributing to how APIs are being used and managed. In fact, the RapidAPI State of APIs survey found that the types of APIs companies are using continue to diversify. REST APIs are the most common, with nearly 60% of developers using REST in production. Newer types of APIs are on the rise, with GraphQL usage tripling in the last three years, and Asynchronous API usage quadrupling.

APIs are critical to all companies (not just tech companies)

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

For example, consider how APIs have become essential to 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 can use an insurance company’s APIs to provide a rental insurance policy as a new resident leases an apartment. 

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

The insurance industry isn’t the only sector turning to APIs to expand business offerings. Retail brands are also relying on them to enable the seamless digital and personalized experiences modern consumers demand. The shift toward ecommerce has been notable and was further amplified by the COVID-19 pandemic. Additionally, consumers expect digital communication with businesses, including chatbots, emails and even text messages. These channels allow companies to quickly provide updates on a customer’s order and resolve any issues. 

The future of APIs

Over 20 years have passed since the development of modern web APIs. Since then, the API economy has evolved and matured at an astonishing rate. Companies and developers are managing ever-growing quantities of APIs. We have 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 State of APIs survey found that 68.5% of developers expect to rely on APIs more in 2022 than in 2021. An additional 22.1% expect to rely on APIs about the same. Only 3.8% expect to use them less and the remaining 5.6% were unsure. 

To manage the growing complexity and number of APIs, companies across all industries are looking at next-generation API hubs. An API hub makes it possible to provision access and enables sharing across teams and organizations. This type of platform is also critical to the creation, maintenance and adoption of partner APIs. As these partnerships grow in popularity, we anticipate that more organizations will turn to API hubs to solve the challenges of the next era of APIs.

Iddo Gino is CEO and founder of RapidAPI.