How APIs became the building blocks for software

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APIs have been around for decades, but over the last few years we’ve seen the API economy come to full force. To understand the important role that APIs play today, it is important to understand their history and the context in which they originated.

The early days

In the 1970s, companies such as IBM dominated a relatively small market by developing and selling mainframe computers. They built and sold entire systems – fully integrated hardware and software. As the market grew, more and more companies popped up that specialized in creating operating systems – different from those that developed hardware. Thus the market was divided into operating system companies and hardware companies.

As the operating system matured and the market expanded, new companies popped up developing applications for these operating systems. The market was large enough to support independent software vendors who 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 manufacturing unit gets smaller. Where once companies built a whole computer with hardware and software, companies moved on to develop only software and later small parts of that software – personal applications.

APIs now, in a mature market

Now, APIs are emerging as a new small manufacturing unit. The market has reached such a large enough scale that there are companies that are focusing on creating and selling APIs that support the application. Billion-dollar companies specialize in software development by creating APIs to handle specific tasks such as 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. Consider, for example, the car industry.

Car companies initially built every component of the car from scratch and ran every part of the manufacturing process. As the industry matured, other companies formed to make certain pieces, such as windshields, tires, or paint. Today, a complete supply chain exists for the automotive industry. Car manufacturers are primarily simply putting all the parts together and now offering third party parts they can invest more resources in design and innovation. This reflects the trend we are seeing with software and APIs.

Why APIs, and why now?

APIs have been around someone in some form for decades – so why is this change happening now? As the demand for applications grows and developer resources are limited, APIs enable companies to fill developer gaps by using APIs as building blocks to speed up and simplify the software development process. Alternatively, the resources once devoted to building basic functionality can now be devoted to other initiatives. This shift to APIs allows software companies to be incredibly agile and enable faster innovation and revision.

New API standards, such as GraphQL, gRPC and AsyncAPIs (Kafka), as well as the introduction of technologies such as service mesh, docs and serverless, are contributing to how APIs are used and managed. In fact, the RapidAPI state-of-the-art APIs survey found that the types of APIs companies are using include diversification. The REST API is the most common, with about 60% of developers using REST in production. In the last three years, the use of GraphQL has tripled and the use of the asynchronous API has quadrupled, with new types of APIs growing.

API is important for all companies (not just tech companies)

Much of our discussion has focused on how technology companies create and use APIs. However, as the API economy develops, APIs have become important for companies across all industries to accelerate their business, streamline processes, and provide a better overall customer experience.

For example, consider how APIs have become essential for the insurance industry to unlock new revenue streams. Modern consumers expect services to be integrated into their existing purchase flows. For example, imagine how a property management company could use an insurance company’s API to provide a rental insurance policy as a new residential apartment leases.

By integrating the Insurance API into existing rental streams, residents can customize their insurance plan details without leaving the property management website or the Renters Portal. Behind the scenes, the insurance company’s partner API ecosystem powers this process and enables this revenue stream.

The insurance industry is not the only sector turning to APIs to expand business offerings. Retail brands also rely on them to enable digital and personalized experiences to suit the demands of modern consumers. The shift to ecommerce has been significant and has been further expanded by the Covid-19 epidemic. In addition, customers expect digital communications with businesses, including chatbots, emails and text messages. These channels allow companies to provide quick updates on customer orders and resolve any issues.

The future of APIs

More than 20 years have passed since the development of the modern web API. Since then, the API economy has evolved and matured at an astonishing rate. Companies and developers are managing a growing number of APIs. We’ve also seen APIs unlock new partnerships and business models.

This massive growth of the API economy is expected to accelerate in 2022 and beyond. The State of APIs survey found that 68.5% of developers expect to rely on more APIs in 2022 than in 2021. An additional 22.1% expect it to rely on APIs. Only 3.8% expected them to use less and the remaining 5.6% were unsure.

To manage the growing complexity and number of APIs, companies from all industries are focusing on the next generation API hub. The API hub makes it possible to provide access and enable sharing across teams and organizations. This type of platform is also important for building, maintaining and adopting partner APIs. As this partnership grows in popularity, we expect more organizations to turn to the API hub to address the challenges of the next era of APIs.

Iddo Ginno is the CEO and founder of RapidAPI,


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