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’ve seen the API economy come into full force. To understand the significant role APIs play today, it is important to understand their history and the context in which they emerged.

The early days

In the 1970s, companies like IBM dominated the relatively small market by developing and selling mainframe computers. They built and sold entire systems – fully integrated hardware and software. However, as the market grew, more companies specializing in developing operating systems emerged, separate from the companies developing the hardware. Thus, the market split into operating system companies and hardware companies.

As operating systems matured and the market expanded, new companies emerged developing applications for those operating systems. The market was large enough to support independent software vendors building specialized applications. This era led to the development of many of the applications we still use today and turned application development into a profitable business.

As you can see, a pattern is clearly emerging. As the market grows, the product unit gets smaller. While companies used to create entire computers with hardware and software, companies only developed the software and later only small parts of this software – individual applications.

APIs now in a mature market

Now APIs are emerging as a new smaller product unit. The market has reached a size so large that there are companies focused on developing and selling APIs that support applications. Billion dollar companies have carved niches in software development by creating APIs for specific tasks like payment processing, messaging, or authentication. This phenomenon does not only exist in the software industry. As the industry grows, demand grows and can support more specialized providers. Take the auto industry, for example.

Car companies initially designed every car component from scratch and performed every part of the manufacturing process. As the industry matured, other companies formed to make specific parts like windshields, tires, or paint. Today there is a complete supply chain for the automotive industry. Primarily just putting all the parts together, automakers can now invest more resources in design and innovation because a third party is providing the parts. This reflects the trend we are seeing in software and APIs.

Why APIs and why now?

APIs have been around in one form or another for several decades, so why is this transformation happening now? As application demand increases and developer resources are limited, APIs enable companies to bridge the developer gap by using APIs as building blocks to speed up and simplify the software development process. Alternatively, resources that were once dedicated to building basic functionality can now be devoted to other initiatives. This shift toward APIs allows software companies incredible agility, enabling rapid innovation and iteration.

The advent 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 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 widely used, 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 for all businesses (not just tech companies).

Most of our discussion focused on how tech companies build and use APIs. However, as the API economy has evolved, APIs have become critical for businesses across all industries to increase the speed of their business, streamline processes, and provide a better customer experience.

For example, consider how APIs have become indispensable for the insurance industry to generate new revenue streams. Modern customers expect services to be integrated into their existing purchasing processes. For example, imagine how a property management company could use an insurance company’s APIs to provide a rental insurance policy when a new resident rents an apartment.

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

The insurance industry isn’t the only sector turning to APIs to extend business offerings. Retail brands also rely on them to enable the seamless digital and personalized experiences modern consumers demand. The shift towards e-commerce has been remarkable and has been exacerbated by the COVID-19 pandemic. Additionally, consumers expect digital communications with businesses, including chatbots, email, and even text messaging. These channels allow companies to quickly provide updates about a customer’s order and resolve issues.

The future of APIs

More than 20 years have passed since the development of modern web APIs. Since then, the API economy has evolved and matured at an amazing rate. Businesses and developers manage ever-increasing amounts of APIs. We’ve also seen new partnerships and business models unlocked through APIs.

This massive growth in the API economy is expected to accelerate into 2022 and beyond. The State of APIs survey found that 68.5% of developers expect to rely on APIs more in 2022 than they did in 2021. Another 22.1% expect to rely on APIs at about the same level to be left. Only 3.8% expect to use them less and the remaining 5.6% aren’t sure.

To handle the growing complexity and number of APIs, companies across all industries are looking for next-generation API hubs. An API hub enables provisioning of access and sharing across teams and organizations. This type of platform is also crucial for creating, maintaining and launching partner APIs. As these partnerships become more popular, we expect more organizations will turn to API hubs to solve the challenges of the next API era.

Iddo Ginno is the CEO and founder of RapidAPI.