From the influencer economy to the AI economy, it seems like everything these days is an economy. And, of course, the API economy is no exception. But what is the API economy?

In brief, the API economy refers to how many organizations now use APIs as the bedrock of their business models. Whether exposing their own APIs or consuming those already out there, companies are using APIs to save time, execute rapidly, and generate additional income streams.

By 2027, Kong estimates that APIs will have a global economic impact of $14.2 trillion. For context, that’s more than half of the current GDP of the USA. Although projections for the API economy might be overly ambitious, there’s no denying that APIs are big business.

The API economy now underpins a huge chunk of the worldwide tech economy. Not to mention its role in businesses that wouldn’t even consider themselves tech companies. But it may not be immediately apparent how the API economy emerged and how we got here so quickly.

Below, we’ll define the API economy. We’ll examine the growth of this field, why that growth has been so explosive, and what some of the repercussions may be for the future.

How Techie Toys Became the API Economy

Go back in time just a decade or two (time to rev up those DeLoreans), and you’d find that attitudes towards APIs were very different. APIs were seen as, at best, time-saving tools for developers or, at worst, frivolous side projects that often created unnecessary security risks.

Attitudes toward what would become the API economy began to change in the early 2000s, with the Bezos API Mandate and the launch of APIs by major players like Salesforce and eBay. The benefits of participating in the API economy quickly became apparent:

• Faster time to market
• Continuous delivery and improvement
• Greater efficiency
• Additional opportunities to monetize products

More and more organizations sought to capitalize on the opportunities offered by APIs in the years that followed, with the emergence of the API-first philosophy as a consequence, spurring countless organizations to construct internal APIs to connect microservices architectures.

The widespread adoption of that development approach has significantly impacted the growth of the API economy. Whether we’re talking about the internet of things (IoT) or AI, the use of APIs plays a significant role in various technological developments that are making waves right now.

It’s not an overstatement that many modern business processes across sectors need APIs and literally couldn’t function without them. But we’ll talk more about that below…

“An” vs. “The” API Economy

Any Google search for “what is the API economy?” or “understanding API economy” will generally yield results for two different but closely related concepts: an API economy and the API economy. The tendency of search engines to ignore stop words, like those in italics, means we lose some nuance that’s worth bringing back into focus.

Consider the following definition of economy from Investopedia: “a system of interrelated production and consumption activities that ultimately determine the allocation of resources within a group.” Emphasis has been added here to demonstrate that different industries could all be said to have their own API economies.

The state of APIs within these spaces and the case studies and success stories that come from them can vary massively. Fintech, for example, boasts a thriving API economy while more slow-moving industries lag behind with more limited API economies.

When we talk about the API economy, we tend to focus on the overall value of APIs within the tech industry. But doing so downplays the significance of the extent to which the API economy has penetrated the operations of many different types of businesses, from real estate to entertainment.

Notable Examples of API Economy

As a result of APIs enabling greater connectivity between businesses and industries, even those that are seemingly quite disparate, we’ve seen exciting and high-growth applications emerge.

With that said, the tech space boasts a thriving API economy that still accounts for most of the API economy. Let’s consider some individual use cases where API usage has been a game-changer, with some revolving around API provision and others around API consumption.

Twilio

With a suite of APIs for text messaging, phone calls, and more, Twilio continues to be a flagbearer for API-as-a-product, paving the way for other companies to build business models around APIs. It reached unicorn status in 2015 and is now valued at over $10 billion.

Uber

In 2015, Uber agreed to pay $58 million over three years to use Google Maps APIs. Through its use of those APIs and early investment from Google, Uber could go to market (and iterate) far more quickly than if it had built its own navigation interface from the ground up.

Google Maps

Uber isn’t the only product out there that relies on the Google Maps API. Until 2022, competitor Lyft also used Google to power its services. Allianz, Domino’s Pizza, DPD, Costa Coffee, Kroger, and many other organizations also rely on the Google Maps API.

Netflix

In a recent post about how Netflix scales using data abstraction, we mentioned Netflix’s API-first approach. Their extensive use of microservices architecture enables them to serve content on hundreds of different device types without the need to build tons of custom apps.

These companies are highlighted here because they demonstrate the extent to which the API economy has permeated the mainstream. Whether or not the general public realizes it, countless household names rely heavily on APIs to power their products and services.

In addition to the names above, consider the API stories from SoundCloud, Nordea, Spotify, Tinder, Danske Bank, and countless others. There’s a reason many now add the prefix “API-first” when talking about the digital economy…

The Future of the API Economy

Make no mistake, the API space is booming. And, with API calls now accounting for a massive proportion of all web traffic, the API economy is showing no signs of slowing down.

Despite all of that, we haven’t really encountered anyone making a compelling case that we’re approaching “peak API.” Which has been a common fate for so many tech movements. Take, for example, how oversaturated SoLoMo became a decade ago.

High levels of symbiosis between APIs and AI are already being demonstrated — we’ve previously covered boosting product features with genAI and how it’s evolving API management. So, if anything, we can expect to see further growth on that front.

Elsewhere, Google Cloud’s 2021 State of APIs Report revealed, for example, that the use of APIs was as prevalent in retail and travel as it was in traditional tech businesses. In 2022, Terem’s Scott Middleton highlighted that “66% of API traffic comes from organizations that are not technology companies.”

In other words, APIs are now the foundation of various aspects of the digital economy, and there’s no reason to expect that to change any time soon. When it comes to disruptive innovation, it’s hard to think of much that can compete with what the API economy has to offer.