What Is The API Economy And How Does it Impact Your Business?

September 16, 2021

TechTarget shares that the concept of the API Economy refers to the set of business models and practices designed around the use of APIs in today's digital economy. It involves the exposure of an organization's digital services and assets through application programming interfaces (APIs) in a controlled way.

But, what exactly does that mean, and how will the API economy impact your startup? Let’s start by first outlining what APIs are and how they work.

What Are APIs?

Application Programming Interfaces (APIs) make connections between applications, databases, and devices possible. In simple terms: they make it easier to do business, both internally, within your company’s infrastructure, and externally, enabling transactions, authenticating people and purchases, providing information and data, and creating and maintaining business relationships. APIs shield you from all the complicated processes happening behind-the-scenes and eliminate surplus information.

[APIs] make it easier to do business, both internally, within your company’s infrastructure, and externally, enabling transactions, authenticating people and purchases, providing information and data, and creating and maintaining business relationships.

API’s offer four main functions:

  • Accessing data so multiple apps or services can work together
  • Hiding complexity to allow developers easier navigation
  • Extending functionality of existing systems
  • As gatekeepers protecting personal data

Just some examples of API’s at work include:

Log-in Using XYZ

Every time you add a new app to your mobile device, you are usually given the option to create a login with your email and password, or you are offered the “log-in using Facebook/Twitter/Google/Github” functionality. It is very convenient and seamless for users, but do you ever wonder what is going on behind the scenes? Well, the apps are not actually logging-in to your social media accounts. The API leverages the various social media platforms to authenticate who you are with each login.

Pay with PayPal

When shopping online, PayPal has become one of the default payment options. PayPal uses API connections to allow the online vendor access to your account to authorize the transaction but ensure that your sensitive data is protected.

Travel Booking

How do the various booking sites review thousands of flight options, alternate destinations and share the best rates and travel times with you? By using third-party APIs to aggregate flight routes, travel times, rates, and seat availability.


Uber combined public APIs, such as Google Maps, with their own booking and vehicle status APIs, connected in a credit card payment gateway, and finally, added a notification API to let you know that your ride would be arriving soon. This enabled Uber to offer a mobile application that revolutionized transportation.

Rise of APIs

APIs have been around for over 50 years. However, since the mid-2000s web APIs have grown exponentially with the adoption of cloud computing and Internet of Things (IoT) devices. The API directory, ProgrammableWeb shared that their count eclipsed the 22,000-API mark in June 2019, growing 1,000% in the past decade alone.

A Broadcom research study shared the following data about the API economy.

  • API adoption is high: some 88% of enterprises currently use them.
  • Around a third of firms use APIs to drive revenue (33%) and improve speed-to-market and innovation (34%).
  • Most executives (54%) believe that their use of APIs helps differentiate their business from competitors.
  • More than seven in ten organizations measure the effectiveness of their API programs through a range of external-facing metrics around customer experience (72%), digital reach (72%), customer satisfaction (71%), and speed-to-market for new apps (72%).

Impact On Businesses

McKinsey outlines that APIs, once limited to technical domains, have become a significant business growth engine. They represent the connective tissue linking technologies and organizations. They share that APIs are being used across industries to create new products and channels and improve operational efficiency. What benefits does utilizing APIs offer your startup?

Benefits of API’s

Unlocking The Power of Data

Data has become the most valuable resource in our global economy. However, as a startup, you may not be an expert in data collection or have the means to gather the vast amounts of data needed to implement your solution and meet your customers’ expectations effectively. Imagine that you have built a superior e-commerce platform and want to provide your customers with easy access to their order status once it ships. By integrating a shipping API, you can quickly access and share real-time shipping and tracking data with your users without tracking it yourself.

Increase Collaboration and Connectivity

Before 2010, most organizations utilized just a few enterprise apps. A 2018 report from Netskope found that companies were using close to 1,200 cloud apps! APIs make all this connectivity and cloud-based collaboration possible.

Enhancing A Seamless Customer Experience

Customers are demanding superior service and expect frictionless experiences. 80% of consumers are more likely to do business with a company if it offers a personalized experience. If customers cannot seamlessly integrate their most essential apps, they will likely move on to your competitor. However, since each user has their own unique set of needs, it is almost impossible to create tech solutions to meet the disparate needs without leveraging the power of APIs. These applications can also help you address functionality gaps along the customer journey, and by monitoring API usage, you can gain a more in-depth understanding of your customers’ behavior.

Bridge The Technology Gap

APIs enable teams to bridge the gap between core functionality and features offered in your final product. Using APIs means that you do not have to start from square one or recreate a wheel. Are you developing a streamlined online merchant solution? Great, except that you have no expertise in voice search, chatbot, or image recognition. The solution? Use existing APIs that will provide that functionality while you focus on your core product development.

Increased Innovation

Innovation and agility are at the core of every startup’s success. APIs simplify the integration of new components into your existing architecture, provide access to tools and capabilities that you may not have had otherwise, and will ultimately improve your innovation and productivity.

Saves Time And Money

If your startup is building out a digital offering, be it an app or a website, APIs can help your development team streamline repetitive processes with little coding, and simplify your development processes. This will save you time and, ultimately, money.

Minimize Risk

A Clutch.io blog post noted that security is one of the top concerns for users when interacting with a website. They shared that “In 2017, the average cost of each data breach was $3.62 million” and added that “…customers expect there to be security assurances in place, such as encrypted domains or SSL security certificates.” You can protect your data and theirs while also offering users peace of mind by utilizing APIs and multiple-factor authentication processes to prevent security breaches.


APIs with weak security practices have, unfortunately, created challenges for developers, startups, and customers alike. Inadequate security can offer hackers opportunities to access data maliciously, creating concerns about data sharing and privacy. The Facebook–Cambridge Analytica data scandal unearthed that during the US 2016 Presidential election, millions of Facebook users' data was acquired without the individuals' consent by Cambridge Analytica, predominantly to be used for political advertising. At the same time, the EU was implementing the General Data Protection Regulation (GDPR). The legislation sought to give individuals control over their personal data and to simplify the regulatory environment for international business. Companies using APIs became faced with the challenges of maintaining records of all data sharing and providing those records to users upon request.

Security Best Practices

TechBeacon outlined the below best practices for ensuring API security:

  • Recognize the risks of APIs
  • Realize that APIs can be difficult to use
  • Monitor add-on software carefully
  • Work with standards judiciously
  • Focus on authorization and authentication on the front end
  • Remember to check data on the back end
  • Take a look at API security tools and gateways
  • Budget time for security testing

Importance of API Economy to Startups

The API economy is reinventing how businesses are built and operated. The genetic testing startup, Helix, sought to offer consumers a simple at-home testing option to give them insight into their heritage and medical history. They have also created an open platform that enables their partners to incorporate open-source genetic data into their products without conducting any testing or data management.

LevelUp, a mobile ordering and payment platform startup launched in 2011, offered local businesses customized mobile payment and customer loyalty solutions based on the building blocks of LevelUp’s APIs. The startup grew rapidly, raising $50 million by 2017, touting over 20,000 locations and more than 200 brands using their solution. They were ultimately acquired by GrubHub in 2018.


As customer and marketplace expectations grow, startups must focus on how to provide top-notch, digital-first experiences to their customers.

APIs ultimately provide your agile team tools to envision, create, and deliver relevant solutions to the marketplace.

Utilizing APIs will help your startup access data critical to your solution and users, enhance connectivity, provide relevant products with superior UX, pivot development efforts quickly to address new markets, innovate quickly while saving time and money, and ensure that crucial data is protected. APIs ultimately provide your agile team tools to envision, create, and deliver relevant solutions to the marketplace.