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What Is an API And How Can Businesses Use It?

They power Google ads, Facebook likes, and Amazon’s cloud business. They also let you book flights, make reservations, and place orders online. If you have ever had a meal delivered by Uber Eats or binged Squid Game on Netflix, you have, at least indirectly, used an API.

The most common metaphor tech journalists use to describe an application programming interface (API) seems to involve restaurants. In this scenario, the API — which is the connective tissue between  applications, software servers, and digital devices — is the waiter who takes your order (The Request) and communicates it to the kitchen (The System) that then serves your dinner (The System’s Response). An example of this is booking an airline ticket via a travel website that employs an API to aggregate ticket and flight data from a variety of airlines. The API delivers the best results back to its client website and, in turn, to the customer requesting the information.

Businesses use APIs to ask for and share content from different software programs securely or to allow their customers to do the same. With most software today being built using APIs, the best-case result is a seamless digital experience for both businesses and end users. Indeed, a well-designed API delivers more value to customers in less time by extending the functionality of a business. They can be private (strictly within a single company), between business partners, or public-facing.

Considered the next big software-as-a-service (SaaS) wave, third-party APIs can be the engine of a company’s digital transformation and growth by simplifying a complex problem critical to your business. Emerging third-party API categories include Banking-as-a-Service (BaaS), identity, data storage and management, background checks, payroll, health, fraud, video, and automation.

Perhaps the most immediate usage case for APIs is improved customer experience (CX). Indeed, Forbes recently reported that 74 per cent of customers are willing to pay more for a better, more seamless CX. And APIs significantly enhance that metric by letting companies create a more tailored experience.

APIs also identify gaps in the customer experience or key moments along the buyer’s journey in order for them to be improved. For instance, digital marketing platform Hubspot added an API-created option in prospect emails for customers to chat via WhatsApp with sales agents. This resulted in 86 per cent more clicks to their WhatsApp call-to-action. Previously, Hubspot reps had used WhatsApp on their personal devices to manage customer relationships.

APIs can also evolve customer interactions with a company as channels of interaction (via the web, mobile devices, and social apps), flows of usability, and points of interaction evolve. They also offer a more flexible roadmap, unlike the one-size-fits-all approach of traditional customer relationship management (CRM) software. APIs allow businesses to forego the purchase of traditional off-the-shelf CRM SaaS — many functions of which they may never use — by unbundling so-called “microservices.” Instead, businesses can choose specific applications that make sense for their brand. The result is less downtime and reduced costs, as well as the ability to make incremental upgrades to CX.

Private APIs can also enable communication between employees in different departments and streamline operations by boosting productivity, efficiency, and transparency. Because businesses are using an increasing number of siloed apps, APIs become the medium that allows them to communicate. The result is a more integrated experience for the business as a whole. This could include the linking of enterprise resource planning (ERP), CRMs, and financials so they can “talk” to one another.

Famously, Amazon founder Jeff Bezos demanded in 2002 that all his product teams expose their data to each other and only communicate through APIs. (This became known as “The Bezos Mandate.”) This bold decision created a platform for growth that enabled the launch of Amazon’s most profitable business unit: Amazon Web Services (AWS). This metered pay-as-you-go service provides on-demand cloud computing platforms to individuals, business, and governments. It has also been credited with transforming Amazon from an online bookseller into a global powerhouse.

That powerful connectivity can also facilitate and develop new partnerships within the digital economy. Indeed, some 50 per cent of business-to-business collaboration happens thanks to APIs. And not having APIs relevant to your business can allow your competition to get ahead.

This means, however, that businesses must come up with both public and private API strategies. That work can drive innovation by allowing software developers to add capability to their applications and develop new solutions without building functionality from scratch. Intel’s Andy Thural has described this as letting the developer community out of its “steel cage” of restrictions. APIs also allow the introduction of outside ideas and talent to drive such innovation, which ultimately saves time and money as companies benefit from the work of others. And that’s not to mention the ruthless competition driving evolution in the third-party API provider space.

Businesses can also use APIs to add additional revenue channels. One MuleSoft study found that 80 per cent of companies with more than 10,000 employees could generate more than $5 million a year from APIs alone. Additionally, 35 per cent of technology leaders generate more than a quarter of their revenue as a direct result of APIs.

For example, APIs can be used to create a free tier that drives subscribers and, in turn, places the customer further along the buyer’s journey. They may also pay for tiered, pay-as-you-go (PAYG) or unit-based access to your services. Providers may also mix and match these approaches. Consumers can also get paid via ad revenue sharing, affiliate relationships, and adding credits to their bills, which generates additional usage and loyalty.

These bits of code are changing how businesses do business and how they think about doing business. Connection is the holy grail of life, work, and consumption online, and APIs facilitate that connection in ways that make it easier for customers to spend their time and money. 

Sean Plummer | Contributing Writer

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