Business Transformation in the Age of the API

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The term Application Programming Interface (API) became attractive to organizations in the Web 2.0 age. Since then, API Economics has become the central pillar driving the digital and information revolution in various industries. With the help of APIs, enterprises can integrate internal and external resources and complement service scenarios with partners to develop new businesses and meet market demands. As a result, product iteration is expedited, solving a series of scenario-based problems to improve the user experience. It enables disruption with minimal investment in resources.

What is an API?

What is API Economics?

Business Model Change Triggered by API Economics

Cross-platform and stateless APIs can serve as channels connecting systems. As a result, the service capability of business systems is opened up to a limited degree. The upstream and downstream of enterprises can be linked to establish close ties with partners and form an economic community for expanding business scenarios.

Many traditional enterprises use APIs to open up their services. For example, Interbank Funds Transfer, the third-party ticket query services, and the traffic inquiries of transportation bureaus are all achieved through APIs.

How to Develop API Economics?

Businesses should keep the following things in mind while creating API economies.

●Follow the best practices for development throughout the API life-cycle
●Allow easy access for developers to find, research and test your APIs
●Stimulate adoption by indexing your APIs
●Enable users to search for APIs using custom classifications or through advanced search capabilities
●Set alerts or notifications whenever your APIs are impacted
●Monitor API performance, and track API traffic to form metrics for monetization

API Economics Planning

API Opening-up Approaches

1. Private API: APIs used inside the enterprise. Private APIs link internal systems, mobile phone apps, and smart devices using standard internal interfaces. The advantage lies in the fact that uniform interfaces can be used to achieve interaction among all systems, reduce inter-system coupling, and make the system architecture more flexible.

2. Partner API: Enable businesses to connect with partners and achieve in-depth cooperation. They facilitate software communications and integration as well as coordinated business development for both sides.

3. Public API: Enterprises publish their data and functions for free or in a fee-based manner so others can develop new products through the APIs, promoting business innovation and influencing expansion.

API Subjects

●API provider: enterprises or individuals opening up the APIs
●API consumer: enterprises or developers who use the APIs opened up by the API provider to create new products or services
●End user: users who use the products or services provided by the API consumer

Selecting an Appropriate Business Model

1.API as a product

Enterprises encapsulate their business capacities into APIs, and consumers pay for their usage of the API by the number of calls or the frequency of calls. As a result, the business capacity gets monetized. APIs in the form of tools or services mostly adopt this model, such as weather services, image and face recognition, and text message services.

2.API as an extension of products or services

In this business model, APIs are called for free. API providers integrate products of their consumers and partners to provide services in a deeper and broader manner to enhance product competitiveness. E-businesses and resource-type APIs usually adopt this business model, such as, and Workday.

3.API as a way to develop partners and link up enterprise upstream and downstream to promote products. API providers that adopt this model usually open up APIs to promote their products to partners or third parties for integration.

4.API as a means to provide value-added services to partners

Developers enjoy value-added services and enhance products through the APIs. The revenue is mainly from advertisements, such as YouTube, Facebook, and Foursquare.

API business models differ a lot from each other depending on the different scenarios. API providers establish ecosystems through APIs and enterprises should select an appropriate business model based on actual situations.

Identifying Revenue Sources

●Free model: APIs are offered for free calls. Enterprises adopting this model fall into the following two situations. Enterprises provide APIs to developers/partners for free to achieve diversified development of products, expand influence and provide in-depth services to end users.

APIs are configured into multiple charging dimensions to attract development. Basic functions are free, while advanced ones charge fees and free users are encouraged to become paid users. Charged by the number of API calls or frequency of API calls. This is tested in public APIs. Developers can buy a call number quota or call frequency quota. For example, if you pay $100, you can call the API for 1,000 times, and the allowed call frequency is 1 call/minute; if you pay $1,000, you can call the API for 10,000 times, and the allowed call frequency is one call/second.

●Profit sharing model: APIs are made available to a limited degree to partners. Partners are encouraged to sell products through APIs, and partners divide product profits in fixed ratios. This model is suitable for resource-oriented enterprises, such as developing distribution and agency models.

Establishing Uniform API Management Platforms

●Achieve full lifecycle management of APIs — Complete the entire process from API development, testing to API launch and removal, and realize monitoring on API running conditions with timely warnings in case of exceptions.
●Prepare a sound API service discovery mechanism — an approach for consumers to discover APIs should be provided, so the consumers can timely find newly added or updated APIs.
●Provide API documentation and SDKs — API instructions should be made available to developers, including request and response descriptions. Multilingual SDKs should be made available for various consumer scenarios so that users can call the API with simple operations. Also, the SDK and API documentation should be automatically generated to ensure users get SDKs and API documentation in a timely and accurate manner, reducing API development and iteration costs.

Establishing Security Protection Systems

Identity authentication is required to secure requests and protect APIs from malicious calls and for APIs with high-security requirements. This mechanism can protect requests from being tampered with during network transmission, make requests time-efficient and prohibit requests from being repeatedly used. Every request should carry identity information. API identity authentication may come in many forms, such as HTTP Basic, API KEY/APP KEY, Oauth, openConnectid, and JWK.

API features

●Well-designed: good APIs are always well-designed. Designers should utilize logical abstract ideas and consider the user scenario to design a set of fully-functional, easy-to-use and extensible APIs.
●Scenario-oriented: the usage scenario of users should be studied to create APIs aligned to the users’ interests.
●Cross-platform: the designed APIs should support different terminals such as Android, iOS, and WebService.
●High cohesion and low coupling: an API should provide complete function, and the service correlation among various interfaces should be minimized. An API shall not change with the change in another API, or exist with some other interfaces as the premise.
●Scalable: postponing functional implementation is the advantage of being scalable. New functions can be added later as needed. If a function is not required, it can be excluded.
●Data size control: an API should not return too much data. A large data size not only complicates the processing but also imposes high stress on data transmission, leading to slow responses from the client. The large data size can be attributed to the unclear division of interfaces.
●Uniform format: all APIs should follow a consistent parameter format and style. For example, all the API parameters should be either separated by commas, or in arrays; or all the date parameters should be either in YYYY-MM-DD format or the YYYY-MM-DD format.
●Permission control: a complete system should be in place to ensure data security and manage API access permissions and data permissions.
●Request encryption: important APIs should adopt encrypted transmission, such as the popular HTTPS. However, HTTPS may compromise the performance a little, so that you can take alternative measures in line with actual conditions as necessary.

Monitoring API Performance

●Number of calls: by grasping and analyzing the number of calls to APIs, you can understand the consumers’ preference (which APIs are more user-friendly and which are not), and service loads so as to allocate resources appropriately. You can also learn if your APIs are properly designed, such as whether the user needs to call the same API multiple times during a single business operation.
●Error rate: error rate is an important indicator appraising API performance. Causes for high error rates include:
○Substandard back-end services, thus multiple errors are reported
○Over-complicated API design that is hard to understand

Error rate is an important indicator measuring the system health. Different countermeasures should be taken to address various errors.

●Error distribution: a good monitoring system should display the error details for figuring out the error cause, such as:
○If an incoming parameter has a high error rate, the API design should be adjusted to optimize complicated incoming parameters and avoid comprehension deviations.
○If an API is called by too many users, pushing the traffic beyond the limited quota, the service capability should be expanded, and the traffic flow allowance should be adjusted.
○If a service suffers severe timeout issues, the code efficiency should be checked to identify whether back-end service capability should be increased as appropriate.
●Warning: a warning and notification mechanism should be in place for important indicators, such as a sudden increase in traffic flow, a soaring error rate, and slow service responses. The issue should be handled immediately to avoid faults.
-Only set warnings for key indicators. The principle of “the more, the better” doesn’t apply.
-Carefully analyze the warning threshold values. The principle of “the lower, the better” doesn’t apply.
-Use concise titles and descriptions for warnings. The principle of “the more detailed, the better” doesn’t apply.
-Warning text messages and e-mails should be used in combination.

●Traffic control: when you open up APIs, the request frequency should be monitored in various dimensions such as newly added APIs and users according to the service capability and business scenarios, to ensure service availability and prevent malicious calls.
○API traffic control: the businesses are layered based on the terminal service capability and business importance to impose differentiated traffic control over different APIs and ensure continuity of important activities.
○User traffic control: users on the API are segregated to avoid congestion and competition for resources.


API Economics puts forward a new business model to help enterprises quickly respond to market demands at a low cost, establish an enterprise ecosystem, and spur integration of capabilities across industrial chains for new economic forms. The degree of API openness will become a core indicator weighing the enterprises’ competitiveness. It is up to organizations to leverage the huge opportunity of API economics, and the potential is for all to see.


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