Can you earn money with an API?
An API (Application Programming Interface) is an interface for software. Interfaces are nothing new for systems engineers: both standardized interfaces and interfaces developed for decomposition are part of everyday life.
Expensive legal disputes over APIs are not unusual: who remembers the legal dispute between Microsoft and Sun Microsystems in 1998? The licensing of hardware interfaces is also common. Many standards, such as HDMI, require a license.
But in recent years in particular, I have noticed more and more companies that have built their business model on an API. I will describe below how this can work.
Dispute over Java API
The legal dispute between Microsoft and Sun about the Java API was only the first prominent legal dispute. At that time, the issue was that Microsoft had extended the Java API in a non-compatible way ("embrace and extend"). Since then, there have been countless legal disputes. Just last year, the US Constitutional Court issued a Decision on a dispute between Google and Oracle to the Java API.
But even though such disputes often involve a lot of money, the money is earned elsewhere.
The API as gatekeeper
An API is a clearly defined boundary between provider and consumer. An API is powerful because (theoretically) both provider and consumer are interchangeable. Whether this is the case depends on who controls the API. A few examples:
Some APIs are controlled by the provider, such as the PayPal API. Services that allow payments with PayPal must communicate with it (directly or via a third-party provider).
ODBC is a successful API for communicating with databases. By using ODBC, the application and database are - at least in theory - decoupled from each other. However, many applications use database-specific features, which weakens the advantage of the API.
A more modern example is OAuthfor authorization. Only then do we have the convenient option of being able to log in to websites via Google, Facebook and other OAuth providers.
The more users there are of an API, the more valuable it is. This is one of the reasons why those who want to benefit from the API often campaign for its openness. In the case of OAuth, this was Twitter. The developers would have liked to use an open authentication service, but there was no standard. In order to ensure openness, the standard was developed in a committee and relatively quickly adopted. IETF handed over.
From 580 lines of code to a billion-dollar company
Segment is a good example of a company that has built a business model on an API. Segment enables the merging of customer data from different sources with a standardized API. This is a typical problem that nobody knows about - except the experts who program business applications in this environment - and there are many of them.
Segment was acquired by Twilio in 2020 for 3.2 billion dollars
The exciting thing is that Peter Reinhardt, the co-founder of Segment, tells the story of Segment in a Stanford lecture. In particular, he did not initially believe that a business model could be built from their open source API (580 lines of code). The embedded video starts at 26:00, where he describes the market's response to the API:
SysML 2.0 API
As a systems engineer, I therefore pricked up my ears when I heard that the SysML 2 an API is planned. Of course, we are still a long way from an ecosystem based on it. But an API for SysML is definitely a groundbreaking decision.
Photo by Douglas Lopes on Unsplash
