APIs – Tools for Competitive Advantage in the Digital World

Application Programming Interface (API) is a set of routine definitions, protocols and tools for building software.

                 APIs have been around for decades but have gained prominence in the last couple of years and are the tools for competitive advantage in today’s digital world. To understand this let’s take a look at what were the sources of competitive advantage a couple of decades back. In the pre-API prominence era, it was very important for companies to understand the Industry in which they operated. Their competitive advantage arose from core competencies and these competencies arose mainly from physical assets or processes built predominantly internally and when companies wanted to expand and extend their services and products to new markets and new customers, they resorted either to M&As or build partnerships in the ecosystem. The idea was you get bigger by expanding into new markets with your core competencies or via horizontal or vertical integration. In short, competitive advantage was rooted in the Industry structure.

For example, with over $480 billion in sales in 2015, Wal-Mart exhibits the core competencies of buying power and supply chain management to keep prices low while maintaining a high availability of products within its stores.

 At $25.2 billion, Airbnb’s valuation has already surpassed the market cap of asset intensive major hotel chains like Marriott ($20.6 billion), Starwood ($14.1 billion), and Wyndham ($10 billion) as of 2015

                 In the API prominence era, companies are no longer confined by Internal core competencies or the Industry structure in which they operate. The source for core competencies has moved from Physical assets to Digital assets and Platforms and not alliances are the core building blocks of your ecosystem partners and what makes theses platforms powerful are the APIs. The Digital assets provide not only provide information on how well you are executing your internal processes but how well you understand your customer better. APIs whether internal or open provide you the information from partner data, social media or from your own system of records. APIs have transformed the way we look at core competencies from something that’s internal to how players in the ecosystem can add value. Innovation is no longer confined to the four walls of the enterprise but to the ecosystem. Risks have come down too, earlier to gain core competency in a new area, you either went through the risky process of an acquisition. But the new digital era is no longer without risks, the entry barriers have significantly come down in the digital era and a new entrants can Uberise your business and to thwart this enterprises have to be at the fore front of innovation and APIs are the tools that can help you bring that innovation. Hence, APIs should find a prominent place in your strategy canvas.