What is an API?


The notion of Application Programming Interface (API) is not new, it is being used widely for years now. API basically is a contract provided by piece of software to its consumers. A good API defines the functionality it provides along with required input and expected output. APIs act as building blocks for developing a bigger piece of functionality. Traditionally, APIs are known to software developer communities and are used at a smaller scale in programming languages. But with the surge in web based collaboration model, APIs are gaining more traction (also known as Web APIs) and they have a bigger role to play. The reach of these APIs in digital ecosystem is creating a new commercial model itself, known as API Economy. Let’s look at API from Technical and Business perspective.

Technical Perspective: Application Programming Interface is a contract outlined by API Provider to API Consumers. API Consumers can rely on these APIs to consume functionalities/data exposed by provider without worrying about the changes in underlying implementation.

Business Perspective: APIs are primarily a channels and digital strategy targeted for optimal customer engagement and collaborative offerings. It is a mechanism to deliver Organization’s capabilities (functionalities/data) as services over the web so that internal as well as external channels can consume them. Once these APIs are available to external digital world and channels, it opens door for partners and third parties who can take Organization’s capabilities to end users by bundling them with their own offerings/products. So in a nut shell, from Business perspective, APIs are means for creating new Business model of extended sales channels and more revenue opportunities.

To understand this better, let’s take a simple example of Insurance Company ABC that offers various insurance policy options to customers via its own apps, and at the same time insurance policy services are available as Public APIs to external partners and third parties. Let’s say one of its Banking partners is creating a new home loan product and to attract customers it decides to offer them more flexibility in terms of risk coverage, apart from giving standard home loan features. So essentially, Bank is planning to bundle optional insurance features such as property fire insurance, term life insurance etc. in its home loan offering; it can easily integrate these features on real-time basis in home loan app if these are available as APIs from ABC Insurance Company. Real-time access to Insurance capabilities gives great flexibility to Bank, it can fetch premium amount (for term life and fire insurance) on real-time basis for a given mortgage amount and property value, without any need for offline collaboration to get details.

It is a beneficial business model for both Bank and Insurance Company; Bank can attract more customers due to flexibility it offers in its home loan product and Insurance Company gets benefited due to addition of new sales channel for its insurance products. In fact, once ABC makes Insurance Policy capabilities available as APIs, they are just not restricted to one Banking partner and one home loan product, they are available for collaborative offerings to many more Banking partners and third parties resulting in multitude of sales channels and increased revenue opportunities.

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Please note that the articles in this portal discusses API examples from the perspective of mainstream business segments like Telecom, Banking, Retail, Manufacturing etc.

2 thoughts on “What is an API?

  • Yogesh


    Pravin , Any insight into AWS API Gateway service ?

    • Thanks Yogesh. To my knowledge, it is a good offering to get started with cloud based cost-effective and scalable API platform. It provides standard API Gateway features – API versioning, throttling, data transformation and so on; additionally, it also seems to integrate well with AWS security offerings authorizing access to APIs. Having said that, Gateway is just one part of comprehensive API Management platform, developer portal enabling effective collaboration and API analytics giving insight into API performance/trends are equally important aspects for API success. I am not very sure if these offerings (developer portal, analytics, life cycle governance) are available from Amazon. Thanks

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