Introducing — The API Economy
A newsletter to break down the API-first SaaS economy one API at a time.
Welcome to the first edition of ‘The API Economy’!
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Not another newsletter… Why am I starting ‘The API Economy of SaaS’?
The software industry has gone through 3 meteoric events since its inception. The first is the creation of software itself, and the second is the shift to the cloud. But the newest evolution, and most polarizing phase, is the creation and utilization of APIs.
While everyone is bullish on Web3, NFTs, and DAOs (rightfully so), they are missing the progress yet to be made by utilizing APIs. The software industry has achieved the exponential growth promise that tech founders and VCs alike have always imagined (which is why everyone wants to be a tech company), which tees up API utilization to come in and take center stage.
And yet, I can’t help but feel like APIs don’t get the credit they deserve.
In ‘APIs All the Way Down,’ Not Boring’s Packy M explains, “APIs handle an ever-increasing amount of things that get done in the world. Something that might have been a pen and paper process involving hundreds of people 50 years ago, and a dozen people clicking a computer screen a decade ago, is probably software talking to other software via APIs today.”
And while the likes of Stripe, Twilio, Plaid, and Cloudflare have all built some of the biggest companies in SaaS by leveraging an API-first approach — few understand the groundbreaking shift we’re experiencing with APIs.
In this monthly newsletter, I aim to:
Research the trends regarding APIs (starting in Saas, but bridging to the mainstream economy).
Break down modern companies that are pushing the boundaries of API capabilities.
Teach people more about how to either:
a. Build an API-first company.
b. Start to pivot/decouple at their current company to become API-first.
Why me, why now, why APIs?
After working at Onna (Data Discovery as an API for Facebook, Slack, and Dropbox), Northpass (LMS as an API for Uber, Shopify, and Twilio), and currently Botify (who is developing some of the world’s first enterprise SEO APIs for Expedia, Carvana, and Condé Nast) for the past 7 years, it’s time to help others understand the complexity of APIs in SaaS (and someday beyond just SaaS).
As Daniel Levine from Accel broke it down in his Techcrunch essay ‘APIs are the next big SaaS wave’, “For fast-moving developers building on a global-scale, APIs are no longer a stop-gap to the future—they’re a critical part of their strategy. Why would you dedicate precious resources to recreating something in-house that’s done better elsewhere when you can instead focus your efforts on creating a differentiated product?”
SaaS companies are built to experience exponential growth. And the best way to build exponential growth from a product perspective is by compounding efforts on innovative competitive differentiators (strengths) and leaving gaps to the experts (weaknesses).
Historically, companies would have to build all the components for a product from the ground up. But APIs make it possible to outsource components of their product to be best-in-class by default so they can focus all their efforts on their core competencies.
Here’s an example the APIs and integrations it takes to power and eCommerce site:
And that’s only the ones you can see. There are plenty more APIs running on the backend to give you the beautiful eCommerce sites you see today. Sites are being Frankenstein’d together using APIs and integrations to be made better than they ever could have on their own.
Take an example from Stripe, the world’s most successful API-first company in the history of forever. In a Wired story titled 'The untold story of Stripe, the secretive $20bn startup driving Apple, Amazon ’ author Stephen Armstrong interviews Stripe’s founders to deconstruct how they democratized online payments – and reshaped the digital economy in the process.
“For us it was quite visceral: these products are not serving the needs of the customers, so let’s build something better,” John Collison argues. “In old-fashioned legacy companies it’s the CFO choosing the payments system. They think all systems are alike, so they just sort the bids from suppliers. But if you’re a developer building the next Kickstarter, or the next Lyft, and you have a two-person team, both of you writing relatively complex code and solving complex infrastructural problem, you need a simple payments API that – once installed – doesn’t keep changing.
Developers are here to be your boss and your software’s boss.
As Naval Ravikant has said many times, “The supply of good developers is pretty fixed and the demand is just going crazy.” With a fixed supply of developers, it makes the notion of developers spending their time recreating commoditized features and components obscure.
To quote Naval again, “I think the best developers don’t like being managed. They don’t like being told what to do. They want to have their creative freedom because creating products is a creative exercise.” Meaning, developers don’t want to spend their time not developing new & innovative technology.
Remember, these are the type of people that would rather spend 10x the time to write a script rather than do any manual computer-related task. In the short term, it seems maddening, but in the long term, it creates processes that scale.
Let’s say I wanted to build a company, and I could bundle a group of APIs to handle every non-core component of my product? We’re headed towards a future that will fuel the exponential rate at which innovative components and features are developed.
What’s next?
As I mentioned early, this newsletter will be published monthly to start to focus on writing quality research > quantity of content. So I’ll start by focusing on one essay a month starting… now.
To hear when new essays drop:
Share this with others who are excited about the future of APIs.