The Billion Greenback Alternatives Redefining Infrastructure, Providers & Platforms

A lot has been written in regards to the rise of the API economic system during the last 5+ years, and for good purpose.  Based on a latest survey almost 40% of huge organizations use over 250 APIs, and 71% of builders plan to make use of much more within the coming yr.  Traders like myself are taking discover, with greater than $2B invested in API firms in 2020, growing from simply $0.5M in 2017.  And if Stripe’s latest $600M funding at a $95B valuation is any signal of issues to come back, 2021 will see many extra funding {dollars} in API firms.  

Why are we seeing such huge adoption?  APIs are the ‘picks and shovels’ of our fashionable digital age.  Defacto constructing blocks, APIs present core infrastructure and allow builders to construct rapidly without having to code every little thing from scratch.   But, on the threat of taking the analogy too far, APIs are shifting from simply picks and shovels to develop into bulldozers, excavators and even full prefab buildings.  In different phrases, we’ve moved from a 1st layer of APIs that present API Infrastructure elements, right into a 2nd layer of APIs that provide larger worth API Providers. Collectively, API Infrastructure and API Providers, together with consolidated API Platforms, make up the API Stack.  The API Stack blurs the boundaries between infrastructure and purposes in an thrilling method that may create alternatives for builders to construct extra, quicker.  

1st Layer:  API Infrastructure

This primary layer of the API economic system will be outlined as API Infrastructure, the picks and shovels, or the inspiration of the API Stack used to construct purposes.  Examples embrace authentication (Auth0, $6.5B acquisition), Messaging (Sendgrid, $3B acquisition), Chat (Drift), Search (Algolia) and Video (Mux).  It’s no secret there was important funding pouring into API infrastructure, in addition to important monetary exits.  But, there may be nonetheless extra potential right here.  I consider we are going to see a wave of specialised APIs which nonetheless have giant, unrealized potential, similar to API infrastructure for particular verticals.  Nonetheless, because the APIs develop into extra specialised there’s a query of what’s going to get away to create significant scale and lasting unbiased firms, and what’s going to find yourself being consolidated into API infrastructure platforms, similar to Stripe and Twilio.

To grasp what sort of serious firms would possibly emerge right here, we must always search for particular traits of recent startup entrants. Essentially the most profitable API Infrastructure firms might be: 1) should have, not good to have; 2) income driver, not a value middle; 3) sustaining differentiation; 4) broad applicability.  

API Infrastructure areas that match these standards could embrace firms inside Identification, Integration, and Automation.  I skilled first hand breakout success with an API Infrastructure firm because the CEO at Gigya, an enterprise software program firm that supplied an API for Buyer Identification for over 700 prospects and 2B buyer identities, with a profitable acquisition by SAP in 2017.  One other instance the place I see many of those similar success attributes is round APIs for Identification Verification – for instance with Berbix – the place I led a Collection A funding by Mayfield, attributable to the truth that it’s A) essential infrastructure; B) income driving; C) potential for sustaining benefit; and D) a obligatory ingredient for digital transformation.  Different areas to observe embrace API for Passwordless, API for Authorization, API for Fraud, and API for Information Integration.


2nd Layer:  API Providers

The API economic system is shifting into a brand new period the place APIs are shifting past offering a utility to offering an embedded service that allows larger order software program purposes to be created.  For example, we see APIs for Banking, or Banking as a Service, that enable any present or new enterprise to supply financial institution accounts, bank cards, or lending as an embedded service inside one other software.  The tip result’s any firm can extra rapidly launch a very new enterprise or new line of enterprise inside an present firm.

To think about what is perhaps attainable right here, let’s have a look at an instance.  A SaaS firm affords again workplace administration software program as a worth added service.  With API Providers, that firm can now provide enterprise banking & loans, as an extension to their present enterprise with none of the effort of needing to ascertain a financial institution license or construct any technical infrastructure.  They will rapidly and cost-effectively present a extra full resolution that allows them to extend income and retention.

API Providers are enabling conventional brick and mortar companies to extra rapidly transfer in the direction of digitization.  Take Staircase, an API for mortgages, which helps digitize the mortgage course of for conventional mortgage lenders.  Alloy, an API for buyer onboarding, helps conventional banks higher provide digital merchandise like digitally native firms.

Lastly, we’re seeing API Providers that enable new digitally native startups to be constructed extra rapidly, permitting for extra specialised differentiation and quicker time to market.  An instance is WorkOS, that gives a collection of APIs that gives all the SaaS elements wanted to construct a software program enterprise.    

As famous by the examples above, API Providers will develop into essential enablers for builders shifting ahead, and that is the realm that we’ll see probably the most innovation amongst API firms.   API Providers ripe for breakout embrace APIs for Banking, Mortgages, Insurance coverage, and Commerce.

Consolidation:  API Platforms

What is going to develop into of the API Infrastructure and API Providers firms in the long run?  As famous above, there might be many alternatives for standalone firms with giant profitable outcomes to be constructed, particularly for those who clear up core wants, are income drivers, and have mass applicability.   That being mentioned, like we’ve seen in nearly each different market for the reason that daybreak of the commercial revolution, whether or not it’s railroads, cable firms, or funding banks, there might be consolidation and platforms will emerge.  


We’re already seeing the preliminary winners like Stripe & Twilio proceed to construct extra merchandise and purchase API firms to develop into platforms, very like AWS has performed inside cloud infrastructure.  For example, look no additional than Twilio’s acquisitions of Sendgrid for $2B and Phase for $3.2B.  This may proceed, and sure happen largely inside the largest market segments like Identification (Okta), Funds (Stripe), Communications (Twilio), and Finance (Plaid).

The mixture of standalone alternatives inside API Infrastructure & API Providers, together with the power for API Platforms to emerge, is what makes this chance so thrilling, and why we’re seeing so many funding {dollars}, embrace my very own, pouring into the house.  


Because the API economic system matures, I’m enthusiastic about what kind of API firms will proceed to emerge.  We’ll see increasingly more companies constructed inside the API Stack, a mixture of API Infrastructure and API Providers.  Iconic, lasting firms might be these that may obtain breakout velocity, scale, and funding, offering a major set up base and struggle chest to broaden choices by way of R&D and M&A.  I’m assured that there’s a shiny future for the startups which might be constructing these subsequent technology of APIs, in addition to all the companies that might be constructed by this new set of infrastructure and companies.  

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