In early conversations with clients, one of the first things we try to ascertain is whether the company is considering API monetization proactively as an opportunity to grow, or reactively as a competitive threat forcing them to take action.
We often use this graphic to facilitate the discussion, not only because it usually garners a few laughs, but also because it helps each client to realize that even if they are fortunate enough to operate on the left side of this image for the time being, eventually there will be a cost of doing nothing.
This is because the market for enterprise API monetization is not standing still. There is an enormous amount of investment going into API-first* companies that are being built to compete with established businesses in many industries. (*API-first companies are those whose primary product is an API... Stripe or Twilio are common examples)
The relevance for traditional enterprises, particularly those operating in hot API-first investment areas like financial services, communications, HR, and healthcare is that these new startups are being formed to disrupt the incumbent players in these industries. Put another way, they’re coming to eat your lunch!
The common scenario we have seen play out across a number of industries is that API-first offerings will target a narrow portion of the market that can be better served via an API-based product and use that as the trojan horse to begin eroding traditional enterprise’s market share more broadly.
A globally-relevant example in financial services comes from the work being done by mobile operators to move into financial services. The APIs supporting mobile wallet platforms in economies where large portions of the population do not use traditional banking allow third party developers to build flourishing ecosystems around digital wallet applications.
These consumer-friendly applications have drawn more of the traditionally “unbanked” customers into mobile (and behind the scenes, API-first, solutions). This portion of the population will be very difficult for traditional banks to attract back to their portfolio as they’re now locked into the very sticky ecosystems built around these digital wallets.
Given the amount of money still being poured into new API-first startups, this trend is not likely to stop anytime soon, nor to be isolated to financial services. We have seen several examples of Enterprise businesses being threatened by new API-centric market entrants in healthcare and communications as well.
The good news is that there is tremendous opportunity in tapping into the growing trend of monetized API products.
Although McKinsey's survey was specific to financial services, the response from their customers parallels what we hear across industries, which is that API products open up new business models and additional revenue streams for enterprises.
So, to return to the question in the title of the article (“opportunity or threat?”), the answer is a resounding "both", and which you experience will come down to a matter of perspective & timing. In the financial services industry, in most cases, API-first companies are already creating massive disruption and represent a threat to traditional businesses, but as McKinsey's article indicates, there is still opportunity for growing revenues as well. If you operate in a legacy business in this industry, it is likely that you likely are already being disrupted.
However, you still can and should take steps to retain existing customers with competitive API-centric offerings, as well as to create new digital products that keep pace with new competition in your industry.
If on the other hand you operate in an industry that has attracted less new investment into API-first companies, or if you are a new market entrant developing API-first products, the market has never been more ready to purchase and consume API-first solutions (ChatGPT's monetized API is a very recent example).
Enterprises have spent the last decade modernizing and maturing their own API ecosystems, which makes them highly receptive to API-centric offerings that would have been hard for them to consume in years past. If you find that your existing & potential customers match this profile, we would strongly urge you to capitalize on the opportunities while they still exist.
In either case, the time to act is now. If you're not sure where to start and need ideas on how to find the first opportunity for API monetization in your current company, this article provides several practical suggestions.