For the vast majority of organizations, the IT function's focus has been inside the enterprise. They might allow some occasional website browsing by employees (though many sites are banned), and perhaps an inbound website or intranet for customers to enter an order. The focus, however, has been on protecting a walled garden of information transactions.
We think the emphasis should instead be external. Toward this end, we increasingly see sophisticated organizations competing in an "API economy" in which application programming interfaces are the primary approach to inter-organizational collaboration and information exchange. APIs, which are specifications or protocols for how to exchange information or request online services from an organization, are already booming in online businesses. As more companies realize that information is key to their product and service offerings, and that they need an ecosystem to provide those offerings, APIs will grow further in popularity. Many of today's ecosystem members are coders and app developers, and APIs are how they interface with a provider organization.
Netflix provides a great example of the role of APIs in a successful information-oriented business. Correlation is not causation, but there seems to be a close correlation between the growth of Netflix's stock price and the rise in the number of API calls it gets. The latter figure is close to 50 billion per month now (from about 2 billion three years ago), which is a powerful indicator of how open the company has become. Netflix makes movie and TV content available through a variety of devices, from iPhones to PlayStations to many "smart" TVs. The company also makes available other information content to many sites, including its catalog, recommendations, and ratings. All of this content makes its way to sites and devices outside of Netflix through the magic of APIs.
Other companies with strong API-based ecosystems include Salesforce.com, Facebook, Twitter, Google, and eBay. All have seen fantastic growth. They all needed API-based ecosystems because consumer demands are hard to predict and they use a wide range of devices. Opening up APIs lets organizations outsource innovation by allowing third-parties to experiment with their information assets and share revenue streams. They can also control usage when necessary by limiting access to partners they choose.
However, there are other sectors that have not yet opened themselves up to ecosystems with APIs. Health care IT, for example, is a largely closed industry; health records systems like EPIC and GE Healthcare IT are protected environments, largely closed to external ecosystems. One exception to this pattern is athenahealth, a Boston-based software-as-a-service health records system company that is trying to engender a health information ecosystem. Called "More Disruption Please," the movement has elicited a few development partners, but CEO Jonathan Bush would like to see more. RunKeeper, a tracker of fitness activities, has had somewhat greater success in building an ecosystem, but it's more about fitness data than health information.
Of course, an API strategy is not a binary decision — to use them or not to use them. There are public (open to everyone) and private (open only to certified developers or partners) APIs. There are free APIs (Google's, for the most part, although they charge under certain circumstances) and flat fee or revenue-sharing ones (Apple's, for the most part). There are information and services that you want to give your ecosystem access to, and those that you probably should keep to yourself. In short, your organization needs to debate the various elements of an API strategy, and then you need a set of governance mechanisms to enforce it.
So if your enterprise IT is only focused on the internal enterprise, you're already falling behind in the API economy. You need to start building an ecosystem, and APIs are the way to do it.
An HBR Insight Center