Deriving Financial Products from the Exhaust of Our Digital Operations Is the next Big API Play
06 Mar 2021
The secret to Amazon’s success is by far the number one story I have ever written on my blog. It was written nine years ago and still out performs other posts. It is also more fiction than most of the other stories you will find on API Evangelist. It truly represents the API economy for me, and I am guessing for entirely different reasons it also represents the API economy for others who read it. While the Amazon story is compelling from a general business view, I feel that Amazon’s API story is really key to understanding where the future value of all of this lies. I think that doubling down on the Amazon myth story is really where the next explosion of growth will be when it comes to the tech sector, and it will help us see beyond the digital commodification of individual resources and capabilities as Amazon has done with storage, compute, dns, and other essential building blocks of the online world.
To help me understand what might be next for the tech sector, I try to understand the logic behind Amazon doubling down on the further commodification of digital resources and other capabilities like we’ve see them do with storage, compute, database, and dns, but also the further commodification refinement as you see them doing with “serverless” compute and now “serverless” database. Amazon led the charge when it came to the commodification of of essential digital resources using APIs, and they have the numbers on how this all works, allowing them to further squeeze incremental revenue out of these existing digital commodities moving forward. However, Amazon’s commodification tactics have become more of a negative in recent years with their targeting of resources that are central to some of their customers as Amazon crosses over into healthcare, banking, and other areas outside of the realm of compute, looking to dominate in the next generation of digital products and services using APIs. While identifying new features, talent, and opportunities within in your API ecosystem has always been part of the game, Amazon is doing it in very aggressive and often behind the curtain ways—leaving a bad taste in the mouth of their own customers.
While there will still be plenty of money to be made in the commodification of individual resources like Stripe and Twilio have done, and Amazon will do just fine with their aggressive commodification across its own ecosystem now that so much of the Internet operates on it’s platform. However I believe that what is next is more about the exhaust and derivatives from what these API-driven resources and capabilities produce. It will be the API economy financial products that emerge when the combined value of Twilio and Stripe give birth to new opportunities like Uber and Postmates have created. The future will be about the rapid creation, iteration, and pivoting of new startups like Twilio and Stripe in platform bundles like Amazon has done with he cloud, but the real money won’t be in just the revenue from creating new products and services and turning them into commodities or further refining on them like Amazon is doing with the serverless business model. It will be about the financial products that emerge on top of this world, going beyond the individual resources and PII being generated, and being about rapidly defining entirely new derivatives and financial products through the velocity created, the building up of entropy, as well as connecting the dots between everything in ways that those on the ground operating individual resources just can’t see.
If I was looking to out maneuver Amazon in coming years I”d offer up all the resources that AWS, Azure, and Google Cloud provides, and do it for free. Give away the essential building blocks of the web for free like Google did for Google Apps. However, invest in being upfront and honest that you are gathering up data across many industries and sectors. Hell, provide everyone with a window into the big picture, and turn them into your partners for finding the net killer application, platform, or entire industry. Make the establishment of new resources, and the continued commodification of them possible, even outside your own platform, allowing you to capture all the exhaust from your platform and every other platform and application that begins to move things in new directions. Capture all of the data behind the lifecycle of each of your customer’s APIs, and the applications that use them. Out maneuver AWS, Azure, and Google with a highly efficient API-first platform that scales for free—then monetize the layer above it all. Develop entirely new digital products on top of the latest healthcare or banking APIs, and the applications they power. The existing cloud platforms are too beholden to their previous business models to move fast enough. They can’t see what is next because they have to maintain what currently exists at scale.
In recent year, regulators have begun moving in to protect the digital resources of end-users, as well as anti-competitive practices amongst well established or newly established digital commodities. We have already seen numerous examples of how people or startups have become the products—not the actual goods and services being directly sold to end-users. What makes us think the next waves will be any different? Of course, the focus will shift to entirely new abstractions above the existing ways technology companies are making money off selling user or demographic data, or the buying and selling of startups and the markets they have created or disrupted. Amazon has access to an amazing amount of data and exhaust about the industries their customers operate in. Amazon has decided to monetize this insight through the delivery of new products and services that are increasingly competing with, poaching from, of directly targeting the markets their customers that operate on AWS. This reputation is growing in startup, enterprise, and venture capital circles. The best way to take Amazon head on is to exploit this weakness, and do the same thing but do it out in the open, make it API-first, offering all of Amazon’s core services for free, and partner with your customers to increase in the digital commodification of resources and business capabilities across many different industries.
Amazon does APIs well, but there is significant room for improvement by following the lead of Twilio, Stripe, and other leading API providers. It would take some serious cash to deliver core compute, storage, database, DNS, network, and other essential cloud services for free. It would also take some serious planning to map it all out so you could see where the revenue would come from, and what a shared approach to delivering all the essential digital building blocks of many different industries would look like. However, I think if done well with a clean, simple, API-first approach, and a business model based upon the next generation of financial products derived from the creation, interoperability, exchange, and valuable digital resources and capabilities, you could come out ahead. Think of what you can derive on top of a banking systems that is truly interoperable, or a healthcare system that designed for the seamless and secure exchange of healthcare records. There is lots of money to be made doing APIs when it comes to banking and payment resources and capabilities, as well as patient and doctor resources and capabilities. However, there is more money to be made betting on positive outcomes at scale across these rapidly digitized industries, betting on the more volatile and fast moving startups being created, bought, and sold, or on the reliable, secure, and heavily regulated backbone of the largest business sectors today. Everything across this spectrum is being digitized and being made available via APIs today, we might as expand markets to include the continued creation, maturing, commodification, and rapid exchange of digital resources online.
I really do not like the bait and switch of free products, especially when the actual product is us and our personal data. It will get increasingly harder to make record profits in this way moving forward—regulation will continue to lock things down. I don’t have a problem with there being different layers of products, with the front layer being free—if there is a certain amount of honesty about why things are free. I’m guessing there are many startups out there who would jump all over free compute, storage, database, and other services in exchange for giving away the exhaust available off the top—especially if they are given a certain amount of visibility into this layer, and possibly across the entire industry they are operating in. I feel like this is one of the only ways we are going to get more standardization available across the API space. I mean, you are more likely to use a Schema.org compliant product API if it is free, than if you are going to have to pay for it all to be developed. With the essential building blocks of APIs becoming free we can stop seeing this layer as being our proprietary secret sauce and begin embracing more common standards, which in turn will create more interoperability, more exchange, and more activity—all of which will create more opportunity for new financial products to be derived. I feel like the real opportunity to deliver the next big seismic shift in the tech sector is to borrow a little from each of the API pioneers and out API the current cloud regime. Adopting a strict API-first approach to delivering all of the core services we need to operate in a digital world for free, but then also allows us to rapidly iterate on the next generation of resources, all while investing, betting, buying, and selling on the activity the occurs at scale across the tech sector—turning it into it’s own financial marketplace that is dependent on perpetually inventing what comes next.