What APIs Mean for the New Software Economy

APIs Nov 11, 2020

In this snippet from his fireside chat with Kenn Cukier, Marty Chavez outlines his view of APIs as the future mode of product delivery and collaboration within and between organizations.


Transcript:

Marty: But then you alluded to something else that to my mind is one of the most important things going on in the world. Might sound a little bit esoteric, or even geeky, but it is the API economy, right? So we don't know how, for instance, OpenAI is going to make GPT-3 available, exactly. But there's certainly a lot of discussion about giving API access to it. You'll have to pay for it, but you won't have to spend the tens of millions of dollars of electricity just to train it up. I won't go so far as to say that that will democratize AI and machine learning, but the possibility is there.

Kenn: But it's pretty grandiose. In economic theory, we had Coase who told us about transaction costs and asked the question of, “What does a firm keep within its four walls? And how does it interact with others?” And of course, the whole point about the API economy is that it's, there's a sort of, collaboratory and combinatorial capitalism that has much less friction now. So what are the opportunities?

Marty: That’s super exciting. Well, I'm glad you asked that. I just taught a course at Stanford in the spring. It was an amazing experience, and it was about software eating finance, specifically. And the central thesis that I have is - and we could debate, it's not like it's guaranteed to be right - but the old dichotomies that we always used to think of finance - the buy-side versus the sell side, a market infrastructure provider such as an exchange versus a user of the exchange, people who distribute market data, such as Bloomberg versus people who consume it. That's how we thought about finance since forever. I think that is all giving way to a new API economy, and in this economy there are going to be a lot of participants in the financial system. Some will be banks. Some will not be banks at all. And everybody needs to be a world class provider of some product or service.

You don't get to have a hundred of these providers, but you maybe get to have three to five. And then everybody needs to be an astute consumer of services provided by others. And so you're really just consuming a lot of APIs, and you're producing a smaller number of APIs. And so it's the orchestration and the management of risks, because of course, what you don't want is a single point of failure - one of your APIs that's being provided to you goes out, and then your whole service stops. You can't do that.

And then another thing that I find fascinating on your point on transaction costs is look at Amazon, who's really been the seminal pioneer in this API economy. Here's one narrative of Amazon: they are looking at every expense line item that they have and asking whether they can put an API around it and turn the expense line into a revenue line, starting with Amazon Web Services. But why stop there? They’ll go onto logistics and every other aspect of its business.

So you really are seeing the economy being turned around through APIs... in a way that has existed in the past, you know, we standardized tire sizes - that's a kind of API - but now we're doing it across the board.


Watch the full fireside chat here:

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