API First

API based businesses are a game-changer. They let other business focus on things that differentiate themselves and use more “off-the-shelf” solutions for other parts of the business. APIs have permeated into many verticals like payments(Stripe), e-commerce(Shopify), messaging(Twilio), search(Algolia), automation(Zapier) just to name a few. APIs form an integral part of the SaaS model. This is the glue that holds different pieces of a SaaS software together and yet it can invariably scale. One reason why they can scale so well is that these businesses that provide an API are focused to do one thing right and really well. So well, that their solution has all the bells and whistles to support all kinds of businesses across verticals and geographies. Then the question is can companies like that have a moat around them? What is it that gives them an advantage. Since these API’s are done on a software level, in theory it would be quite easy for a company to switch to another API provider down the line. The friction would be much less compared to changing a hardware supplier and the switching costs would be lower. Then one of the most important deciding factor for customers to stick to an API provider is integrations and network effects. The more a customer uses their product the better it gets. API companies are constantly improving their services and leveraging all the usage data and statistics to build a better product. In effect, the product will only get better and that is the advantage API companies can build and serve as their moat.

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