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APIs are an essential part of modern software development, and their popularity is continuing to grow. According to Postman’s 2022 State of the API report, 89% of investment in APIs is expected to increase or remain the same over the next year. The increasing use of an API-first approach is fostering innovation and supporting the growth of new startups in this field. This trend is highlighted by research from GGV Capital, which maintains an index of leading developer-first software companies that prioritize APIs.
The API-First Index tracks companies that prioritize APIs and has raised at least $50 million in funding. As of Q3 2022, the number of such businesses on the index has grown to over 60. In the third quarter of 2022 alone, companies on the index raised $350 million in funding, bringing the total amount of funding represented by the index to over $14 billion. Clearly, there is growing interest and investment in this space, and this trend is likely to continue in the coming year. As the importance of modularity in software development increases, the API-first approach will become increasingly important. It is worth keeping an eye on this area as it develops.
DevOps recently spoke with Tiffany Luck, a partner at GGV Capital who is responsible for the API-First Index. In the conversation, they discussed the index in more detail and Luck provided her perspective on why these findings represent a significant moment for API-first technology and business models.
The API-First Index focuses on companies that offer specialized functionality through APIs, also known as API-as-a-product. The list includes a variety of API-based tools from FinTech, communications, healthcare, commerce, and other sectors.
For example, Stripe is probably the best-known API-as-a-product, as it is commonly used by businesses to accept payments. MessageBird is another example, providing an API for sending notifications across various channels. Other examples of API-as-a-product include Mapbox, an API for geolocation data, Mux, an API for creating live and on-demand video experiences, Nylas, which offers a popular email API, Alpaca, an API for stock and cryptocurrency trading, and many others.
Currently, the index does not include the entire API platform landscape, which encompasses tools such as API management, testing, documentation, monitoring, design, security, and observability, as well as middleware integration platforms. If these were included, the list of well-funded API-related toolsets would undoubtedly be even longer.
The number of people who are choosing to build API-first companies is growing rapidly. These API-based web components are interchangeable and represent the future of software development. “The world is moving towards web and cloud components,” said Luck. This trend is global, with significant activity in Europe, Asia, and the United States. Furthermore, API-based business models have proven to be resilient despite the ongoing economic uncertainty and patchy venture capital funding in 2022. “APIs are holding up very well compared to the broader venture capital landscape,” said Luck.
Why are APIs generating so much excitement? One reason is that people are looking for high-quality structural components that can be used to build common features such as geolocation, AI, weather, payments, or specific CRM functions. Niche APIs can quickly provide specific features without the overhead of a larger platform. Another reason is that API-based delivery models are effective at building a self-service platform that grows over time, which is very attractive to investors, according to Luck.
When evaluating API-first companies, Luck looks for those that offer B2B solutions to complex, shared problems. This means reusable functionality that is difficult to build, maintain, and scale on an individual basis. The solution must also address a need that is common across companies but is not core to their products.
For example, Luck has identified some impressive API-first use cases. Stream, for instance, powers in-app user-facing features, while Knock offers solutions for handling notifications. However, many of the most challenging areas are in financial services, as this functionality is difficult to develop from a regulatory and connectivity perspective. Examples include Pinwheel, which aggregates real-time income and employment data, and Method API, which does something similar but for aggregating consumer debts.
Luck described APIs as a “modern way of accessing what would otherwise be technically inaccessible.” This is evident in the field of open banking, where new standards around the world are requiring consumer financial data to be programmatically accessible, often through an API connection.
In a highly competitive market flooded with powerful developer-facing tools, non-functional aspects such as developer experience (DX), security, performance, and reliability are becoming more important. According to Luck, developer experience is probably at the top of the list, as it encompasses many of these traits. Specifically, developer tools with high-quality DX have excellent documentation and must maintain backward compatibility to avoid breaking changes on the customer side. “Ultimately, what you’re implementing affects the end customer of that customer,” she said. “Customers want zero negative impact and zero disruption.
The API-First Index is beneficial for the industry as it helps educate the public on private investment rounds. As discussions about the index increase, it raises awareness and visibility of the benefits of building API-first.
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