The Secret Behind Uber’s Industry Disruption: The API-Economy

Photo by Ryan McGuire

INTRO

Within a timeframe of just six years, Uber’s exponential growth catapulted the company to a valuation of USD 62.5 billion, a number that is close to the market cap of industry titans like BMW and Volkswagen. Uber’s services are available in over 300 cities worldwide, and 1 billion drivers are on the road for the company.

ORCHESTRATION OF SPECIALISTS INSTEAD OF REINVENTING THE WHEEL

Making Uber’s services possible requires a lot of components: the geographic location of the user as well as that of the potential drivers has to be determined; the distance between the two and the most practical route must be calculated via a map; the user should receive push notifications to announce the imminent arrival of the driver; payment must be facilitated via the app without cash, and a receipt is to be sent via e-mail; the app must operate without interruption even during peak demand.

CONSEQUENCES OF THE API ECONOMY

The availability of these services levels the playing field for large and small companies. Now, with an investment of only a few thousand Euros, startups can create a product that, from the customer’s perspective, is indistinguishable from a multi-million-dollar project that took years to build. Thanks to the API economy, you no longer have to be a giant to make a great impact:

FOCUS ON USER EXPERIENCE INSTEAD OF LEGACY SYSTEM

Even though other banks now also offer identity verification by webcam, their speed of development is still determined by their legacy systems — impediments number26 does not have to deal with. It can focus all its attention on just the aspects that actually matter to the customer and enable a differentiation at the user level: product design and user experience.

STRATEGIC RELEVANCE OF APIS

The number26/Wirecard Bank example not only demonstrates the cost effectiveness of developing new services via APIs, it also shows the strategic relevance of APIs: by offering external customers the entire spectrum of banking services via an API, Wirecard Bank benefits from the innovations of new players who experiment with a variety of approaches for a customer banking experience and thereby generate new customers for Wirecard Bank. If some of these approaches are unsuccessful, this is not a problem for Wirecard since the bank did not invest its own money in these trials.

By making your own core competencies accessible via API you become part of an ecosystem and no longer have to develop all ideas on your own or implement them with your own investment.

NO SUCCESS WITHOUT ECOSYSTEM — NO ECOSYSTEM WITHOUT API

Twitter became a textbook example of this principle: while early development was slow and most users found the platform unintuitive and almost inoperable, Twitter was able to benefit from the ideas of a broader community of developers by offering an API.

USER EXPERIENCE BECOMES INCREASINGLY IMPORTANT

However, the new possibilities afforded by integration also carry some risks for service providers that are associated with the advantages of increased distribution: for example, you can now book Uber services directly from Google Maps. Will this lead to a commoditization of the service? Will it matter to the user if the service is provided by Uber, Lyft, or another entity when Google Maps becomes their interface for interacting with this service? Will this have negative effects in terms of loyalty to a specific service if the interface layer (in this case Google Maps) is placed over this service?

Uber integrated into Google-Maps (Source: Medium)

AGILITY THROUGH APIS: TWO-SPEED IT INFRASTRUCTURE

The API strategy is not a binary decision: APIs can be publicly available to all, or only a limited few. It is only via the creation of APIs, however, that incumbent companies that have to deal with the complexity of their legacy systems can actually develop the speed and agility required for survival.

CONCLUSION

Only by using APIs can companies go to market quickly, and only by providing APIs and establishing an ecosystem can they scale up to be competitive.

Every company must therefore develop a clear API strategy that will determine the success and survival of the company in the coming years.

In this process it is key to clearly determine the core competencies of the company. These should be strengthened by integrating everything somebody else can provide better into the core product via API without having to reinvent the wheel, while making the core competency itself available to others via API.

  1. What determines the winner is simplicity (and speed) of use — the most successful companies reduce inefficiencies.

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Founder at http://creativeconstruction.de Author of books on AI, internet, blockchain and digital strategy.

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