Digital Value Chain in API Economy
Value chain is a sequence of transformation processes, like an assembly line of factory, but spread across industries to let different organizations to participate in it for value creation. Every organization is dedicated to a specific task and they deserve their places in the chain. Digital value chain in API Economy is a software automated specialization of value chain.
The value chain consists of processes. Each process gets input from the previous process, adds value and provide output for the next process. The input of process is the output of previous process. The value adding processes are linked together to form a value chain for incremental value creation.
In the industrialized form the processes can be provided by different organizations, each specialized to own field and task to earn their places in the value chain. Digital value chain in API Economy is automated chain of APIs to process algorithms with Data and to transform Data.
Basic digital value chain with an API
Organization decides to open a digital asset, e.g. Data, for others to use. API Owner discovers an opportunity with idea to build an API to use the digital asset. API Owner builds an API product and publishes it for API Customers to hook into. API Customer finds an attractive API, develops an End User Application and puts it available with teasers for the end users. End user finds the application, e.g. from a store, and installs it ready for use.
Value chain is formed as an end to end path, as show in the picture below as red line. The value increases through the value chain from left to right.
End user start using the application. The application uses API, which again uses Digital Asset to deliver its promise. The end user activation creates a digital value chain from the digital asset to the end user, as shown in the picture below. Value increases incrementally through the digital value chain from left to right.
Like in any value chain the value add is not free of charge, because the value increments require energy to be loaded up in one way or the other. Depending on the business model the participants are paying to each other to keep the value chain in execution. More about this in a separate blog.
Consequence 1: Extended value chain
APIs are used by other software. In addition to applications, another API may use an API. This gives nice flexibility to build new increments on top of existing digital value chain.
The basic digital value chain with one API:
Extended digital value chain with two APIs:
In this scenario the leftmost API is the common in both value chains. That API is used by the other API. Eventually the API Customer decides which API to use by the Application to delight end users the most. In this scenario both applications are different ones to serve the same end user.
Consequence 2: long chains
Because the high reusability aspect of API, in theory the value chans can be very long ones. There is no limitation.
In practice the current technologies have a latency element in every step which is experienced as delay by the end user. In the future this problem will be solved out to allow extreme high reusability with high traffic and good business with APIs.
Consequence 3: value network creation
In the extended and basic chains, if the leftmost API is the same, that API forms a node of value network. The node merges two chains together for lower leg of value chain. The node APIs are indicated by red ball in the picture below.
Future impact
The API Economy will cause dramatic changes on how the software products are built and being full time available online across the Internet. This high reusability enable various business models to take place in the near future.
The writer is an Apitalist of APInf Oy, helping organizations to participate in API Economy, as well as helping API and Application developers come together around API Management platforms to form ecosystems and standardize APIs of the World.
