Over $500M invested in API companies in 2016, with 16 acquisitions

Software has infiltrated and fundamentally changed every aspect of our lives. How software is being developed though, is changing. Developers are actually building software differently— relying more on APIs and microservices.

It’s no surprise then that 2016 has been a huge year for the API industry. We exported data from TechCrunch to see how huge. Over $500 million was invested in companies where the primary business model was an API, or an application programming interface.

Over $500 million was invested in companies where the primary business model was an API, or an application programming interface.

As you can see from this infographic, there’s been some big API headlines this year. Twilio filed its IPO priced at $15/share. Stripe raised a $150 million Round D at a $9 billion valuation. But overall, in 2016, we saw three important things happen in the API space:

  1. Multiple API-focused companies (Twilio, SendGrid and Stripe) crossed the $1 billion threshold, proving the API economy is here to stay.
  2. Some bigger companies moved into using APIs for their software, showing APIs are reliable and scaleable.
  3. A lot of tools and aggregators have been created around APIs, giving developers more access to them.

Enterprises move from monolithic software to microservices

2016 was the year microservices really started growing. Introduced by Amazon and Netflix, microservices provide a new way for developers to create software. Rather than having one huge piece of code that does everything, enterprises are building multiple smaller microservices that each perform a small task. For example, a traditional app can be broken down into a user management microservice, a billing microservice, a file storage microservice, a notification microservice and many more.

This microservices approach introduces many benefits for software companies. Multiple, smaller pieces of code allows companies to have smaller teams manage different projects, and to reuse certain components (ex. user management) in multiple apps.

The rise of microservices across organizations lets us take the idea of reusability a step further. Some of these micro-services could exist in multiple companies. For example: most companies send emails, and many process credit card payments. Ergo, they could all use the same microservice.

This universal utility is the exact idea API companies are based on: provide one, basic functionality that many software developers can utilize in their apps. For the $9 billion Stripe, this piece of functionality was payment processing; for $2.2 billion Twilio, it was sending SMS and for >$1 billion SendGrid it was email delivery. For this new wave of companies, the API is the way to do business.

As companies move to using microservices, the choice becomes to implement software yourself or use a third party API. In many cases, the quality of those third party services and their price point make this a clear choice. As developers become more expensive, companies opt-in to using these off-the-shelf APIs. The move to microservices fueled the rapid growth of the API economy in 2016.

Larger companies make APIs publicly available to developers

APIs aren’t only the storefront of startups however. During 2016, the big cloud companies seemed to be joining the party as well. Just a month ago, Amazon introduced a host of new APIs during its Las Vegas Developer conference, Re:Invent. These new APIs let developers add smarter functionality into their apps.

Amazon isn’t the only one. This year, Google acquired API.ai (an artificial intelligince API) and Apigee (an API gateway), foraying into the API space. These acquisitions were closely followed by the launch of machine learning APIs to enable developers to sprinkle some Google wisdom into their apps.

Finally, IBM also made a big push into the API economy by promoting its’ set of machine learning, storage and communication APIs under the BlueMix and Watson platforms.

2016 was only the beginning

As more tooling and infrastructure is built around microservices and APIs, it’s clear that the software development paradigm is shifting. Rather than build everything internally, companies rely on third party APIs in their software to speed up their development process.

That being said, most of the >$400B software industry still relies on monolithic applications. Now that there are bigger players showing APIs are the way to go — more of the industry is going to shift into using them. I believe that this shift will fuel rapid expansion in the API economy, which is going to soar through 2017.