In responding to a quickly changing world, being able to release new apps and websites quickly is no longer a ‘nice to have’ option, but rather a survival need. With brick and mortar taking time off in 2020, digital is do or die, and companies are making bigger and bolder investments in their developer tool chains to support this development need. One segment that has seen a tremendous uptake as part of that is the API space.
APIs – or application programming services – are components that developers can connect to “as a service” instead of having to build certain functions from scratch. That way, instead of building services for email delivery, user management or location data – all of which will take time and headcount – developers can tie into existing APIs and shorten the development time of new products.
APIs have been around for a few years and have created tremendous economic value. Twilio and SendGrid – both companies offering communications APIs – have IPOed in 2016 and 2017 respectively for billions of dollars. Stripe – a credit card processing company – has $600M at a $36B valuation, while their competitor – Adyen – reached a $46B market cap – up 114% in 2020.
It seems like the accelerated push to digital in 2020 is helping further propel the API economy, and creating a great environment for companies creating APIs and for companies creating API tooling.
In the private sector, investments in API companies have soared in 2020, reaching a staggering $2.1B in the first 10 months of the year, a 23% increase over the same period in 2019. Overall, between 2016 and 2020, investments in API companies have risen 94% YoY, while overall private tech investment grew by 22%.
Some of the notable rounds of the year include Stripe – a payment processing API company that raised $600M in a Series G in April. Around the same time Postman, RapidAPI and Auth0 raised money as well – all in the midst of the COVID-19 pandemic. This goes to show that investors’ faith in the sector has not waived during the crisis.
API companies have similarly outpaced the broader technology sector in public markets in 2020. Looking at a handful of public companies developing APIs like: Twilio, Adyen, Okta and Bandwith, we can see that they grew between 90% and 180% in the first three quarters of 2020 – far outpacing the NASDAQ index which grew 26% in the same period.
This year also started with Visa – the credit card giant – announcing plans to acquire Plaid, a banking information API. The deal, which was recently challenged by the DOJ in an anti-trust suit, goes to show the value Visa places in getting into the API space and bolstering its API position. In a way, the DOJ challenge itself can be seen as an affirmation of the important roles APIs play – so important as to concern the federal government.
A lot of the trends that make the API economy so important: the move to digital, the reliance on software, and the rise of the internet, are all here to stay, and so it is reasonable to predict many of these companies will continue growing in the years to come, and provide plenty of opportunities to participate and benefit from this new API economy.