I'm a nerd. 100 different people will tell you. That's why I have more than one API anecdote in my back pocket, but the Netflix example is my favorite. First, let's cover the basics -- what is an API?
Application Programming Interfaces (APIs) are sets of subroutine definitions, communication protocols, and tools for building software. Essentially, APIs are digital services that allow applications and software platforms to talk to each other, rapidly requesting/receiving data or information. The definition isn't as important as the fact that we use them constantly in our every day life:
- Amazon Alexa leverages APIs to accept and respond to your verbal requests.
- Lutron wireless light switches leverage APIs to turn your lights on and off from your smart phone.
- General Motors API is used to unlock doors and activate car alarms from multiple devices.
APIs are reusable web services for multiple devices and application, can be consumed by more than one company, firm, fintech, and for use cases that have yet to be determined while still maintaining the utmost security.
But why is Netflix my favorite? The competition. David vs. Goliath in a technology arena. The story. And the complete industry transformation that occured.
In the early 2000s, Blockbuster had 9,000 locations worldwide, 40% of the video rental market, 25,000 employees, and was valued at $9 billion. It was Viacom's cash cow with a capital M-O-O and their business model was pretty straightforward. You would go to one of their locations and rent a video tape (or DVD for someone my age) for 2 days. You would take it home, pop it into the VCR or DVD player and give it a watch. Blockbuster relied on most people forgetting to return the tape or DVD within the time frame, charging them with late fees and in the money rolled.
Along comes Netflix, founded in 1997 by Reed Hastings and Marc Rudolph, who had a different perspective on the disruption of video consumers. Introducing a monthly subscription model of $15-20 per month for unlimited movies, they began to chip away at the business model that relied on brick and mortar locations. They did away with late fees and let you return the DVDs when you wanted without penalty. Then they introduced the Netflix API, digitizing the distribution of video to consumers for streaming to their devices. The industry would never be the same.
Blockbuster recognized the threat and engaged them in a pricing war that almost ended the disruption. On a 2007 conference call, the Netflix CEO, Hastings, mentioned Blockbuster 22 times and was quoted saying that Blockbuster has thrown everything at them except "the kitchen sink." The next day Hastings received a large box in the mail. In it was a kitchen sink with a note from Blockbuster CEO, John Antioco, saying: "Here's your sink."
Netflix was on the brink, and at one point even offered to sell to Blockbuster for the small sum of $50million, but they focused on the digitization of video consumption through the API platform on their website, apps, Smart TVs, cable providers, and other devices. In 18 months, Blockbuster lost 85% of its value and in 2 years, all of it. Netflix was worth $83 billion in 2017 and $156 billion in 2019, now turning its sights on the movie industry itself.
All you have to do is read about companies like Stripe, Twilio, and Uber to learn more about how APIs are altering other industries such as payments, communications, and travel. The finance industry is not insulated from digital transformation. Do you still fill out most of your paperwork using hard copies? Paying friends with checks anymore? Do you still need a broker to buy a stock?
APIs are playing a mostly hidden, but larger role in our everyday lives and across industries, redefining integration among firms, partners, banks, and even competitors. Nobody wants to be the next Blockbuster, but everyone wants to be the next Netflix.
--Matt D'Lauro API Program Director, Solutions