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integration with company partners and allow third parties to consume organisational
data and lead to cross-selling and upselling opportunities down the line.
The distinction between internal and external APIs introduced above helps us to
better understand the benefits of API technology in terms of systems integration and
data sharing within and across firms. Scholars suggest that at the heart of systems
integration are the principles of interoperability and modularity (Bodle, 2011). In their
work “Design Rules”, Baldwin and Clark (2000) discuss how modular designs can be
superior to interdependent designs because they provide more flexibility and
alternative options. Drawing from examples from the PC manufacturing sector
between the 1950s and 1990s, they assert that modular architecture in computers
led the industry to evolve from a concentrated structure to a highly dispersed sector.
In order to govern the system architecture and achieve compatibility amongst the
various modules that were produced independently, design rules were introduced by
platform leaders such as Intel Corp., and followed by all designers and
manufacturers alike to ensure that hardware components worked together.
Software systems can be interoperable with the use of standardized data protocols
and transparent interfaces in the same way (Cowhey et al., 2009). In this
perspective, APIs can “enable interfaces, services, and applications to connect
seamlessly with one another, making digital content accessible” between a wide
range of independent applications (Bodle, 2011, p.325). API technology provides a
customary interface (based on a set of agreed-upon standards) and a layer of
abstraction that reduces complexity and allows API-consuming systems to “plug-
and-play” without the need to know the specifics of the API-provider’s systems. In
return, APIs can be consumed like a service and can be “agnostic” to the consuming
devices or applications that connect to it. Such interoperability between modular
systems can lower technology costs and accelerate innovation as the heterogeneous
ICT building blocks can evolve independently and according to demand, available
resources, and technological progress (Baldwin and Clark, 2000).
While the benefits of interoperability and ‘non-discriminatory standardisation’ among
heterogeneous technical systems using APIs can be obvious, there is still the
question of how open such systems should be. A meaningful way to explore this is to
consider private versus public or open APIs. Private APIs can either be internal APIs,
offered to facilitate within-firm integration and operational efficiency across an
organisation or external APIs that are highly customised and designed specifically for
partners who want to interface directly with their suppliers or customers. Private APIs
are exclusive to staff and third-parties with contractual agreements and usually
unnoticeable otherwise. These private APIs are already commonly used by banks
and provide incredible value to organisations.
On the other hand, public or open APIs are accessible by almost anyone and
available to use with “little or no contractual arrangement” – beyond agreeing to the
terms and conditions put forward by the API provider (Jacobson et al., 2012). This
allows organisations that provide open APIs to create digital economies or business
platforms, through which, communities of innovators can develop API-consuming
applications and pay a fee for using the API. This kind of monetisation of APIs is an
essential part of the API-economy. However, as we will see later, the implications of
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