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API, SOA and why history doesn’t always repeat itself

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History and déjà-vu

In the early 2000s, service-oriented architecture (SOA) initiatives flourished because of three promising benefits:

  • increased business agility
  • enhanced reuse of IT capabilities
  • greater flexibility to affect change

Driven by IT leaders, SOA initiatives were intended to transform the architecture of the IT landscape and properly expose IT services.

Fast forward about 10 years, when studies estimated that only 20% of the SOA initiatives launched at the peak of the model's popularity were ever fully realized. Even among the successful ones, only a few generated the business value that was initially promised.

Now, in 2017, an old paradigm with intriguing similarities to SOA is gaining strong business momentum: the application programming interface (API).

APIs have indeed become one of the hottest business trends IDC Financial Insights reports that 25% of banks in APAC will deploy an API strategy by 2018. It is believed that the remaining 75% will follow soon or face the risk of being sidelined and miss opportunities that APIs represent in a new banking economy. [1]

Similarities and differences

With SOA and APIs, there are both parallels and contrasts:

  • For an IT architect, SOA and API-based architecture accomplish a similar goal: efficiently abstracting an IT capability from the applications and technology that deliver the service.
  • For a business analyst, both approaches focus on delivering consumable services related to a business process.
  • For a technology specialist, SOA and APIs are perceived as very similar as they use largely the same technologies.

So, what explains the sudden surge of interest in APIs, when it looks very much like a simple re-branding of a decade-old value proposition? We must consider three major differences.

New business opportunities are created by APIs.

Leading digital organizations such as Netflix, PayPal, Google and others have demonstrated how business value and innovation can be created by exposing digital capabilities through APIs. From day one, those organizations have designed their APIs outside-in and promoted them as a commercial offering to third-party stakeholders or applications.

Thus, they have created tremendous sources of profitability from their ecosystem, beyond the revenue generated from traditional consumers of their products. For a company like Salesforce, for instance, the revenues from their APIs are estimated to represent more than half the company’s total revenues!

Of course, the success of digital natives is not fully replicable by old-time industry incumbents. But it clearly demonstrates that an API strategy can profoundly affect the business model of an organization. Exposing APIs – whether public or private – creates opportunities to turn highly valuable digital assets, often locked within the boundaries or silos of the organization, into new business capabilities or products, as well as to extend the reach of existing services or provide new revenue streams.

There is an increased perceived value of IT agility.

The investment in APIs and the associated IT architecture required to support APIs is also an investment in the company’s IT agility. That makes the business case for an API investment easier to build than the one for SOA initiatives used to be, because IT agility is at a premium today and is perceived as a critical capability for organizations.

Indeed, with the accelerated digitalization of operating models, it is now widely accepted that IT agility is equal to or nearly the same as business agility. Even at the highest levels of organizations, business leaders recognize the value of IT agility as an investment in their ability to adapt and leverage their digital capabilities to innovate and scale faster.

Agile principles inspire a concrete approach.

API initiatives are often designed with a “start small, think big” approach. It is very common for organizations to start their API strategy with the release of half a dozen APIs within one specific business domain, exposing a limited set of internal digital capabilities. This incremental approach provides concrete milestones that make the project easier to be promoted internally. It is in contrast to typical SOA initiatives that were often presented by IT teams as a long-term architecture transformation program, one that required significant resources in order to generate potential future returns.

I believe this is a very reasonable way for organizations to explore new strategic options within their industry value chain, as well as to learn how to properly manage APIs as a service provider. Consider for instance, the OCBC Bank based in Singapore. Its first set of APIs let its customers send money through Apple iMessage to people on their contacts list. While this is a narrow banking capability, starting their API strategy with this business case was a highly valuable experiment that showed the bank a path to increase its openness within an ecosystem. It has now spread way beyond the boundaries of the traditional financial services industry.

The opportunity for architects

While SOA initiatives were a tough sale for IT leaders in the early 2000s, API strategies have significantly higher brand equity, based on three main promises:

  • new sources of revenues by leveraging unique digital capabilities
  • development of improved business agility through increased IT agility
  • delivery of visible, tangible short-term results

Of course, high expectations come with significant challenges. Extracting scalable digital capabilities from an existing IT landscape that was not initially designed with this purpose in mind will generate tremendous architectural difficulties and affect the existing IT portfolio.

Meeting this challenge will require the solid involvement and strong support of enterprise architects and IT architects, for whom an API initiative will be a great professional opportunity to be at the center of a strategic idea destined to unlock the value of digital capabilities, to empower sustainable innovation and to increase business agility.

Read our eBook: Leading API Economy with an Open IT Architecture in Financial Services


Reference

1. IDC Perspective: Moving Toward Open Banking APIs: Opportunities and Threats in Asia/Pacific Banking, 2017

Comment

History and déjà-vu

In the early 2000s, service-oriented architecture (SOA) initiatives flourished because of three promising benefits:

  • increased business agility
  • enhanced reuse of IT capabilities
  • greater flexibility to affect change

Driven by IT leaders, SOA initiatives were intended to transform the architecture of the IT landscape and properly expose IT services.

Fast forward about 10 years, when studies estimated that only 20% of the SOA initiatives launched at the peak of the model's popularity were ever fully realized. Even among the successful ones, only a few generated the business value that was initially promised.

Now, in 2017, an old paradigm with intriguing similarities to SOA is gaining strong business momentum: the application programming interface (API).

APIs have indeed become one of the hottest business trends IDC Financial Insights reports that 25% of banks in APAC will deploy an API strategy by 2018. It is believed that the remaining 75% will follow soon or face the risk of being sidelined and miss opportunities that APIs represent in a new banking economy. [1]

Similarities and differences

With SOA and APIs, there are both parallels and contrasts:

  • For an IT architect, SOA and API-based architecture accomplish a similar goal: efficiently abstracting an IT capability from the applications and technology that deliver the service.
  • For a business analyst, both approaches focus on delivering consumable services related to a business process.
  • For a technology specialist, SOA and APIs are perceived as very similar as they use largely the same technologies.

So, what explains the sudden surge of interest in APIs, when it looks very much like a simple re-branding of a decade-old value proposition? We must consider three major differences.

New business opportunities are created by APIs.

Leading digital organizations such as Netflix, PayPal, Google and others have demonstrated how business value and innovation can be created by exposing digital capabilities through APIs. From day one, those organizations have designed their APIs outside-in and promoted them as a commercial offering to third-party stakeholders or applications.

Thus, they have created tremendous sources of profitability from their ecosystem, beyond the revenue generated from traditional consumers of their products. For a company like Salesforce, for instance, the revenues from their APIs are estimated to represent more than half the company’s total revenues!

Of course, the success of digital natives is not fully replicable by old-time industry incumbents. But it clearly demonstrates that an API strategy can profoundly affect the business model of an organization. Exposing APIs – whether public or private – creates opportunities to turn highly valuable digital assets, often locked within the boundaries or silos of the organization, into new business capabilities or products, as well as to extend the reach of existing services or provide new revenue streams.

There is an increased perceived value of IT agility.

The investment in APIs and the associated IT architecture required to support APIs is also an investment in the company’s IT agility. That makes the business case for an API investment easier to build than the one for SOA initiatives used to be, because IT agility is at a premium today and is perceived as a critical capability for organizations.

Indeed, with the accelerated digitalization of operating models, it is now widely accepted that IT agility is equal to or nearly the same as business agility. Even at the highest levels of organizations, business leaders recognize the value of IT agility as an investment in their ability to adapt and leverage their digital capabilities to innovate and scale faster.

Agile principles inspire a concrete approach.

API initiatives are often designed with a “start small, think big” approach. It is very common for organizations to start their API strategy with the release of half a dozen APIs within one specific business domain, exposing a limited set of internal digital capabilities. This incremental approach provides concrete milestones that make the project easier to be promoted internally. It is in contrast to typical SOA initiatives that were often presented by IT teams as a long-term architecture transformation program, one that required significant resources in order to generate potential future returns.

I believe this is a very reasonable way for organizations to explore new strategic options within their industry value chain, as well as to learn how to properly manage APIs as a service provider. Consider for instance, the OCBC Bank based in Singapore. Its first set of APIs let its customers send money through Apple iMessage to people on their contacts list. While this is a narrow banking capability, starting their API strategy with this business case was a highly valuable experiment that showed the bank a path to increase its openness within an ecosystem. It has now spread way beyond the boundaries of the traditional financial services industry.

The opportunity for architects

While SOA initiatives were a tough sale for IT leaders in the early 2000s, API strategies have significantly higher brand equity, based on three main promises:

  • new sources of revenues by leveraging unique digital capabilities
  • development of improved business agility through increased IT agility
  • delivery of visible, tangible short-term results

Of course, high expectations come with significant challenges. Extracting scalable digital capabilities from an existing IT landscape that was not initially designed with this purpose in mind will generate tremendous architectural difficulties and affect the existing IT portfolio.

Meeting this challenge will require the solid involvement and strong support of enterprise architects and IT architects, for whom an API initiative will be a great professional opportunity to be at the center of a strategic idea destined to unlock the value of digital capabilities, to empower sustainable innovation and to increase business agility.

Read our eBook: Leading API Economy with an Open IT Architecture in Financial Services


Reference

1. IDC Perspective: Moving Toward Open Banking APIs: Opportunities and Threats in Asia/Pacific Banking, 2017