The "bundling" strategy of unified APIs

APIs are eating the world

Feb 21, 2024

Jim Barksdale, the former CEO of Netscope, once said there are "only two ways to make money in business: one is to bundle; the other is to unbundle."

The world is either being taken apart or being put together.

Bundling can be a successful business model in software development and this is happening in every domain in the form of “unified APIs”. This is simply due to the explosion of API-first companies and the growing need for new technologies & SaaS solutions to connect with others.

The growth of API-first companies has led to the need for easier ways to integrate with more APIs. This is where unified APIs come in. These are companies like Stripe, Plaid, and Rutter, that bundle access to a group of APIs.

In this post, we’ll go over the following:

A brief history of APIs
The strategy
Why it matters
Unified API companies
Continued reading

A brief history of APIs

What is an API?

In the words of ChatGPT for an easy-to-understand definition:

API stands for Application Programming Interface.
An API can be thought of as a mediator that allows two different applications to talk to each other. For example, when you use a social media app on your phone to display weather information, the app uses an API to retrieve the weather data from a remote server. This enables the seamless integration of features from one service (weather information) into another (the social media app) to enhance the user experience.

Or, you can just think of APIs as providing building blocks for applications.

Early days

Point-to-Point Integrations (2000s): APIs initially emerged as point-to-point solutions, allowing one application to connect directly with another. Building and maintaining these custom integrations was time-consuming and expensive, hindering wider adoption.
API Management Platforms (2010s): API management platforms like Apigee and MuleSoft streamlined API development and deployment, but integration complexity remained a challenge, especially for businesses using numerous applications.

The dawn of unified APIs

SaaS Explosion and Integration Fatigue (2010s-2020s): The proliferation of SaaS solutions led to "integration fatigue," with businesses struggling to manage the growing web of connections. This paved the way for a new breed of unified API companies.
Vertical-Specific Solutions (2020s onwards): Unified API companies emerged, focusing on specific software categories like CRM, HRIS, or accounting. These platforms act as abstraction layers, providing a single API endpoint to access data and functionality from multiple vendors within that category.

The strategy

Bundling is the practice of grouping multiple products or services and then selling them as a single unit at a combined price. It can be a product and/or a pricing strategy.

A unified API bundles many APIs and provides access to those services via a single API. For example, if you want to build a FinTech app, you may want to integrate with many of the e-commerce sites for your service. Instead of building all of those integrations yourself, you can leverage a bundled API to integrate with all of those services from one source. It’s an abstraction that reduces repetitive tasks, and effort, and helps to accelerate time to market.

Activant Capital “Unified APIs, building connections”

An example in our daily lives is Amazon Video. They bundle access to different subscriptions and access to various channels all through one interface.

The business model is being applied to almost all industries from finance to automotive to AI.

There are numerous benefits to customers who consume a unified API:

Reduced engineering effort to build integrations
Lower operational drag (reduced engineering for maintenance)
Reduced complexity (abstracting away differences of each service)
Reduced effort to learn different platforms that have numerous nuances
Reduced effort to maintain access to many services or platforms
Accelerated time to market for new products
A better developer experience

Unified APIs typically have the following characteristics:

Vertical & horizontal approaches
Typically designed for developers
They normalize data
Have a common interface
Language or platform agnostic

Why it matters

We’ll continue to see more unified APIs brought to market for 3 reasons:

New platforms (think Gen AI) spur the creation of new vendors, which bring new APIs to market.
New APIs within verticals present opportunities to apply the business model.
Applications continue to become more interconnected

For example, if you are building an AI application. You may not want to rely on just one LLM for the ‘brains’ of your application. New LLMs will continue to be birthed and people will want that optionality, thus providing an opportunity to build a unified API and commercialize it into a company.

Or, perhaps… AI will just write the integrations for us.

This will lead to new investment opportunities for angels and VCs.

Understanding the model and where they are, or aren’t, will help you spot new investment opportunities.

Unified APIs provide a way for legacy vendors to play with new vendors.

This is simply through abstracting away the clunkiness or complexity of those vendors by providing a more modern experience via the new bundled API interface.

Integrations are often a significant requirement when evaluating SaaS vendors.

SaaS companies will continue to adopt unified APIs to ship integrations faster to stay competitive & to increase stickiness, thus positively impacting NRR.

Value creation through application networks connected through APIs

The largest transformations in the world economy have often been the result of network effects. Throughout human history, remarkable progress has been made by networks: railway networks in the 1800s; telephone networks in the 1900s; computer networks in the 1980s; internet networks in the 1990s; and social networks in the 2000s. Networks are so powerful because every new node within a network increases the value of the entire network since the data and capabilities of that new node are discoverable and consumable by all other nodes in the network (Metcalfe’s Law). A few years ago, we at NEA began investing in a new network: the application network. We expect application networks to transform enterprise software and create a tremendous amount of value for businesses, consumers, and users alike. - NEA & Mulesoft: the rise of application networks - NEA

Companies in the Unified API movement

Below is apideck’s website for tracking unified API providers at unifiedapis.io and several company examples. I was not expecting to find companies in the construction or automotive markets.

Unified API Market Map