Fortune USA 201904

(Chris Devlin) #1

FOCUS


39


FORTUNE.COM // APR.1.19


AMAZON GETS LOTS of credit and flak for turning retail
upside down; it also earns plaudits for its pioneer-
ing cloud-computing business. But in a still-unfurling develop-
ment, the seismic shift that Amazon wrought in the IT world has
spawned a whole new business category—providers of “APIs”—that
has already begun paying off for a few prescient investors.
Amazon Web Services, the tech giant’s cloud-computing
business, began as a way to boost affiliate marketing and power

e-commerce sites. But within a few
years, the project had incubated a
grander vision. Amazon bet—cor-
rectly—that it could make a killing
providing basic IT functions to
all kinds of businesses. The pitch:
Don’t worry about all that tedious
infrastructure upkeep, or about
computation, storage, or band-
width. We’ll manage it for you.
The idea became one of Ama-
zon’s primary growth drivers, con-
tributing revenues of $25.6 billion
in its most recent fiscal year and
growing at a healthy 47% clip—
and has become lucrative for rivals
like Microsoft and Google too. But
the cloud-computing boom has
also generated a powerful knock-
on effect: an API-related Big Bang.
APIs, or application program-
ming interfaces, are pieces of tech-
nology that act as bridges between
software applications. APIs enable
connection, like electrical outlets
porting to power grids: They’re
the conduits through which data
flows and interacts. “There’s been
this saying for the longest time
that software is eating the world,”
says Rishi Jaluria, an analyst at
D.A. Davidson & Co. Now, he says,

INVEST


“APIs are eating software.”
For corporate customers, API providers are
paring down the hulking software packages
that characterized the first generation of enter-
prise tech sold by the likes of SAP, Oracle, and
IBM. Purveyors of APIs reduce these packages
to their simplest component parts: Lego-like
modules for communications, payments, con-
tent management, electronic signatures, and
more. Customers get the same proposition that
made cloud computing so attractive. Some-
one else handles the humdrum tasks, so they
can focus on what matters. Uber and Lyft, for
instance, owe much of their breakneck growth
to the fact that they could turn to APIs for navi-
gation, sign-up, and transactions.
The prosperity flows both ways. As the tech
companies they serve expand, API providers
get to hitch along for the ride. Right now, few
API-oriented companies are profitable, but as
their data pipes and tools catch on, the leading

BETTING ON TECH’S


BUILDING BLOCKS


The cloud-computing boom has seeded a crop of
fast- growing companies that cater to software coders.
How investors can profit from the pursuit of API-ness.
By Robert Hackett

ILLUSTRATION BY CHRIS GASH

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