The phrase “digital transformation” means many things to many companies.
For L Brands, owner of international brands like Victoria’s Secret and L Senza, digital transformation is about a new global online platform to engage interactively with customers. For Mars, one of the world’s largest food manufacturers, it is about using design thinking to create a digital engine for responding rapidly to changing market demands. For Air Malta, it is about collaborating with other airlines to co-create value for customers, integrate offerings, and utilize best-of-breed flight management capabilities.
The variety of initiatives can be dizzying, but ultimately they have one thing in common. Digital transformation is about operating digital businesses. Understanding digital operations, and especially the digital supply chain, is the key to methodical, results-driven execution.
APIs and the digital supply chain
In the supply chain for physical products, goods are manufactured from disparate parts, distributed through various channels, then sold to customers for consumption. The digital supply chain follows a similar pattern. Digital products are founded on data and infrastructure, developed as software-centered systems, distributed through direct and indirect channels, and then consumed and experienced by customers.
The connectors in this supply chain are APIs, the interfaces that allow access to data, enable automation of infrastructure, and power the applications and devices that provide the customer experience. Whether you are surfing the web, engaging with a mobile app, or talking to Alexa, there are APIs behind the user interface making the digital magic happen.
Furthermore, APIs themselves can be standalone digital products. Digital innovators like Salesforce and eBay recognized early on that by offering their services as programmable interfaces to the public they could open up new possibilities for their business. When the API is the digital product, it is developers who are the consumers. In turn, these developers may build new digital products–perhaps APIs as well–creating an interconnected network of offerings with almost limitless possibilities.
A catalyst for digital transformation
Even within an organization, APIs can be transformative. They are the secret of Amazon’s legendary transformation from a marginally profitable online retailer to a company that is now synonymous with digital innovation.
In the early aughts, Amazon was a troubled company at a crossroads. Engineers were fleeing to Google in droves, not only because the pay and perks were better, but because Google was far more technologically advanced. Amazon ran on an aging, inefficient sprawling infrastructure that frequently broke down. Chief Technology Officer Werner Vogels would later describe it as held together by “duct tape and WD40 engineering.” Access to the company’s servers was severely restricted, forcing technical teams to plead for resources. “You had a set of folks running these machines who were the priesthood of software, and the rest of us were railing against it,” Chris Brown, a software development manager told Brad Stone, author of The Everything Store: Jeff Bezos and the Age of Amazon.
Bezos realized he had a problem. To solve it, he directed Amazon engineers to break down the company’s infrastructure into stand-alone components that developers could access freely. Payments, processing, messaging, storage, bandwidth, database functionality, and compute were all to be conceived as primitive building blocks, and communication was to be done through APIs.
Amazon’s API mandate
Bezos issued a now-famous mandate stating that “all teams will henceforth expose their data and functionality through service interfaces.”
The mandate, which was revealed by Steve Yegge, a former employee, in a Google+ post, contained at least four specific commands:
- Teams must communicate with each other through these interfaces.
- There will be no other form of inter-process communication allowed: no direct linking, no direct reads of another team’s data store, no shared-memory model, no back-doors whatsoever. The only communication allowed is via service interface calls over the network.
- It doesn’t matter what technology they use.
- All service interfaces, without exception, must be designed from the ground up to be externalizable. That is to say, the team must plan and design to be able to expose the interface to developers in the outside world. No exceptions.
Engineers followed this prescription, iteratively breaking down the monolithic application backbone into smaller services fronted by APIs. Small, cross-functional teams owned these services from ideation through operation, an approach that ran counter to the horizontally-siloed structure favored by enterprise IT organizations at the time. The combination of service-based communication and team independence made Amazon incredibly agile, especially for a large and growing organization.
This API-led approach was used in Amazon’s infrastructure provisioning services, a key capability needed to sustain their unprecedented growth. Recognizing their own strength in standing up new environments for developers—and recognizing the growing need for developers to have access to on-demand compute and storage resources—Amazon was able to build an innovative new business on top of their own APIs. “Developers are alchemists, and our job is to do everything we can to get them to do their alchemy,” Bezos reportedly told employees.
Creating value along the digital supply chain
In 2006, the newly formed Amazon Web Services group launched the Amazon Elastic Compute Cloud, the first modern cloud infrastructure service. Over the next decade, disruptive startups like Twilio, Uber, and Lyft would use AWS to scale, becoming billion-dollar public companies, and corporate behemoths like Kelloggs, Siemens, and Vodafone would treat AWS like an extension of their infrastructure. AWS currently earns more than $7 billion in revenue each quarter and is growing at an annual rate of more than 40 percent. It has delivered Bezos’ dream of providing near-infinite scalability.
The AWS example illustrates the difference between the physical and digital supply chains. Unlike a physical product, an API is instantly available to anyone who needs its capabilities. Releasing an API is like shipping a set of rims that can magically be attached to an infinite number of wheels. Companies consume APIs and in turn often release their own APIs, creating wheels that can be attached to an infinite number of vehicles.
API-enabled digital transformation provides numerous benefits for companies seeking to compete in the digital age. Introducing APIs as building blocks for digital products brings focus to an organization’s digital transformation. Implementing API-based systems brings organizational agility. Outwardly, APIs allow companies to build on each other’s strengths. All the resources that were once needed to reinvent the database wheel or the storage wheel can now be redeployed into new applications and new APIs. As APIs are consumed, they reinforce the success of each company in the digital supply chain, allowing for greater and greater innovation.
To learn more about how your organization can execute API-enabled digital transformation, read the next post in this series: “How an API program helps achieve digital transformation.”