API Economies and the Modularization of Production

Today, it is easy to make incremental improvements to products and software.  Popular Internet browsers have extensions and add-ons that allow users to perform additional tasks and use additional tools.  For example, many students who need text-to-speech accommodations in school can use Internet browser extensions to read the text that appears on a website or digital document.  Similarly, users can also use extensions and add-ons to highlight and annotate text in webpages to improve their understanding.

History of Modular Production

Prior to the 1770s, most goods were produced as entire units.  At the beginning of the Industrial Revolution, however, a Frenchman named Honore Blanc popularized the concept of interchangeable parts.  In front of observers, he famously crafted a working firearm from randomly-selected pieces from piles of assorted parts.  Now, a broken good did not have to be largely rebuilt from scratch - a new part could be swapped in.  The revolutionary invention of interchangeable parts drastically increased production efficiency and benefited producers and consumers alike.

The shift from whole-unit production to part-based production allowed for a further revolution: modular production.  Modules, or parts, could be added to existing goods to improve or expand their function.  The necessities of full mobilization for war during World War I led to the development of modular additions to equipment.  After the war, much equipment was designed so that components could be added as needed.  From backpacks to vehicles, additional modules could be quickly fitted - thanks to interchangeable parts - to do specific tasks without the need to create entirely new equipment.  

Digitization of Modular Production

By the time the computer era became entrenched, modular physical production was commonplace.  Quickly, personal computers allowed for modular production through standardized jacks for different keyboards, mice, speakers, joysticks, and modems.  However, software was still non-customizable.  Consumers bought programs and, when they became obsolete, had to buy entirely new programs to load.  When updates did first become available, they had to be from the initial software manufacturer and written in the exact same coding format.  

Emergence of Application Programming Interfaces (APIs)

Early computers suffered from lack of adaptability; any desired change in function required an entire reprogramming.  The 1950s saw early computer programmers quickly shift to creating standardized, reusable blocks of code to increase efficiency…but only within their own software.  By the mid-1960s, however, programmers were able to have different programs communicate and use each other’s services.  Twenty years later, software developers could “plug in” pre-built functions into new software, even from different versions.  

This program-to-program communication was the work of application programming interfaces (APIs), which allow software to communicate with each other through standardized data translations.  In 2000, APIs allowed for the rapid expansion of Internet use as third-party software and apps could finally communicate with websites.  Now, any programmer or developer could create an app that would work with existing popular websites and software.  By the early 2000s, software all over the world could communicate with each other to open up a myriad of new possibilities.

Economic Benefits of APIs

Reduced Marginal Costs

Unsurprisingly, the ability to create apps, add-ons, extensions, and updates for existing software rather than build entirely new programs from scratch is a tremendous increase in productivity.  The marginal cost of software development has been drastically reduced by APIs, as improvements to existing software can be made by virtually any developer.  A programmer in Berlin can create a desirable add-on for a website based in New York City, allowing improved user experience in days rather than months.

Increased Supply of Resources

APIs allow for software updates to come from many different programming sources, opening up talent pools to web developers across the globe.  The increased supply of suitable labor for software development has reduced its cost.  Instead of hiring only localized programmers with years of experience in one platform, tech companies can hire programmers anywhere.  The new programmers only need to know how to link their digital modules (sub-programs) into the larger program rather than becoming experts in the larger program as a whole.

Improved Understanding of Consumer Tastes and Preferences

When more people in more places can become programmers, overall consumer desires for software features become better understood.  The “democratization” of tech employment allows for more voices to be heard in terms of what consumers really want.  Rather than a large, single tech company making entire programs slowly, with relatively little input from the public, programmers across the country can get a better feel for what the public wants on a daily basis.  This results in software and apps that are more user-friendly and desired by consumers, leading to more revenue.

Economic Risks of Unregulated APIs

Over-reliance on Third Parties

Allowing third parties to create improvements to existing software has several benefits, especially in terms of efficiency, but also several drawbacks.  Third parties may be highly skilled and innovative, but this is far from guaranteed.  If tech giants become overly reliant on third party add-ons, extensions, patches, and upgrades, the overall quality of the original software, which serves as the framework, may be jeopardized.

Asymmetric Information Harms Consumers

There are lots of small pieces of software created using APIs, and it is not of uniform quality.  Consumers may end up bogging down their smartphones and computers with add-ons and extensions that do not operate as advertised; consumers do not take the time to research them and fall prey to asymmetric information.  Increased consumer comfort with adding extensions can also lead to the blind acceptance of malware as innocuous-looking extensions turn out to be the tools of hackers.  As the public grows used to easy add-ons, extensions, patches, and upgrades, security and quality can be compromised for the sake of convenience due to lack of information about these new programs.

Reduced Investment in Long-Term Profits 

If programmers can make easy short-term profits by focusing on modular additions to existing software, how many will continue to work on necessary long-term projects?  New, large-scale software is needed for major projects, but is risky due to the delay in revenue.  Will tech companies choose the “safe path” and focus too much on quick add-ons and extensions, causing a dearth of new software?  The situation is similar to movie and television studios choosing to stick to “safe” reboots, sequels, and prequels to popular fare rather than taking a risk on creating anything new.  Eventually, this leads to stagnation.