API Economies and the Modularization of Production

In the 1780s, French gunsmith Honore Blanc created the concept of interchangeable parts with his plans to build muskets from assembled pieces.  Although his initial innovation was not profitable, it was quickly adopted by others and revolutionized production.  Today, the vast majority of expensive goods, from cars to smartphones, are made with interchangeable parts that can be replaced quickly.  This prevents the need to replace the entire machine when something breaks.  Prior to the 1780s, the failure of a component often meant scrapping the whole device, as each component was unique.

Today, interchangeable parts have evolved to include APIs - Application Programming Interfaces.  APIs allow different computer systems to communicate with each other and share data.  While this sounds simple, it has been revolutionary in boosting productivity since the year 2000.  Programmers and web designers can now access websites and apps across the Internet to collect and share data, making the Internet a useful tool for the masses rather than a narrow portal only usable by experts.

History of Modular Production

History of Standardization

Prior to Honore Blanc’s work, almost all large items were custom-made as whole units.  This was time-consuming and made repairs difficult.  The uniqueness of individual, holistic production also meant that users had to take time to adapt to each new piece of equipment.  Blanc’s interchangeable parts drastically increased the efficiency of production and use.  Use was further made more efficient during the World War I era in the United States when Herbert Hoover mandated standard sizes for everything from tin cans to steel beams.  The Bureau of Standards created a system where a myriad of components, despite being made by many different producers, could be bundled and fitted together quickly.  Industrial efficiency in the West increased further, boosting Hoover’s popularity in the early 1920s.

Modular Production: From Hardware to Software

The work of Blanc and Hoover led to industries where modules (sub-units) could be attached to a larger frame, even after initial production, to give a piece of capital improved function.  This increased efficiency further, as designs could evolve without having to redo the central frame.  Today, this occurs with software in addition to hardware.  Programmers and developers can create add ons and expansions to existing software and apps to improve their functionality.  

Economics of Modular Production

Reduced Costs of Production

Instead of having to design entirely new software, programmers can focus their energy only on modules that need improvement or addition.  The functions of the software that are working well can be left alone, saving thousands in labor costs.  Smaller modules can be completed faster and with less labor and capital (such as computer servers), allowing for more rapid improvements of the entire software.  And, thanks to APIs, modules can be coded in different languages, increasing efficiency due to less need for translations.

Expanded Labor Pool

Developers working on add-ons and expansion packs do not necessarily have to be experts in the entire software, expanding the labor pool.  Thanks to APIs, programmers can create add-ons and expansions that work with software coded in different languages.  As a result, diverse teams of programmers can create software by building separate modules that attach together.  No longer does a core team of experts in a single coding language have to hammer out the entire program themselves - programmers can craft components on different continents and merge them thanks to high-speed Internet.

Reduced Barriers to Entry

APIs and modular production drastically reduce barriers to entry in the tech industry by allowing teams of amateurs to compete with add-ons and expansion packs instead of entire completed apps or software.  Prior to the API revolution, most software had grown large and sophisticated enough that it was no longer the realm of small teams.  This blocked most start-ups from competing, as they would have to spend millions to create whole programs that could rival those made by giants like Microsoft.  Now, a start-up can create a useful add-on that works with existing software, generating the start-up revenue without requiring millions in development costs.

Increased Complementary Goods and Resources

The ability of APIs to allow different programming languages to share data drastically increases the number of complementary programs and apps for existing software.  Prior to APIs, software could rarely communicate with programs from other companies, reducing overall functionality.  Today, data can be easily moved from one program to another, increasing demand for several programs at once.  Because software and apps can be interconnected and assist each other with data collection and processing, overall demand for software has increased over the past 25 years.  Smartphone users, for example, can have scores of apps on their phone that work in concert.

Potential Risks of Modular Production in Tech

Reduced Focus on Deep Research-and-Development

While modular production of software has allowed for rapid improvements and the ability of start-ups to create desirable products, critics worry that the ability to make quick revenue from small add-ons and expansions may reduce companies’ incentive to perform “deep R&D” needed to create technological breakthroughs.  Quick apps that can work with the data gleaned by existing software can be seen as low-risk investments for tech companies, and are thus popularized.  In the long run, however, the focus on only creating additional modules, rather than full-length software, can lead to reduced technological progress and lagging productivity.  The opportunity cost of short-term reliable revenue and low cost of production is lack of substantial innovation.

Fractionated Tech Markets Could Actually Increase Inefficiency

Big companies are often seen as slow and inefficient, but can be more productive than predicted due to economies of scale.  Their accumulated resources and experience can lead to lower per-unit costs than those experienced by seemingly-nimble start-ups.  If start-ups and small companies come to dominate the software market thanks to APIs, costs could begin to rise due to inefficiencies.  While the apps could communicate with each other, there may be quality control issues due to the small size and inexperience of the producer.  Many apps and add-ons would become “zombie” software created by small firms that go out of business quickly, leaving smartphones, padlet computers, laptops, and even desktops riddled with outdated programs that are no longer being supported or updated.