API Businesses Swallowing The World

"2020 is the year the world finally realized that software is eating the world."

At this point, it's cliche to say software is dominant.  

Last week, I mentioned tech companies (Robinhood) - playing the role of an oligarch. A latest Nevada bill would make that a reality:

Demand for technology is crazy. Nobody (me included) understands the implications.

Here's what we do know:

Tech stonks are starting to evolve from Applications to APIs:

If software is eating the world, API businesses will swallow it. Laziness and access to automation will provide endless demand. People will always pay for convenience.

API business models offer just that.

Defining And Oversimplying APIs

I hate simplifying concepts — unless I have a fundamental understanding of them. It's safe to say I'm a "semi-expert" with APIs.

I've developed, tested, and deployed a good amount this past year.

So here's my oversimplification:

Imagine a single lego block. It has no real use unless it combines other legos to build an object.

Like single legos, software is meant to carry specific tasks.

An API is a combination of legos, which build into a useful object.

In other words, an API packages software in easy to use interfaces to get complex tasks done simply.

Complexity Can Be Stressful

There's an emergence of API first businesses in recent years. The momentum will be constant for the future. Why?

API Businesses Are "Frictionless"

It saves money (and time) to use an API -- rather than hiring hoards of engineers to do half a good job. API businesses sell simplicity (in the frontend) - while managing the complexity (in the backend).

APIs can execute critical tasks like accepting payments (Stripe), providing cloud security (Okta), or sending communication to customers (Twilio). All in an easy to use way.

This "lego" like quality allows them to integrate with any business, any time, and build onto their customer base. Making API companies a platform for platforms.

How Does This Relate To In-vesting?

API business models are intriguing. It's helped businesses like Stripe and Twilio become ginormous.

We've discussed aggregation theorybecoming the future template for tech companies. API businesses are aggregates that carry two interesting investing themes:

1. Massive Markets

Every business has critical problems to solve. Whether it's to collect money, remain secure, or communicate with customers, API businesses offer the solution at minimal costs. Endless problems would lead to endless product market-fit (which is normally hard to get).

2. Moats That Compound

The 2 things my main man Buffett looks for in businesses are: moats and compounding. API companies offer both.

Moats come from resorting to (and relying on) exceptional businesses. If Whatsapp used Twilio for their account verification, many companies would follow to not fall behind. The FOMO factor for convenience would eventually compound into a moat.

Don't believe me?

Software is eating the world. API businesses show abnormal potential, are intriguing, and worth looking out for.