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Software talking to software
For the last couple of generations, software meant a business user getting a job done, like a salesperson working in Salesforce. The user was a human being, so the interface was a graphical one, usually in a web browser. Jay Kreps, the founder of Confluent, described a bigger shift: businesses are becoming encoded in software rather than just using it. When one program works with another, no screen is involved. The two connect through an API, short for Application Programming Interface.
A loan, encoded
Picture a loan application. Forty years ago, a person talked to a loan officer, who asked for documents, assembled the file, and held a discussion before a decision came down. Then software helped with PDFs, electronic signatures, and workflows that ended in a submit button. The encoded version is a button click and some basic information from the customer. Software contacts the bank and the existing mortgage company, pulls everything together, and runs some analysis, and another service turns the data into a score or decision that goes straight back to the customer.
A process that took weeks of manual work for the customer, the loan officer, and the credit committee becomes fast, real time, and automated. Pricing follows the user: Salesforce and ServiceNow charge per seat, while Twilio, Stripe, and most other API companies charge by the volume of transactions.
How does an API let programs talk to each other?
An API sets out a fixed way to ask for something: a request in an agreed format sent to a known address, and a response in an agreed format sent back. The calling program does not need to know how the other one works inside. Many web APIs exchange data as JSON over HTTPS. Roy Fielding's 2000 doctoral dissertation described REST, the design style behind many of them.
Why do API companies charge by transaction?
Their costs and their customers' value scale with how much the service gets used, not with how many people log in. A company might have a handful of developers whose code sends millions of requests. Twilio, for example, bills by the message and the minute of voice. Amazon Web Services popularized pay-for-what-you-use pricing for computing starting in 2006.
Why did loan decisions once take weeks?
A loan file passed through several people by hand: the officer collected documents, an analyst checked them, and a credit committee met on a set schedule. Each handoff added waiting time. Credit scoring began to compress this when the FICO score arrived in 1989, turning a borrower's history into a single number. Software that pulls records directly can now produce that number in seconds.
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