Businesses Are Becoming Software That Talks to Other Software
A loan that once took weeks of paperwork now happens when one program calls another and returns a decision almost instantly.
Invest Like the Best with Patrick O'Shaughnessy · Eric Vishria – The Past, Present, and Future of SaaS and Software - [Invest Like the Best, EP.183]Forty years ago, getting a loan meant sitting across from a loan officer. You brought pay stubs and bank statements, the officer assembled the packet, a committee reviewed it, and weeks later you got an answer.
Then businesses started using software to speed that up. Forms became PDFs, signatures became electronic, and a workflow program helped check that the packet was complete before you hit submit. It was faster, but people still did the work.
What is happening now is different, says Benchmark general partner Eric Vishria. Businesses are not just using software, they are becoming encoded in it. He credits the phrase to Jay Kreps, the founder of data company Confluent and one of the creators of a data system called Kafka.
Encoded means one program talks directly to another program. It cannot use the buttons and screens people use, so it uses an API, which stands for Application Programming Interface. Think of an API as a Lego brick for building an application, a ready made block of code. Stripe's payments system works this way: drop in its code and you can take payments from customers almost anywhere.
Take that loan again. In an encoded business, the customer clicks a button and supplies basic information. Then software calls the customer's bank and existing mortgage company, pulls the records together automatically, and does the analysis. Another piece of software then compares that collected information with past history and returns a score or a decision to the customer almost instantly.
What used to be a labor intensive process for weeks, for both borrower and lender, becomes quick, immediate, and largely automatic. The change even affects pricing, Vishria says. Older software like Salesforce or ServiceNow charged per seat, for each person using it, while API companies like Twilio and Stripe charge by transactions or volume, which fits when the user is software.
For a borrower, the practical result is simple: enter a little information once, and the programs do the gathering, checking, and answering.
Questions people ask
What exactly does an API do?
An API lets one program ask another program to do something or share data, using defined rules. The requesting program sends a standard call, and the other program sends back data or performs an action, without either needing to know how the other works inside.
Can you give an everyday example of software calling software?
A familiar example: a travel site that shows a map or takes a payment without building its own is calling someone else's software through an API. The travel site sends a standard request, and the maps provider returns the map image or the payments provider handles the charge.
Why does this change how software companies charge for their products?
Older software often charged per person, or per seat, because a human was using it. When software is the user, companies more often charge per transaction or by volume, such as per payment processed or per message sent, because use grows with activity rather than headcount.