Message from the editor

Tom DeGarmo

Tom DeGarmo
Principal & Technology Leader

Resurgence of APIs: super-linear scaling in digital ecosystems

Message from the editor Successful businesses grow almost by definition. But what comes with being larger? Certainly there are benefits, the most prominent being economies of scale. But size has its downside. The enterprise R&D function has been a frequent target of research in academia because of its well-known pattern of becoming less productive (fewer patents) on a per dollar basis as it grows larger.1 Creating benefits from scale seems to be automatic in some circumstances, but creating waste from scale seems just as automatic in others.

Dr. Geoffrey West and his colleagues at the Santa Fe Institute have published insightful results on the way many different domains scale. He charts the relationship between size and metabolic rate across species to convincingly demonstrate that doubling in size requires only 75 percent more energy rather than a doubling of energy.2 In a totally different domain, West found a similar pattern with gas stations in cities—doubling the size of the city results in only 75 percent more gas stations. This is sub-linear scaling. It appears to be true in a city context across almost all of a city’s infrastructure.

But cities also produce more than linear scaling in other domains. West found that whenever a city doubles in size, many measures of economic activity, such as construction spending, wealth, patents, and bank deposits, increase by approximately 15 percent per capita.3 In other words, cities become more productive as they grow. This is called super-linear scaling.

West lays this all at the feet of networks. The power of networks can produce sublinear scaling and superlinear scaling. Neither is inherently better—some things you want less of, and other things you want more of as you grow.

This issue of the Technology Forecast examines the question of scaling in the context of four major disruptions penetrating enterprise operations simultaneously—social computing, mobile computing, advanced analytics, and cloud computing (in short, SMAC). Our use of the term SMAC includes the four technologies called out here as well as related emerging technologies that take advantage of them, such as the Internet of Things.

Individually, these disruptions are themselves about scale. Social computing scales business collaboration from a few to hundreds or thousands of others. Mobile computing scales process and data management into almost any business context. Advanced analytics—with big data, terabytes of in-memory databases, and visualization—scales business intelligence into every aspect of business operations. And cloud computing promises more compute power than ever before.

These disruptions are all delivered over digital networks as digital services, usually from outside the enterprise. For many business and IT executives, the potential value of engaging with these four trends is transparent. The challenge is scaling their integration with traditional IT. In the best of circumstances, internal legacy systems integrate well with each other. But they rarely were designed to rapidly integrate with digitally delivered external services.

That’s job one. Job two is recognizing that offering digitally delivered services is a big opportunity, very often through the co-creative efforts of third parties. Almost certainly these services will force a rethink of vertical business processes. Refining tightly coupled end-to-end processes into loosely coupled, modular activities creates the building blocks third parties are looking for as they build new businesses. But business partners and consumers of those services expect the same rapid, seamless setup already demonstrated in web-centric digital ecosystems. Otherwise the services go wanting for customers.

In short, the rise of digital business ecosystems is creating superlinear scaling effects; doubling the number of digital services will more than double the business value created. As West would say, it’s because of the network effect. And digital business ecosystems can grow businesses in terms of revenue and profits much faster than headcount and expenses.

We call it building the permeable enterprise, where business capabilities are abstracted as open programmable interfaces and scaling integrations in a digital ecosystem is incorporated into strategic thinking so that value scales in superlinear ways while cost scales in sublinear ways. The reemergence of application programming interfaces (APIs) in general and the rise of the RESTful style of integrations in particular bring this promise by providing an architecture and systematic approach to engaging with SMAC and other emerging technologies.

This issue of the Technology Forecast examines how enterprises can engage with the challenges and opportunities stemming from SMAC trends by scaling integrations and participating in expanding digital ecosystems.

The article, “Exploiting the growing value from information,” on page 06 examines how creating open interfaces to engage a growing digital ecosystem will empower enterprises to build a digital operating model and progress toward becoming a permeable enterprise.

“Consumerization of APIs” on page 34 explains why a new generation of tools based on RESTful APIs scales the ability to make digital connections by sharply reducing the cost and complexity of integrations in digital ecosystems.

The article, “Embracing open IT,” on page 54 examines how, by positioning IT capabilities as a platform composed of open, self-describing, modular services, CIOs can manage challenges from SMAC and enable the permeable enterprise.

This issue also includes interviews with executives at enterprises that are leading the practice of tapping value in information, having a digital operating model, and enabling permeability:

  • John Donovan, Sanjay Macwan, and Jacob Feinstein of AT&T detail how the API program is a driver of speed in their innovation efforts.
  • David Zanca and Thomas Wicinski of FedEx Services describe how FedEx taps value in information with a digital operating model.
  • Mark Noworolski and Peter Leiser of Streetline share how they are trans-forming the parking ecosystem with SMAC technologies using RESTful APIs.
  • Sam Ramji of Apigee explains why APIs are the first digital indirect channel.
  • Devon Biondi of Mashery describes how APIs allow businesses to engage with customers in their context.
  • Laura Merling and John Musser of Alcatel-Lucent share how creating platforms from existing assets can unlock new value.
  • Brian Katz of Sanofi discusses why enterprise IT should treat users as partners.

Please visit pwc.com/techforecast to find these articles and other issues of the Technology Forecast online. If you would like to receive future issues of this quarterly publication as a PDF attachment, you can sign up at pwc.com/techforecast/subscribe.

As always, we welcome your feedback and your ideas for future research and analysis topics to cover.

Tom DeGarmo

Tom DeGarmo
US Technology Consulting Leader

1 Wesley M. Cohen and Steven Klepper, “Firm Size and the Nature of Innovation within Industries: The Case of Process and Product R&D,” The Review of Economics and Statistics 78, no. 2 (May 1996): 232–243.

2 http://www.ted.com/talks/geoffrey_west_the_surprising_math_of_cities_and_corporations.html

3 http://www.nytimes.com/2010/12/19/magazine/19Urban_West-t.html?pagewanted=all