June 8, 2015
Often considered the poster child of digital transformation, APIs are proliferating at enterprises making industry-leading investments in mobile, IoT, and big data. As these initiatives mature, CIOs, CTOs, and heads of development are coming together with business leaders to manage and secure companywide use of APIs using API management solutions.
Forrester recently released a report that sizes and projects annual spending on API management solutions. We predict US companies alone will spend nearly $3 billion on API management over the next five years. Annual spend will quadruple by the end of the decade, from $140 million in 2014 to $660 million in 2020. International sales will take the global market over the billion dollar mark.
In interviewing vendors for this piece of research, we discovered a vast and fertile landscape of participants:
Startups have taken $430 million in venture funding, and so far have realized $335 million in acquisition value. In April 2015, pure-play vendor Apigee went IPO and currently trades at a valuation north of $400 million.
Enterprise giants like Oracle, HP, and IBM have all entered the market within the last few years, as have vendors with history in SOA and PaaS for integration scenarios. Why? Rather than just keep up with the startups, incumbent vendors want to become THE strategic vendor that helps their customers make their digital transformation, hoping to then be first in line to sell all the technologies that come in tow. Here, API management serves as the entry point to then sell PaaS, MBaaS, predictive analytics, or, in the case of the SOA-native vendors, a broader platform for life-cycle management and runtime service governance.
Is today’s vendor ecosystem sustainable or ready for a shakeout? We see it as pretty stable. Unlike in other high growth software markets in which competition is fierce, API management solution vendors are spending less time bumping heads and putting in more effort carving their niches, tuning their solutions to suit a particular buyer, implementation scenario, or industry use case. Venture funding and acquisition valuations also appear healthy for a market we expect to reach a billion in annual spend by 2020. So if vendors are acquired, it will be for strategic purposes rather than for sheer stability purposes to keep these businesses afloat.
Perhaps most interesting is our analysis of buyer trends. To project annual spend on API management solutions into the future, we analyzed our end user surveys and inquiries to understand just how fast organizations were advancing their digital initiatives, assuming that the most advanced organizations would definitely adopt API management solutions, while those less mature would likely not. We found that nearly 40% of enterprises are well on their way in developments around mobility, IoT, and big data, while the remaining 60% are flat across the board. This reality has dire consequences. With dwindling revenues and profit margins for firms that fail to keep up with the demands of an increasingly digital business environment, many of the firms that fall behind will ultimately face consolidation and buyouts.