Betting On Tech's Building Blocks

The cloud-computing boom has seeded a crop of fast- growing companies that cater to software coders. How investors can profit from the pursuit of API-ness.

- Robert Hackett

AMAZON GETS LOTS of credit and flak for turning retail INVEST upside down; it also earns plaudits for its pioneering cloud-computing business. But in a still-unfurling development, the seismic shift that Amazon wrought in the IT world has spawned a whole new business category—providers of “APIs”—that has already begun paying off for a few prescient investors.

Amazon Web Services, the tech giant’s cloud-computing business, began as a way to boost affiliate marketing and power e-commerce sites. But within a few years, the project had incubated a grander vision. Amazon bet—correctly—that it could make a killing providing basic IT functions to all kinds of businesses. The pitch: Don’t worry about all that tedious infrastructure upkeep, or about computation, storage, or bandwidth. We’ll manage it for you.

The idea became one of Amazon’s primary growth drivers, contributing revenues of $25.6 billion in its most recent fiscal year and growing at a healthy 47% clip— and has become lucrative for rivals like Microsoft and Google too. But the cloud-computing boom has also generated a powerful knock-on effect: an API-related Big Bang. APIs, or application programming interfaces, are pieces of technology that act as bridges between software applications. APIs enable connection, like electrical outlets porting to power grids: They’re the conduits through which data flows and interacts. “There’s been this saying for the longest time that software is eating the world,” says Rishi Jaluria, an analyst at D.A. Davidson & Co. Now, he says, “APIs are eating software.”