Why Robotics-as-a-Service will be the next API-sized investment opportunity
We are living in the golden age of the API. Twilio’s stock is up an eye-watering 7x over its opening IPO price, and private market unicorns like Stripe, Plaid (acquired), Postman, Auth0 and Scale AI wait in the wings.
Why have API-first startups been so successful? Simply put, building a good API is like selling a basic utility. While it might be possible to roll your own payments infrastructure, it’s infinitely easier to integrate Stripe. Similarly, most developers can stitch together authentication, but for the vast majority of programmers it’s neither a core competency or feature, and something most CTOs would rather outsource to a trusted third party.
APIs Rule Everything Around Me
Let’s break this down. Simply put, an API allows one party (whether a human, computer or cyborg) to communicate with another party. Why is this important? Most importantly, it enables efficiency, which means you can build products and features that are orders of magnitude better than the previous generation.
For example let’s take the cheesy but canonical example of Uber. When you hit the button on Uber, it sends out an API request to Uber’s servers, which provides your coordinates and identification. Uber’s servers send out various API calls (mapping, dispatching, etc) to find the closest available driver, and in roughly five minutes a human shows up wherever you are with a car to whisk you away — you literally don’t even have to tell them where you’re going, they already know. When you leave, no need to take out your wallet, you pay electronically (ie. via API) and afterwards the rating you provide is really just another API call.
Now, think about the old method. Each of the things mentioned above requires a phone call, a conversation or something physical that takes time (paying cash, swiping a card), instead of something that happens in the background instantaneously. If you stack up all the efficiencies and automations that API’s provide, it’s now easy (in retrospect) to understand why Uber singlehandedly is much bigger than the entire taxi industry.
No one uses Uber and then says, you know what, instead of pressing a button I’d rather call a driver by phone, and wait five times longer for a driver that may or may not show up. There are other huge benefits from the API-method. The aforementioned identifications and ratings means that a formerly huge problem (both rider and driver safety) can be mitigated because the APIs are doing so much of the work in the background (background check APIs, identification and ratings).
Why RaaS is the next big thing
The thing about APIs is that, as mentioned above, it’s mostly just a way of sending around text (ie. in the form of JSON), which is a digital form of instructions. So you might do something like this (contrived example below):
POST api.airbnb.com/book_reservation/123
{ customer_id: 234, start_date: ‘2020-11-30’, end_date: ‘2020-12-04’ }
And boom, you’ve now booked a room via API when you hit the “submit” button. But APIs can’t do much in the physical world. Auth0 might provide you authentication in the digital world, but it can’t unlock a physical door (although to be clear, it could potentially send the digital instructions to do so).
In any case, Robotics-as-a-Service has the potential to be an API-like game changer, but in the real, physical world. For example, some future RaaS startup might power the delivery of groceries to your door, take care of your elderly relatives, walk your dog, change your care tires or automatically prepare your dinner.
It’s worth noting that there will be some unfortunate, temporary negative consequences: some forms of employment will be displaced by these new efficiencies, just as stockbrokers who primarily place phone orders to buy or sell stocks don’t exist anymore. However, hopefully this frees up those same folks to focus on higher-value tasks such as analyzing investment opportunities or talking to clients, but I won’t pretend that it’s all roses, and for those fortunate enough to benefit from this paradigm shift, they should also be aware, and take efforts, to provide a softer landing for those displaced.
How to play it
As legendary investor Peter Fenton said "Throw that crystal ball out, you can't predict anything. What you can do is recognize when lightning strikes." I’m sure many investors passed on Twilio when they were just getting started, and I’d guess a big reason was that the market back then was pretty small.
However, you don’t have to be Nostradamus to recognize that Robotics-as-a-Service (or whatever it ends up being called) will likely go from a “wouldn’t that be cool” sort of thing to a “how did we ever live without this”.
Whenever I see a company in the RaaS, I pay very close attention. I’ve personally already invested (with my small amounts of personal capital) in a few companies in this space, and hope to have a 20-30% total exposure over the next few years, as in my opinion, it’s only a matter of time until lightning strikes.