EDI vs API: Comparing Two Key Technologies for Business Integration

The exchange of data between companies has been a critical part of business for decades. Being able to seamlessly share information such as orders, invoices, shipping notices and other documents with trading partners is essential for efficient operation and collaboration in today‘s fast-paced digital world.

Two of the most widely used technologies for handling these exchanges are EDI and APIs. While EDI (electronic data interchange) has been a mainstay since the 1960s, APIs (application programming interfaces) have exploded in popularity in recent years.

So what exactly are EDI and APIs, how do they work, and what are the key differences between them? Perhaps most importantly, which one is right for your business needs today and in the future? Let‘s take a closer look at EDI vs API.

What is EDI?

EDI, which stands for electronic data interchange, is a standardized way for companies to exchange business documents and data with each other electronically. Rather than sending paper documents or unstructured emails back and forth, businesses can use EDI to efficiently trade information in a set electronic format that both parties have agreed to in advance.

EDI standards define specific document formats for common business processes like invoices, purchase orders, shipping notices, inventory inquiries and more. There are a number of widely-used EDI standards including ANSI X12 and EDIFACT that dictate the exact structure and contents of each type of document.

Here‘s a simple example of how EDI works: Let‘s say Company A wants to send a purchase order to their supplier, Company B. With EDI, the order information is automatically extracted from Company A‘s purchasing system, converted into a standard EDI purchase order document format, and then securely transmitted to Company B. Company B‘s system receives the EDI document, translates it, and automatically inputs the order into their order processing system. They then send an acknowledgment back to Company A, again via a standard EDI document. No manual re-keying of data or exchange of physical paper documents is required.

EDI has been around since the 1960s and has evolved over the decades along with advances in computing and telecommunications technology. In the early days, EDI exchanges could be done via various kinds of physical media (magnetic tape, floppy disks, etc). As networking expanded, the exchange shifted to dial-up connections and value-added networks (VANs). More recently, EDI can be handled via internet-based transfer protocols like AS2, SFTP, and web services.

While EDI has come a long way, the basic concepts remain the same – using agreed-upon formats and protocols to exchange business documents electronically between partners. EDI is currently used by hundreds of thousands of companies around the world, especially in industries like retail, manufacturing, transportation, and healthcare where there are many business partners and high volumes of transactions.

What is an API?

An API, or application programming interface, is a set of tools, protocols and routines for building software applications. An API specifies how different software components should interact with each other, abstracting the complexity and enabling modular development.

In recent years, web APIs have risen to the forefront as a key way for applications and services to communicate with each other over the internet. A web API is an interface exposed by a software system (e.g. an online store‘s ordering system) that allows other applications to interact with that system via web-based requests and responses. Usually, an API provides a collection of defined endpoints or methods that an application can call to interact with the underlying system in various ways – fetching data, changing data, triggering processes, etc.

Most modern web APIs follow the REST (representational state transfer) architectural style. With a RESTful API, applications interact by making HTTP requests (GET, POST, etc) to defined URLs that represent resources in the underlying system. The APIs then return responses containing data typically in a format like JSON or XML.

Here‘s a simple example: let‘s say an ecommerce company wants to allow third-party developers to build applications that can programmatically interact with their online store – perhaps a mobile app that can check inventory levels or a web app that can track the status of an order. The ecommerce company would build and document a public API that exposes the necessary operations – maybe a GET request to /orders/{id} to retrieve order status, a POST request to /orders to place a new order, etc. Developers can then easily interact with the ecommerce platform via these standard API methods without needing to know anything about the underlying systems.

Web APIs have exploded in popularity because they are flexible, relatively easy to implement using modern tools and frameworks, and enable all kinds of new integration and innovation scenarios. Companies can build their own private APIs for internal applications to interact with each other or share data across the enterprise. They can selectively expose certain services or data to partners via B2B APIs. Or they can open up public APIs to the broader developer ecosystem to foster new applications and business opportunities. Well-known public APIs include things like the Google Maps API for embedding maps and location services, the Twitter API for building social apps, and the Stripe API for enabling payments.

EDI vs API: Key Differences

While EDI and API both involve exchanging data between systems, they have a number of important differences in terms of usage, architecture, format, and more. Let‘s examine some of the key distinctions:

Usage and Purpose

• EDI is a narrowly focused technology specifically for exchanging standard business documents between companies, usually for firmly established processes like order-to-cash or procure-to-pay. The document formats and purpose of each exchange are rigidly defined in advance.
• APIs are more open-ended and flexible. They can enable all kinds of integration and data exchange both within and between organizations, supporting an infinite variety of use cases. The specific data and interactions are defined by the API but can cover anything the underlying application can do.

Architecture

• EDI is a push-based model. The sending system prepares a fully formatted document and pushes it to the recipient at defined intervals (hourly, daily, etc). The communication is one-way – the recipient does not request the data, it is sent to them. The recipient must then store and process the document.
• APIs follow a request-response model. An application makes a request for specific data or an operation to an API endpoint, and the API sends back a response with the result. The communication is two-way and real-time. APIs can also support other patterns like pub-sub and webhooks for pushing data.

Format and Protocol

• EDI documents must conform to very specific standard formats like ANSI X12 or EDIFACT. These standards define the exact sequence, length, and type of data elements and segments that make up each kind of document. There are also multiple possible transport protocols for EDI like AS2, SFTP, etc.
• APIs typically expose resources and operations using lightweight data interchange formats like JSON and XML. The exact structure of requests and responses is defined by the API specification but is more open and flexible than rigid EDI formats. Most APIs use HTTP/HTTPS as the transport protocol.

Development and Tooling

• Implementing EDI often requires specialized software, skilled resources familiar with EDI standards and formats, and significant upfront mapping to translate between internal systems and EDI formats. Ongoing changes and maintenance can be complex and costly.
• Building APIs is generally faster and easier using modern developer tools, frameworks, and languages. Most programmers are familiar with technologies like HTTP, REST, and JSON. API specs can be quickly iterated. Third-party developers can easily consume well-designed APIs.

Operational Model

• EDI is most often a point-to-point affair between two companies with a defined business relationship. Exchanges are batched and scheduled rather than real-time. Companies often outsource EDI operations to a value-added network provider.
• APIs support more of a hub-and-spoke model. An organization can expose a single API that many other internal and external consumers can access, rather than maintaining many point-to-point connections. API calls are real-time. The API provider has to host and directly manage the API platform.

Choosing Between EDI and API

So which approach is right for your business – EDI, API, or both? The answer depends on your existing processes and partnerships, your business and technical requirements, and your strategic priorities.

Some key factors to consider:

• If you have a large number of existing EDI-based transactions and partners, you may need to continue to support EDI for those specific processes, at least in the near term. Ripping and replacing EDI flows can be disruptive.

• For new integrations with partners and internal applications, APIs will usually be faster, more flexible, and easier to implement than EDI. This is especially true if real-time interactions and non-standard data exchanges are required.

• Certain industries like retail and manufacturing still rely heavily on EDI and will continue to do so for the foreseeable future. If you operate in one of those verticals, you may have no choice but to support EDI for key processes.

• As you modernize your application architecture and move to the cloud, you‘ll likely want to take an API-first development approach to ensure flexibility and agility. You can then use APIs to orchestrate processes across cloud and on-premises systems.

• If you want to open up your platform to enable new applications and business models (for example, allowing third-parties to build extensions or resell your services), APIs will provide much more power and opportunity than rigid EDI connections.

Increasingly, the answer for most companies will be a combination of EDI and API. You may need to maintain EDI for certain documents and partners in the near term while gradually migrating to APIs where you need more flexibility. You can also use APIs to wrap and extend legacy EDI integrations.

Whichever route you choose, consider the following best practices:

• Make sure you have the right skills and resources to implement and maintain your integration architecture. EDI and APIs require different toolsets and skill sets.
• Focus on strong governance, security, and reliability for business-critical data exchanges. Look for opportunities to encrypt data, use secure APIs, leverage identity and access management, and build resilience.
• Proactively monitor your EDI and API traffic to ensure performance and service levels. Make sure you can quickly identify and resolve any errors or issues.
• Design your integration and API strategy for flexibility and adaptability. Business needs will continue to evolve, so build in the ability to easily add new data elements, endpoints, and partners over time.

The Future of Business Integration: EDI, API, and Beyond

EDI is still firmly entrenched in many industries and will remain a significant part of the B2B landscape for years to come. However, there is no doubt that the momentum has shifted to APIs as the foundation for most new development and integration, both B2B and A2A.

As API technologies and practices continue to mature, expect to see EDI hold steady or slowly decline while APIs grow across the board. According to some estimates, APIs could account for over 50% of all B2B traffic within 5 years as companies look to enable more real-time, event-driven processes.

We‘ll also see APIs extend into new frontiers beyond traditional integration. Gartner predicts that API-based digital ecosystems will be a key business model for over 50% of enterprises by 2023. Secure APIs will be an enabler for blockchain-based business networks. API management will converge with robotic process automation and integration PaaS. IoT devices and edge computing nodes will communicate via API gateways.

The lines between EDI, APIs, and other integration technologies will blur as API-led platforms emerge to orchestrate end-to-end processes across multiple endpoints and message formats. Forward-thinking companies will take an overarching approach to their integration strategy, using the right mix of tools for the job.

But throughout all this change, the fundamental goals of business integration will remain the same – exchanging data and aligning processes seamlessly between organizations and systems. Whether via EDI, API, or the next emerging technology, companies that can master integration will hold the key to efficient operations, satisfied partners, and ongoing business success.