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The Impact of APIs in Firm Performance

38 Pages Posted: 27 Sep 2016 Last revised: 23 May 2017

Seth G. Benzell

Boston University - Department of Economics

Guillermo LaGarda

Boston University - Department of Economics; Inter-American Development Bank (IDB)

Marshall W. Van Alstyne

Boston University – Questrom School of Business; Massachusetts Institute of Technology (MIT) - Sloan School

Date Written: May 21, 2017

Abstract

Do firms benefit from external as well as internal performance enhancements? Using proprietary information from a significant fraction of the API tool provision industry, we explore the impact of API adoption and complementary investments on firm performance. Data include external as well as internal developers. We use a difference in difference approach centered on the date of first API use to show that API adoption – measured both as a binary treatment and as a function of the number of calls and amount of data processed – is related to increased sales, operating income, and decreased costs. It is especially tightly related to increased market value. In our preferred specification, binary API adoption predicts a 10.3% increase in a firms’ market value. Creation of API developer portals is associated with decrease in R D expenditure inside the firm, supporting the hypothesis that outside developers can substitute for internal spending. Categorizing APIs by their orientation, we find that B2B, B2C, and Internal API calls are heterogeneous in their association with financial outcomes. Finally, the fact that API calls are associated with contemporaneous increases in firm value suggest that data flow at the boundary of the firm can predict financial performance.

Keywords: Firm performance, IT productivity, APIs, platforms, internal and external networks, event study

JEL Classification: D22, D23, D24, D83, E22, L14, L24, M15, O32

Suggested Citation

Benzell, Seth G. and LaGarda, Guillermo and Van Alstyne, Marshall W., The Impact of APIs in Firm Performance (May 21, 2017). Boston University Questrom School of Business Research Paper No. 2843326. Available at SSRN: https://ssrn.com/abstract=2843326 or http://dx.doi.org/10.2139/ssrn.2843326

Seth Benzell

Boston University - Department of Economics ( email )

270 Bay State Road
Boston, MA 02215
United States

Guillermo LaGarda

Boston University - Department of Economics ( email )

270 Bay State Road
Boston, MA 02215
United States

Inter-American Development Bank (IDB) ( email )

1300 New York Avenue NW
Washington, DC 20577
United States

Marshall Van Alstyne (Contact Author)

Boston University – Questrom School of Business ( email )

595 Commonwealth Avenue
Boston, MA 02215
United States
617-358-3571 (Phone)

HOME PAGE: http://questromapps.bu.edu/mgmt_new/Profiles/VanAlstyneMarshall.html

Massachusetts Institute of Technology (MIT) - Sloan School ( email )

Center for Digital Business
5 Cambridge Center - NE25, 7th Floor
Cambridge, MA 02142
United States
617-253-0768 (Phone)

HOME PAGE: http://web.mit.edu/marshall/www/home.html

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