The Impact of APIs in Firm Performance

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

See all articles by Seth Benzell

Seth Benzell

Chapman University - The George L. Argyros School of Business & Economics; MIT Initiative on the Digital Economy; Stanford University, Human-Centered Artificial Intelligence Digital Economy Lab

Guillermo Lagarda

Global Development Policy Center Boston University; Inter-American Development Bank

Marshall W. Van Alstyne

Boston University - Department of Management Information Systems; 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 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

Chapman University - The George L. Argyros School of Business & Economics ( email )

1 University Drive
Orange, CA 92866
United States

MIT Initiative on the Digital Economy ( email )

245 First Street
Cambridge, MA 02142
United States

Stanford University, Human-Centered Artificial Intelligence Digital Economy Lab ( email )

Stanford, CA 94305
United States

Guillermo Lagarda

Global Development Policy Center Boston University ( email )

53 Bay State Road
Boston, MA 02215
United States

Inter-American Development Bank ( email )

1300 New York Avenue NW
Washington, DC 20577
United States

Marshall W. Van Alstyne (Contact Author)

Boston University - Department of Management Information Systems ( 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 )

Initiative on the Digital Economy
245 First St, Room E94-1521
Cambridge, MA 02142
United States
617-253-0768 (Phone)

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

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