38 Pages Posted: 27 Sep 2016 Last revised: 23 May 2017
Date Written: May 21, 2017
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: 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