Designing Modular Platforms: Implications of Application Programming Interfaces for Innovation and Imitation

Abstract

Application programming interfaces (APIs) are the foundation of digital platform ecosystems. Based on APIs, platforms can explore growth opportunities to expand the scope of platform’s ecosystem at an unprecedented scale. Although APIs can facilitate the app development, there is also a dilemma between innovation and imitation, suggested by the resource deployment perspective and the modularity perspective. Motivated by the tension, we examine how platform APIs may influence innovation behavior and imitation behavior in third-party app development, and how these influences may be dependent on the app market environment. We empirically test our theoretical ideas using data about a leading web browser platform, and applying analytics techniques on app source code to identify original apps and copycat apps. Based on the difference-in-differences identification strategy, our finding suggests that the provision of platform APIs fosters app innovation and dampens app imitation. The fostering effect of platform APIs on app innovation is strengthened in app markets with greater demand potential and higher market-level app complexity. The dampening effect of platform APIs on app imitation is weakened in app markets with greater demand potentials and higher market concentration. Our study generates important theoretical and practical implications.

Keywords: Software platform, Application Programming Interfaces, Innovation, Imitation, Modularity