The Value of External Data for Digital Platforms: Evidence from a Field Experiment on Search Suggestions
36 Pages Posted: 12 Jun 2023
Date Written: May 18, 2023
Firms increasingly leverage external data with an aim to unlock improvements in their offerings, but it is challenging to measure the value of external data. Collaborating with a technology company in China, we analyze a field experiment where we manipulated access to a leading search engine’s application programming interface (API) to measure the causal impact of such data access on the click-through rate (CTR) of the focal company’s search suggestions. We report three main findings: First, compared to the baseline with access to the API, API removal leads to a 4.6% decrease in the average CTR of search suggestions. Second, the negative effect due to API removal is more prevalent among heavy users, and it is driven by both mainstream and niche content. Third, the negative effect becomes less negative over time with the absolute magnitude in the longer term being half as much as what we would have obtained with a short-term experiment. We provide suggestive mechanism evidence of the longer-term effect: the focal company’s reliance on the leading search engine’s data limits the development of its algorithmic system based on its internal data. This research informs managers of whether and how the market leader’s data affects a smaller player’s product performance. It further sheds light on policies such as the Digital Markets Act that proposes data sharing by large digital platforms, as well as a recent debate on whether big data undermines market competition.
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