Heinz College Events

Marshall Van Alstyne - The Role of APIs in Firm Performance

Using proprietary information from a significant fraction of the API tool provision and management industry, we explore the impact of API adoption on firm performance. We use a difference in difference approach centered on the date of first 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 firm’s market value. The size of this relationship suggests that timing of API adoption is not exogenous, but rather driven by a latent variable that influences both API adoption and changes in market value. Categorizing APIs by their business function, we find that B2B, B2C, and Internal API calls are heterogeneous in their association with financial outcomes. Firms that distribute more API developer keys see more contemporary API usage. API usage is not related to the number of developer keys issued in previous periods, suggesting that API programming is better modeled as a contemporaneous input rather than as an investment.

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