The success of digital platforms can be measured by many metrics, including increased customer adoption, network and revenue effects, and profit increases. Less clear, however, is the value that the application programming interfaces (APIs) that underpin these platforms contribute to the computation.
New research suggests using APIs to facilitate digital transactions increases annual net income by more than $ 250,000, with potential increased profits as platforms generate and exchange more data, says Marshall Van Alstyne, professor at Boston University, co-author of “The impact of APIs on business performance“with his colleagues Seth G. Benzell and Guillermo Lagarda.
APIs are an important part of large Internet companies
APIs are software code that allows developers to write programs that communicate with online services and shared databases to arbitrate transactions. Companies like Apple, Airbnb, and Uber have leverage APIs to create disruptive platforms and create network effects.
Such disruption was a priority for Van Alstyne and his peers set out to quantify the value of APIs, which is no small feat given that the tangible value of these platforms was only clear at the intersection. between digital platforms and consumers.
The researchers compared API call data provided by API management vendor Apigee on 120 of its corporate clients with financial performance data from Orbis, Compustat, and Hoover. They then analyzed the differences in financial performance before and after API calls and compared the data to that of companies that don’t use APIs.
Van Alstyne says companies adopting APIs have seen their sales, net income, and market capitalization increase. API adoption is associated with a 13.5% return on the $ 2 million cost to build APIs. He also found that tax results improve as the amount of data going through the API increases.
âWe got very high statistical significance, suggesting that it is actually APIs that allow this behavior as opposed to some other macroeconomic trend or economic growth,â Van Alstyne said. âNetwork effects create value outside.
Why calculating API ROI is important
Boston University results provide important metrics for CEO and board thinking platform strategies, says Bryan Kirschner, research director at Apigee, whose 300 clients use his software to manage and track the consumption and efficiency of APIs used by third-party developers.
One of Apigee’s selling points for API management has generally gone like this: “How much data is flowing through your APIs? Every day that number is zero, you don’t earn. Every day, you don’t have an answer, management is not doing its job as a shareholder value and profit trustee. ”
However, without hard data correlating API strategies with financial metrics, Apigee’s narrative had a gaping hole. âThis helps us come full circle with hard data on the link between revenue growth and APIs,â Kirschner said.
Despite this, Kirschner says customers have intuitively understood the value of APIs. For example, Pitney Bowes monitors API activity for trends that could point to new ways to capture value, such as building new digital logistics services. Apigee’s success in attracting large companies to its platform caught the attention of Google, which agreed in September to buy Apigee for $ 625 million.
Despite what Gartner and others have come to describe as an era defined by digital transformations, Van Alstyne says too few companies are investing in APIs.
“Too many people see this technology as an infrastructure and not a strategy and that’s a mistake,” says Van Alstyne. “It allows you to leverage external partnerships in new ways that you simply can’t if you don’t open up the technology externally.”
Copyright Â© 2016 IDG Communications, Inc.