{"id":6361,"date":"2024-03-08T14:46:10","date_gmt":"2024-03-08T22:46:10","guid":{"rendered":"https:\/\/blogschapman.wpenginepowered.com\/business\/2024\/03\/08\/faculty-in-focus-benzell-hersh\/"},"modified":"2026-07-23T17:17:11","modified_gmt":"2026-07-23T17:17:11","slug":"faculty-in-focus-benzell-hersh","status":"publish","type":"post","link":"https:\/\/blogs.chapman.edu\/business\/2024\/03\/08\/faculty-in-focus-benzell-hersh\/","title":{"rendered":"The Digital Revolution: How APIs Transformed Apple, Google, and Amazon into the Titans of Today"},"content":{"rendered":"<p><span style=\"font-weight: 400;\">Digital platform businesses, like Apple, Google and Amazon, have become the most valuable companies on the planet. To understand why, we conducted research on a technology that has made this business technology possible: Application Programming Interfaces, or APIs. Our research shows that the adopters of public APIs grew 38% relative to non-adopters over a period of sixteen years.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">The figure below shows Market Values for firms that adopted the technology, and a comparable group that did not, twenty quarters prior to tech adoption and twenty quarters after. The non-adopters lost ground in market value, to the tune of $8.4 billion. What did the adopters do that drove such extraordinary gains?<\/span><\/p>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"alignnone wp-image-6362\" src=\"https:\/\/blogs.chapman.edu\/business\/wp-content\/uploads\/sites\/84\/2024\/03\/Screenshot-2024-03-08-at-1.34.25-PM.png\" alt=\"\" width=\"283\" height=\"249\" srcset=\"https:\/\/blogs.chapman.edu\/business\/wp-content\/uploads\/sites\/84\/2024\/03\/Screenshot-2024-03-08-at-1.34.25-PM.png 614w, https:\/\/blogs.chapman.edu\/business\/wp-content\/uploads\/sites\/84\/2024\/03\/Screenshot-2024-03-08-at-1.34.25-PM-300x264.png 300w\" sizes=\"auto, (max-width: 283px) 100vw, 283px\" \/><\/p>\n<p><span style=\"font-weight: 400;\">The answer is that they used an old technology &#8212; APIs, a technology that allows users to more seamlessly share data with complementary apps and consumers &#8212; in a new way to build radical business models. They \u201cinverted\u201d the firm.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">The business model is the digital platform. Unlike a traditional \u2018pipeline\u2019 business, which buys inputs, adds value, and sells them at a higher price, a digital platform enables third parties to create value. This business model has strong supply side and demand side economies of scale, and has come to dominate the economy.\u00a0 By 2020, seven of the top ten US firms by market value were platforms, and hundreds of successful medium sized firms had platform models as well.\u00a0\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">How does this work? There is a close analogy between cities and digital platforms. In a well functioning city, administrators set up infrastructure like ports and roads, and invite citizens to build on top of it. The most successful cities tend to be at the intersection of these roads.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">The figure below makes this metaphor more literal. It is our \u201cmap of the internet\u201d based on data we collected on the Internet\u2019s public APIs. In the figure, nodes correspond to APIs, which are colored by the companies which own them. Lines connecting these ports correspond to \u2018mashups\u2019 &#8211; that is, apps for your phone or computer that call these APIs. A simple example might be a social media app that draws from Google Maps to calculate a route between you and a loved one, and posts to Facebook for them to see it. You can think of these lines as \u2018trade routes\u2019 between the various ports.\u00a0<\/span><\/p>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"alignnone wp-image-6363\" src=\"https:\/\/blogs.chapman.edu\/business\/wp-content\/uploads\/sites\/84\/2024\/03\/Screenshot-2024-03-08-at-1.35.32-PM.png\" alt=\"\" width=\"469\" height=\"309\" srcset=\"https:\/\/blogs.chapman.edu\/business\/wp-content\/uploads\/sites\/84\/2024\/03\/Screenshot-2024-03-08-at-1.35.32-PM.png 1300w, https:\/\/blogs.chapman.edu\/business\/wp-content\/uploads\/sites\/84\/2024\/03\/Screenshot-2024-03-08-at-1.35.32-PM-300x198.png 300w, https:\/\/blogs.chapman.edu\/business\/wp-content\/uploads\/sites\/84\/2024\/03\/Screenshot-2024-03-08-at-1.35.32-PM-1024x674.png 1024w, https:\/\/blogs.chapman.edu\/business\/wp-content\/uploads\/sites\/84\/2024\/03\/Screenshot-2024-03-08-at-1.35.32-PM-768x506.png 768w\" sizes=\"auto, (max-width: 469px) 100vw, 469px\" \/><\/p>\n<p><span style=\"font-weight: 400;\">Not only do we find that companies setting up API ports of call do better, we show that having an API which is more central to the network of data flows is even better for your company. We exploit the natural experiments that occur when certain APIs were shut down or modified due to a hack or companies\u2019 strategic decision. When this occurs it changes the network of information flows &#8212; benefiting some companies and hurting others. Companies with APIs whose centrality to information flows were most harmed due to the disruption saw worse economic performance.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">If APIs are so great in incentivising outside innovators to make apps and other products that complement the firms\u2019 core offerings, why don\u2019t all firms use them? Our research addresses this question as well. First, not all companies have a core service which is amenable to being made public via APIs. Companies in the world of atoms dealing with brick-and-mortar have no digital assets to share, and small companies might not have the scale necessary for making a whole \u201cport\u201d efficient. We also find suggestive evidence that API using companies are more vulnerable to data hacks &#8212; and that\u2019s a big problem if your core service involves something essential and sensitive like plane autopilots or pacemaker monitoring.<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Faculty in Focus: Dr. Seth Benzell &amp; Dr. Jonathan Hersh<\/p>\n","protected":false},"author":4803,"featured_media":6366,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"site-sidebar-layout":"default","site-content-layout":"","ast-site-content-layout":"default","site-content-style":"default","site-sidebar-style":"default","ast-global-header-display":"","ast-banner-title-visibility":"","ast-main-header-display":"","ast-hfb-above-header-display":"","ast-hfb-below-header-display":"","ast-hfb-mobile-header-display":"","site-post-title":"","ast-breadcrumbs-content":"","ast-featured-img":"","footer-sml-layout":"","ast-disable-related-posts":"","theme-transparent-header-meta":"default","adv-header-id-meta":"","stick-header-meta":"","header-above-stick-meta":"","header-main-stick-meta":"","header-below-stick-meta":"","astra-migrate-meta-layouts":"set","ast-page-background-enabled":"default","ast-page-background-meta":{"desktop":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"ast-content-background-meta":{"desktop":{"background-color":"var(--ast-global-color-4)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"var(--ast-global-color-4)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"var(--ast-global-color-4)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"custom_author_name":"Dr. Seth Benzell","chapman_pin_hero_slider":"","footnotes":""},"categories":[13],"tags":[],"class_list":["post-6361","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-faculty"],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v28.7 - 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