APIs Help Drive Revenue, Market Cap Increases

New research from API management firm Apigee and a Massachusetts Institute of Technology digital fellow shows a direct impact to the bottom line of companies that implement API programs.

The study finds that companies adopting APIs, or application programming interfaces, experienced an average annual revenue increase of 13.5 percent. Apigee recently released research from Marshall Van Alstyne, author of Platform Revolution and an MIT digital fellow, that explored the financial impact of API programs at more than 120 companies.

According to Van Alstyne’s study, API adoption leads to increased profitability in the short and long run.

“For a firm of 13,500 employees, our preferred specification implies API adoption increases yearly net income by more than $250,000,” the report said. “APIs vary in their business function, and we find that B2B, B2C, and internal API calls are heterogeneous in their association with outcomes. We also find evidence that having an open developer portal further enhances the gains from API adoption.”

Van Alstyne defines an API as a set of routines, protocols and tools that standardize building software applications compatible with an associated program or database.

APIs are both code and contracts, as “they govern the type and format of calls, or communications, that any given application can make of another associated program,” the report said. “The associated program is agnostic about the source of the call, and the app need not know anything about the internal workings of the associated program.”

Moreover, APIs make it easy for individuals to write programs that communicate with online services and shared databases. In short, they fuel the so-called app economy.

“APIs are the infrastructure that mediates economic transactions; their value is not controlled by a single firm alone but also by the developers willing to use them for productive purposes,” Van Alstyne said in his report. “They enable ubiquitous interactivity.”

Born-on-the-web companies, such as Salesforce.com, Google, Amazon Web Services, Facebook, Twitter and eBay, all have strong API programs. Firms adopting APIs tend to be quite large, with an average net income of more than $600 million and a market value of $31 billion, the study said.

In addition to boosting the bottom line, APIs help lower barriers to entry for programmers and make designing complementary programs easier, faster and less disruptive to existing business logic, Van Alstyne said.

“Other claimed benefits include better internal information diffusion and management; higher function and lower-cost data management and security; and the ability to serve as the foundation of a digital platform, by making it easier for outsiders to participate in and add value to the ecosystem,” he said. “The key to all of these is that APIs don’t directly lead to the consequences; rather, that they make these impactful investments cheaper. Any firm writing their own code will likely find it useful, if not immediately necessary, to create an associated API.”

In addition, the study shows that firms adopting APIs see increases in sales, net income, market capitalization and intangible assets.

“In our preferred specification, (fixed effects with API adopters as the control group, and additional controls) API adoption is associated with a $67,400 per quarter ($269,600 per year) increase in net income and $154,000 increase in market capitalization,” the study said.

According to Bryan Kirschner, director of Apigee Institute, the time for companies to sit on the sidelines is over. “The days when a small, passionate mobile team might lack evidence to convince top management that APIs are more broadly relevant to competitiveness are behind us,” he said in a blog post. “Today’s balance of risk is different. As boards and CEOs wrestle with digital transformation, the urgency of ‘getting in the game’ of doing business with APIs might get lost in a larger change initiative that, for most, will take years to fully unfold.”

Meanwhile, Apigee also announced its new Apigee Edge experience—a new approach to designing, developing and publishing APIs using Apigee Edge, a platform for developing and managing API proxies.

In September, Google agreed to acquire Apigee in a deal worth $625 million. Apigee provides a platform for developing, managing and monetizing APIs, as well as predictive analytics to help developers gain insight into the use of their APIs. The deal is expected to close by the end of this year.

APIs are essentially building blocks for developing software applications.

“Companies are moving beyond the traditional ways of communicating like phone calls and visits and instead are communicating programmatically through APIs,” Diane Green, senior vice president of Google’s cloud business, said in a statement. “APIs allow the company’s back-end services to talk to the mobile and web-based apps used by their customers and partners. Instead of the doctor phoning a prescription into the pharmacy, they can use an app that talks to the pharmacy through an API. Apigee easily enables this by providing a comprehensive API platform that supports secure, stable, multi-language, dev, test, publish and analytics capabilities.”