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How Apis Create Growth By Inverting The Firm, Seth G. Benzell, Jonathan Hersh, Marshall Van Alstyne

Economics Faculty Articles and Research

Traditional asset management strategy has emphasized building barriers to entry or closely guarding unique assets to maintain a firm’s comparative advantage. A new “Inverted Firm” paradigm, however, has emerged. Under this strategy, firms share data seeking to become platforms by opening digital services to third-parties and capturing part of their external surplus. This contrasts with a “pipeline” strategy where the firm itself creates value. This paper quantitatively estimates the effect of adopting an inverted firm strategy through the lens of Application Programming Interfaces (APIs), a key enabling technology. Using both public data and that of a private API development firm, …