Analyzing the Market Growth in API Economy Using Time-Evolving Model

Authors: Hiroki Yoshikai, Shin’ichi Arakawa, Tetsuya Takine, Masayuki Murata

Abstract:

API (Application Programming Interface) economy is expected to create new value by converting corporate services such as information processing and data provision into APIs and using these APIs to connect services. Understanding dynamics of a market of API economy under strategies of participants is crucial to fully maximize the values of API economy. To capture the behavior of a market in which the number of participants changes over time, we present a time-evolving market model for a platform in which API providers who provide APIs to service providers participate in addition to service providers and consumers. Then, we use the market model to clarify the role API providers play in expanding market participants and forming ecosystems. The results show that the platform with API providers increased the number of market participants by 67% and decreased the cost to develop services by 25% compared to the platform without API providers. Furthermore, during the expansion phase of the market, it is found that the profits of participants are mostly the same when 70% of the revenue from consumers is distributed to service providers and API providers. It is also found that, when the market is mature, the profits of the service provider and API provider will decrease significantly due to their competitions and the profit of the platform increases.

Keywords: API Economy, ecosystem, platform, API providers.

References:

[1] IBM, “IBM unveils matchmaking technology to navigate API economy.” https://www-03.ibm.com/press/us/en/pressrelease/48026.wss, Nov. 2015. (Accessed : 2021-12-20).
[2] Z.-L. Zhang, P. Nabipay, A. Odlyzko, and R. Guerin, “Interactions, competition and innovation in a service-oriented internet: An economic model,” in Proceedings of IEEE INFOCOM, pp. 1–5, Mar. 2010.
[3] A. Nagurney, D. Li, T. Wolf, and S. Saberi, “A network economic game theory model of a service-oriented internet with choices and quality competition,” NETNOMICS: Economic Research and Electronic Networking, vol. 14, pp. 1–25, May 2013.
[4] S. Sen, R. Gu´erin, and K. Hosanagar, “Functionality-rich versus minimalist platforms: A two-sided market analysis,” ACM SIGCOMM Computer Communication Review, vol. 41, pp. 36–43, Oct. 2011.
[5] M. Sugiura, S. Arakawa, M. Murata, S. Imai, T. Katagiri, and M. Sekiya, “Utility analysis of API economy based on multi-sided platform markets model,” in Proceedings of International Conference on Digital Ecosystems and Technologies (ICDET2020), pp. 1–6, Oct. 2020.
[6] T. Isckia, D. R. Mark, and D. Lescop, “Orchestrating platform ecosystems: The interplay of innovation and business development subsystems,” Journal of Innovation Economics & Management, vol. 32, pp. 197–223, May 2020.
[7] B. Di Martino, G. Cretella, A. Esposito, and R. G. Sperandeo, “Semantic representation of cloud services: A case study for microsoft windows azure,” in Proceedings of International Conference on Intelligent Networking and Collaborative Systems, pp. 647–652, Sept. 2014.
[8] “The Power of the API Economy: Stimulate Innovation, Increase Productivity, Develop New Channels, and Reach New Markets — IBM Redbooks.” https://www.redbooks.ibm.com/abstracts/redp5096. html, Dec. 2014. (Accessed : 2021-12-20).
[9] “Spotify users - subscribers in 2021 — Statista.” https://www.statista. com/statistics/244995/number-of-paying-spotify-subscribers/, Nov. 2021. (Accessed : 2022-02-06).
[10] D. Skog, H. Wimelius, and J. Sandberg, “Digital service platform evolution: How spotify leveraged boundary resources to become a global leader in music streaming,” in Proceedings of the 51st Hawaii International Conference on System Sciences, pp. 4564–4573, June 2018.
[11] “IR NEWS — KADOKAWA GROUP GLOBAL PORTAL SITE.” https: //group.kadokawa.co.jp/ir/. (in Japanese, Accessed : 2022-02-07).
[12] M. A Cusumano, “Epic versus Apple and the future of App stores,” Communications of the ACM, vol. 65, pp. 22–24, Jan. 2022.