105 / Innovation Through Open APIs: Shifting the Locus of Value Creation, with Marshall Van Alstyne

Open APIs are sets of rules that enable systems to freely communicate with each other. They allow companies to “tap into the wisdom of the crowd,” Marshall Van Alstyne explains, shifting the burden of value creation to external sources. “You want people you don’t know to bring you ideas you don’t have,” he adds.

In this episode of Product Momentum, Sean is joined by guest host Nathan Shapiro, Head of Platform Strategy and User Experience at Paychex. Together, they draw out Marshall’s expert insights on the correlation between a firm’s open APIs and the progressive growth of its financial performance over time. Marshall is a Professor of Information Economics at Boston University and co-author of the international bestseller, Platform Revolution.

Firms that open their architecture and APIs expand their ecosystem and ignite an interoperability within it, thereby creating a network effect – a phenomenon by which the value a user derives from a good or service depends on the number of users of compatible products.

The key, Marshall adds, is to position your firm to “command the center” of your ecosystem.

“Individuals tend to gain influence or power in proportion to the degree of centrality within their network,” he says. “We found exactly the same thing for firms. The more focal you are, the more central you are in your ecosystem, the greater your increase in market capitalization.”

But, he cautions, opening your data is not without risk. Bad actors exist everywhere. So your firm needs to open for a reason, all the while weighing the pros and cons of sharing your data externally. One of those reasons, Marshall adds, is to “invert the firm,” a mindset that leverages APIS and enables you to share the production of value beyond your own employees.

Marshall van Alstyne is one of the world’s foremost experts on network business models. Be sure to catch the entire podcast to capture all his insights.

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