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API Monetization

Hopefully by the time you have put an API management plan in place, you already have a health business model in place, which should provide framework for you monetization goals.

Its not just about how you are going to generate revenue via your API, it is also about how you will keep your API in operation, and performing for consumers.

Not all APIs are created equal. The reasons for deploying an API can vary widely, but we are seeing some common patterns emerge.

A popular way to provide access to an API, is by offering a free tier so that anyone can sign up, start using an API and understand the value an API delivers. This allows consumers to kick the tires, see if it will meet their needs before spending money. While free is a good option for many API monetization strategies, it is just one tool in the toolbox of API providers, and by itself, or without the proper upsell to higher levels can prove problematic.

Consumer Pays
After providing free access, the most common approach to API monetization is establishing a price that API consumers will pay. Some API providers have done well by finding a fair price that developers are willing to pay for their resources. We are seeing three common approaches to APIs charging consumers:

  • Tiered - Providing multiple tiers of paid access, such as bronze, gold or platinum. Each tier has its own set or services and allowances for access to API resources. With pricing, stepping up in cost for each tier.
  • Pay as You Go - Other API providers prefer to offer a utility based model, where API consumers pay for what they use. Depending on the amount of bandwidth, storage and other hard costs, inccured around API consumption, providers charge based upon their cost, plus a logical profit.
  • Unit Based - Other API providers define each API resource in terms of units, assign a unit price. API providers pay for the number of units they anitcipate using, with the option for buying more when necessary.

Some API providers will mix and match different combinations of tiered, pay as you go and unit based API pricing to recover operational costs as well as generate revenue in many cases. 

Consumer Gets Paid
In some cases, an API will drive other revenue streams for companies and can actuallk share revenue with API consumers. This approach acts as an incentive model for API cosnumers, encourging integration and quality implementation of resources that drive the high possible revenue for an API provider as possible. There are three distinct models for sharing API revenue with consumers that have merged:

  • Ad Rev-Share - Some API providers offer advertising network as part of their platforms. API consumers embed advertising in their sites and apps, providing revenue for API providers. In turn the API provider returns a portion of the revenue from advertising.
  • Affiliate - Some approaches to monetization of websites have been applied to API ecosystems. Cost Per Acquisition (CPA), Cost Per Click (CPC) and one time or recurring revenue sharing models are commonly used. Once key aspects of where revenue is generated from an API driven platform, it is easy to carve of affiliate models for sharing revenue with API consumers.
  • Credits to Bill - A smaller group of API providers will employ an API consumers pay model, but based upon advertising revenue share or affiliate revenue will
    credit an API consumers bill, reducing a developers overhead for integration and eliminating the need to pay cash out the doro.

Monetization of an API isn't always about directly generating revenue from API access, advertising or other revenue. There are often times indirect ways that an API can deliver value to a company. 

  • Marketing Vehicle - APIs can provide an excellent marketing vehicle for a company and its online presence. Through sensible branding strategies, developers can become 3rd party marketing agents, working on behalf of a core company and its brand.
  • Brand Awareness - As a new tool in an overall marketing and branding strategy, an API can provide a type type of brand exposure via 3rd party websites and applications. Extending the reach of a brand, using 3rd party API consumers as the engine.
  • Content Acquisition - Not all APIs are about delivering content, data and other resources to their consumers. APIs often allow for writing, updating and deleting of content, as well as pulling. Content acquisition via an API can be a great way to build value within a company and its platform if done right.
  • SaaS - Software as a Service (SaaS) has become a common approach to selling software online to consumers and businesses.  Often times an API will compliment the core software and its offering, providing value to SaaS users. API access is often included as part of core SaaS platform, but also can be delivered as an upsell for premium SaaS users.
  • Traffic Generation - APIs can also be used to drive traffic to an existing website or applicaiton. By desigining an API to use hyperlinks directed at central websites or apps, and encouraging consumers to build their own websites and apps that are integrated with the API, the opportunity for driving traffic to other sites is very desireable to many companies who are providing APIs.

Many companies start by focusing on launching and evolving their API strategy and gaining essential experience, before fully executing on their API monetization strategy--relying completely on indriect value from an API. While it is better to have a monetization strategy in place early, many are finding success by prioritizing the API first and monetziation second.

With APIs being deployed in various capacities, within a company, privately between partners or in the public, a wide mix of monetization strategies can be used. Some API resources just lend themselves better to a pay as you go model, while some markets demand that data be freely accessible with the need to register or be charged for access. There is no one size fits all approach to API monetization.

One way to think about an API is as an external research & development lab within a company. A lab that accepts ideas and integrations from partners, incubates these ideas, applications and business relationships.  Companies are using APIs to bring allow the introduction of outside ideas and talent into the mix, in hopes of inciting innovation. Some API providers will hand select the best integrations, invest in their individuals and companies, sometimes resulting in acquisitions of technology and the talent they possess--creating entirely new approaches to monetization you may not have thought of.

Just like there is no on size fits all approach to API monetization, there are few constants in pricing or access. Even the pioneers in the space like Amazon Web Services are constantly adjusting, tweeking and experitmenting, trying to find the most competitive approach possible. APIs are about business development and finding new ways to monetize your new and existing resources.