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Monetization for APIs

By Alex_B_Wilson posted Aug 17, 2016 04:03 AM

  

I was asked to comment on monetization of APIs and put this together for my colleagues. The following commentary is in my opinion and I have also provided some useful links to reference material across the web covering this topic.

 

Analysis

The API Industry is learning slowly that APIs are products and carry the same product management ideals and goals as any product out there today. They want their API to be used, be successful, grow over time and possibly generate some revenue for the company.

 

When it comes to generating revenue through your API there are tangibles and intangibles that can come into play, first we will clarify the differing types of APIs and then provide some models that could be used for getting some return on your investment.

 

IMHO - An API either provides usable data or provides value to another process, if it does both at the same time then it gets bonus points.

 

However, value is determined by the consumer of the API and not the supplier of the API, you should not place a cost on your API until you have validated that someone is willing to pay for it. Otherwise you will not pass go, or collect your $200.

 

A quick review on API types that are covered in this article. Generally there are three broad types of APIs.

 

Private: This makes up the majority of investment and development effort across industry and focuses on company system or service integration use cases. The exposed function or data is seen as a benefit to the organisation BAU and provides a modern approach to interconnecting systems and services on a scalable, reusable pattern. Private API revenue generation could be justified through a cross department chargeback scheme but is not a common pattern. There is a best practice however that any API product should be developed with a view that it may be a Public API in the future.

 

Public: This would be where most “monetization” business cases or sales pitches are focused and we will provide differing models and schemes later in this document. These APIs are available broadly across the industry’s and provide a capability that can be consumed in an easy to use manner, examples include APIs from Google, Facebook, AWS, Twillio and other behemoths. There are many lesser known APIs available for consumption from smaller entities such as weather services, travel information, government and more.

 

Partner: When we consider this type of API we think of cooperation between entities to provide a cohesive service. A bank may work with an insurance provider through partner APIs that brings customers through their doors (virtually) by providing a great app experience with minimum fuss or interaction. The goal here is to get customer to purchase services from the bank or insurance company, not pay for the API, although a cost model for developing the API can be shared between the like-minded entities.

 

Charging for your API.

As a starting point the freemium model is the entry point, this is where you encourage developers or consumers to start using your API for free with an understanding that the continued use or usage above a certain transaction rate will incur charges. Account plans can be laid out and published so there is no surprises, there are numerous models across other service providers that shows this in use (AWS) with a free tier and then you start to pay after a certain point.

 

Second is a tiered or volumetric charging scheme, the more you use, normally TPS, the less you pay per transaction. Obviously this starts to introduce a minimal commitment from the consumer that needs to be negotiated or signed up to before consumption.

 

The second can also be aligned with a simple pay as you go engagement, you hop on and hop off the bus as and when you need, your credit card is charged on a monthly basis based on your usage.

 

Recurring fees can be a shock with some of these plans, especially when you are only consuming the API infrequently and with few transactions. You may find that the monthly fee to stay on the pay as you go plan, is more costly than the usage of the plan itself.

 

Some useful reading on this topic for reference.

 

http://nordicapis.com/top-5-api-monetization-models/

 

http://www.slideshare.net/jmusser/j-musser-apibizmodels2013

 

https://www.ca.com/content/dam/ca/us/files/ebook/api-monetization-unlocking-the-value-of-your-data.pdf

 

http://monetization.apievangelist.com/

 

kind regards

Alex

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