Everything You Need To Know About API Monetization

APIs are no longer a niche interest. At this point, over 40% of large companies use more than 250 APIs. 71% of developers plan to use even more APIs in the coming year. This interest is causing a gold rush as investors seek to take advantage of this burgeoning field. The API economy has been called the next billion-dollar opportunity.

This rising interest in APIs as an investment opportunity has several ramifications for the API industry. For one, we’ll likely see a rush of new API development to tap into the new market. API developers and producers will probably be looking for new ways to make money off of their APIs, as well.

For all of these reasons and more, API monetization will be increasingly important as the years go on. To help you make sense of these changes, we’ve put together a thorough guide with everything you need to know about API monetization.

What Is API Monetization?

Let’s start at the beginning: what is API monetization? Simply put, API monetization is any way an organization seeks to generate revenue from an API product. While the definition is simple, the particularities are far more involved.

For instance, API monetization is more than just the revenue itself. It’s also all of the planning that goes into generating that income stream. It should consider the maintenance effort and expenses required to keep your API up and running, making it a viable product for API consumers. As such, API monetization and API management are closely intertwined.

Levels of API Monetization

Numerous methods, formats, and structures have emerged for API monetization. Let’s look at a few of these approaches to give you an idea of how to monetize your own API products.

Free Tier

Many APIs offer a free tier for their services. This way, anyone can sign up for your API and demo it for themselves. It’s essentially the API version of freemium software.

Like freemium software, having a free tier for your API gives consumers a chance to see if your API is a good fit for their workflow. It’s also far easier to convert someone into a paying customer when they’re already using your product.

The next structure is for an API consumer to pay for using your API. This can be handed in a few different ways.

Levels

This API monetization structure is a continuation of the Free Tier format. Customers and consumers can sign up for various levels, giving them a certain amount of access. For instance, you might have a Basic plan, allowing for up to 10,000 queries a month.

Pay As You Go

The next approach is for API consumers to pay a certain amount per API call. Some API producers charge $0.001/transaction, for example. The main thing to keep in mind with the Pay As You Go approach is how to charge your customers. It’s not practical to swipe a credit card with each micro-cent transaction. You will likely need to set up some sort of credit system or to have your customers pay a certain amount upfront.

Revenue Share

Having customers pay to use your API isn’t the only aspect of API monetization. You could pay people to use your API, which shows API monetization is more complicated than it seems at first glance.

This approach is similar to affiliate marketing for websites. Your API could have different components, like clickthrough rates, cost-per-click, and cost-per-acquisition. You might set this up similarly to how an affiliate network is set up for traditional digital businesses and websites.

Another API and affiliate marketing hybrid is to pay your customers to advertise your API. They would then be paid a certain percentage of the profits from their ad sharing. Payments don’t have to involve the transfer of currency, either. You might pay your customers in credits for your API, for instance.

The paid style of API monetization could be a good choice for API producers that don’t yet have an enormous following. It’s another example of more subtle ways that APIs can be used to generate revenue for your business — in this case, in the form of future business.

Other Forms Of API Monetization

Customers paying to use your API isn’t the only way APIs can generate revenue for your organization. In many ways, an API can serve the same function as other forms of digital marketing. They can help in indirect ways, including raising brand awareness, illustrating thought leadership, and offering inbound links to your digital assets.

  • Brand Awareness: An API can fill a similar role as social media marketing for your business and brand. It’s even more effective, at times, as the social media marketplace is rather saturated and competitive.
  • Software-as-a-Service: One of the best business reasons to offer an API is to extend an existing platform. Software-as-a-Service (SaaS) has been rising in popularity for a number of years. Making APIs available as an incentive is an excellent way to get customers to sign up for your SaaS products.
  • Generating Traffic: Procuring clicks and inbound links gets increasingly difficult as time goes on, especially from quality websites. It’s to your advantage to consider every available alternative. APIs are an excellent way to drive traffic from third parties, which can generate revenue in other ways.

These more subtle routes to monetize your APIs bring their own challenges. It’s more complex to track ROI, for instance. You might need to get a little creative when it comes to generating ROI reports to justify the expense of developing and maintaining your API to your C-suite.

The Path To API Monetization

We’re already seeing an API gold rush, and it’s only going to get more intense as more money pours into the industry. This means we’ll likely see a torrent of new paid API products. This brings its own problems, though.

First and foremost, APIs are not like other digital products. More so than nearly any other tech product we can think of, your API’s performance needs to be airtight to provide value for your customers. It wouldn’t take much downtime for your customers to switch to a different provider.

This means the first step in API monetization is creating a great API. And once you’ve got a well-designed, reliable product, you can focus on expansion, just like you would any other digital business plan.

The good news is that you can structure your API monetization process into the development process itself. You might include a timetable for developing a particular resource when you’re deciding on API routing, as one example. It’s actually recommended you do so, as you’ll want to keep your customers informed of any changes you’ll be making.

Some things change when you make an API a paid product. You’ll likely want to adopt transparent API versioning, for one thing, as you don’t want to risk breaking any endpoints for your current users. It will also impact some of your programming choices, like allowing access to different resources for different tiers. All of these considerations should be tackled from the whiteboard when you begin to think about API monetization in earnest.

API Monetization: Final Thoughts

It’s an exciting time for API developers. It’s always thrilling when a whole new industry emerges, especially when seemingly overnight. Think back to the rise of social media marketing or blogging as a legitimate business model for recent examples.

Both of those models should also serve as cautionary tales, however. Remember the absolute avalanche of pointless social media accounts in the wake of countless breathless industry think-pieces about social media marketing. Those examples can also serve as a guidebook for how to go about your own API monetization. For starters, you need to focus on providing real value, above all other things.

If you take the time to plan out and implement your API properly while also considering your customers, the state of the industry, and how your API provides value, your service has an excellent chance of becoming a viable source of revenue for you and your organization.