How to Build an API Monetization Strategy

How to Build an API Monetization Strategy

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Discover how to create an API monetization strategy with purpose, measurement, and ecosystems.

API monetization — using application programming interfaces (APIs) to make money and unlock value from your data — is no longer just a buzzword. It is a phenomenon that’s driving the API economy.

There are several direct and indirect API revenue models. Subscription or metered billing are common ways to gain direct value from your API programs. Others charge per API call, with rate limits, while other businesses sell API access or data directly to software developer teams.

Indirect API monetization can involve integrating with a partner like Salesforce, allowing you to gain customers in different segments or offer a new workflow that adds to existing customer stickiness. Or a FinTech startup might build on your product to offer something unique to your clients without you having to create that feature yourself. Most businesses choose to use PayPal, Stripe, or other payment APIs so they can focus on their day-to-day business without wasting time building and certifying their own payment system.

More early-stage companies are choosing to follow an API-first model than ever because it gives them the architectural flexibility they need to not only respond to customer needs but to leverage the work of others through strategic partnerships. This practice opens up an opportunity to monetize later, even if you’re not ready now.

Exposing data via an API directly or indirectly inherently broadens your attack vectors, so no organization should rush to monetize their APIs. For monetization to be successful, maximum security and value must be felt by all participants in the API value chain: API providers, API consumers, and end-users. With the right key partnerships and setup, monetization can result in co-innovation with developers and open up the potential to grow ecosystems around your digital services.

As APIs continue to prove their value, startups and large enterprises alike are finding new ways to fit monetization into their API lifecycle management. Let’s explore some top tips for starting to monetize APIs and how to collaborate with others to increase your revenue.

Not Every API Can — or Should — Be Monetized

“If it ain’t broke, don’t fix it” applies to APIs too. API monetization is not for everyone as it can become a security risk if APIs aren’t built and released like a product under continuous monitoring. If APIs already provide internal company benefits for developer productivity, saving your organization time and money, you don’t necessarily need to monetize them — the value is already proven. In fact, The New York Times stands out by dogfooding their external APIs. They realized their hundreds of internal APIs drive organizational efficiency and innovation, so they thought it was better to test externally.

However, most organizations are pursuing some form of external or partnership API program. The risk is that many are rushing to monetize their APIs. You should only look externally once you’ve validated, streamlined, and secured your internal API program. Ensure the right quality of governance and documentation is in place before exposing it to external partners or creating an open API ecosystem. This is important to avoid poor developer experience and broadening attack vectors.

Unused APIs have no value for anyone, and there’s always a cost to maintaining them, especially if they’re public. Therefore, businesses must think through API monetization before implementation to provide sustainable incentives and rewards to API providers, developers, or users.

Look to see if there is a market for the service — or the data exposed via that service — and if there are competitors. Have you done market testing with a minimum viable product (MVP)? How rare or useful is your data? Can it increase its value by being combined with external datasets?

Sometimes, having developers consume your APIs is more valuable than pining a price tag per API call. Giving APIs away without charging can drive adoption and incentivize developers to use your product. A retailer, for example, could offer developers free access to inventory, ordering, and payments APIs. With more developers using retail APIs, a brick-and-mortar can create an on-demand digital experience or loyalty program to reach more customers.

Another idea is to offer free APIs to build developer communities around your brand, add partners at scale, and uncover trends around your API users. Through access to more data, companies can quickly work out if it is best to go after long-tail developers or B2B partnerships, or they may uncover new use cases. Open APIs are widely used to build ecosystems around products, especially in industries such as banking, where innovation is driven by regulation.

Always Launch With Your Unique Value

IBM’s white paper on insurance API use cases states the following: “Do not wait until you know all the answers and have everything in place to get started; the market is moving too fast.” This is true to an extent, but companies are often so focused on going to market to launch an API monetization strategy that they don’t have a set purpose or know how to capture their target audience.

When rolling out an external API monetization program, first choose to adopt a design-first approach and build APIs knowing you’ll later share them. It’ll improve the developer experience and customer satisfaction with better governance, compliance, and consistency.

Once you have the quality of your potentially public-facing APIs nailed down, ask yourself: How does your API or your data exposed via it offer value nobody else can provide? What’s your unique value proposition?

Take InsurTech as an example. Perhaps a mobile provider or telco is looking to create a niche service for insuring mobile devices. Large insurance providers usually take up the liability and the underwriting of services. This is the unique value they could offer via an open API that a telco can integrate with, increasing customer lifetime value for both. In fact, in the InsurTech open API ecosystem, a third-party app may build this small piece of the customer experience that adds value to all three partners.

Open APIs can lead the shift from traditional product-centric models to customer-centric models, improving risk management and taking digital customer journeys to the next level. Somebody could get insurance on the spot instead of waiting for days.

Essentially, don’t just throw money at a service and monetize everything. Set the value of how much you will monetize, and always check if you are undervaluing the data you are exposing. If you create a market segment that doesn’t exist today by leveraging the core capabilities of a large enterprise, you are on the right track.

In fact, more and more companies have narrowed their purpose to become API-as-a-product companies, delivering their main value proposition via an API. Take Twilio, which is now the API backbone of customer communication journeys, with more than a third of the overall market share.

Measure and Track Your API Monetization Program

When starting an API monetization journey, many questions arise:

  • How much should you charge?
  • Is it best to offer a basic, freemium API alongside other pricing tiers based on increasing needs or services?
  • Do you have mechanisms to detect and react to changes in user behavior?
  • Have you identified metrics to track financial returns and changes to API products?
  • Do you have a plan for API governance and security?

These days, goals and metrics are everything. Between 2019 and 2020 alone, API analytics adoption increased by 75% among Google Cloud Apigee API runtime platform customers, signifying a move to assessing API programs holistically.

Before exposing an API to the public — even if it’s free — you need a trusted API management solution to make sure you are offering secure access and authentication. This manages how your API consumers access your product and enables you to make quick iterations to your MVP. In particular, platforms with workflow visualization show your entire path to production in a single view and reduce the time to build and deploy APIs. This helps streamline cross-organizational API programs to ensure compliance and meet set quality standards. It also enables your organization to reuse and recycle APIs, providing ample internal savings.

You can also accelerate development workflow with built-in plugins — from source control to monitoring to auto-generated documentation — which automate how you work, meaning you can see API rate limits, manage rate plans, and collect usage data.

An API management tool should make it easy for your consumers to access everything via a developer portal, simplifying API monetization. An exceptional developer experience will make it an easy choice for your users to stick with you. Also, it allows for developer self-service, so you aren’t adding the cost of customer support to your API monetization strategy.

Join an Open API Ecosystem to Monetize Companies’ APIs

It isn’t about the number of partnerships but the value they bring, so experiment with various API monetization models and flexible revenue sharing models. This is where an API provider shares a percentage of revenue generated from transactions with a developer.

Whether you are a startup or small or medium-sized business, it is all about how you get to market faster. Therefore, consuming a service from a third party has always been viewed as more efficient than building your own. But partnering with others can help you build a cohesive offering that will keep your customers loyal. Today’s market is all about how two or more companies can work together to create a seamless customer journey and more value than they could independently.

According to the State of API Economy 2021 report by Google Apigee, “banks want their services to fluidly integrate with retailers’ apps just as retailers want their customers to have easy, in-app access to preferred payment choices.” For the SaaS industry and customer-facing financial world, integrating with other partners can create automated workflows and drive brand awareness.

Salesforce, Microsoft, and Hubspot have massive partner ecosystems where startups — usually referred to as ISVs or independent software providers — from all industries have added small pieces to ease processes, becoming critical components of organizations’ IT stacks. Spotify, for example, lets people build apps on top of their open API, which in turn opens up new inbound customer channels. Startups will benefit from joining those ecosystems as they can share revenue with the API provider and have their brands associated with household names.

Another example to keep in mind is the API-first digital-only neobank Tonik, which has offered the 70% unbanked population in the Philippines a new opportunity by becoming the first licensed digital bank there. Digital lenders and payroll companies can use Tonik’s regulated banking services over an open API banking platform, helping Tonik create new business revenue. By following an API-first architectural model, they can scale quicker than traditional banks and respond to changing customer needs.

“All we need is the digital orchestration layer where we build a digital ecosystem through an API development platform…you can easily onboard multiple ecosystem partners, define the financial products, and easily integrate and expose the open APIs for them to collaborate,” Arivuvel Ramu, CTO at Tonik, told Finastra, when speaking about their successful Open API ecosystem.

Overall, when a company launches a technically great API but does so with no developer business model or real purpose, they are in trouble. The best bet in this modern age is to partner with ecosystems to build mutually beneficial agreements and always track APIs with a trusted API management platform. Most importantly, remember: sometimes API monetization opportunities can appear later down the line from projects with no initial price tag, so long as you have an API-design mindset from the start.