How To Create An API Business Product

How To Create An API Business Product


We review key insights from Bruno Pedro’s new book, Building an API Product, published by Packt.

Each year, more and more people outside of the tech world are using APIs. According to Postman’s 2023 State of the API report, 53% of respondents reported filling some other role in an organization. These include chief technology officers (CTOs), managers, and directors.

The proliferation of less tech-savvy API consumers requires ‘developers to think of API products in a new light. Increasingly, APIs are becoming business products in their own right. 60% of API developers report that they must think like business people and developers for their API to succeed in a crowded marketplace.

At the beginning of this year, computer science professional Bruno Pedro released Building an API Product on Packt Publishing. It’s a thorough overview of everything you need to consider to treat your API as a business product in its own right. It takes you all the way from the inception of the API industry in the early 1950s to today’s state-of-the-art API development scene. It’s designed to turn a complete novice into an API expert by the time you’re finished, making it an ideal guide for anyone interested in API monetization.

We’ve gone through Building an API Product from cover to cover, pulling out some of Pedro’s invaluable wisdom to help take your API business product from creation to profitability. We encourage you to pick up the entire volume, but we’ll share the cliff notes below.

Conduct Market Research

If you’re developing an API as a business product, you’ll need to think of it like any other business product or service. Depending on what niche or industry you’re in, your API won’t solely be consumed by developers and C-suite execs. It may also be used by consumers and business owners, who are likely to be far pickier about user experience, the actual usefulness of your API product, and how it can make or save them money.

Generally speaking, you don’t rush a product to the marketplace unless you’re eager to lose money. Traditional business models require you to conduct market research into your industry while developing your API. You’ll want to understand how your industry uses APIs and the products currently on the market. If you’re creating something similar to an existing product, you’ll want to emphasize how your API stands out in the marketplace.

In Building an API Product, Pedro mentions several industries frequently using APIs, including healthcare and banking. He mentions some common API applications in each sector, like drug stores being able to refill supplies or order prescriptions using an API. He also mentions some specific rules and legalities for different industries, like healthcare APIs needing HIPPA compliance, for example.

Pedro goes on to specify some different methods for conducting market research, mostly using what marketers refer to as personas. Next, he offers some examples of different personas for common API users.

Common Rolls of API Users

  1. Business Analysts
  2. Product Managers
  3. Students and Teachers
  4. Software Architects
  5. Students and Teachers
  6. Software Architects
  7. Quality Engineers
  8. Developers

Pedro also recommends talking to members of different demographics to find out how exactly they’re using or planning to use your API. This way, you can focus on delivering an exceptional experience for as many of your users as possible.

Pedro later goes into greater detail while discussing how to conduct market research for APIs in Chapter 5, ‘Elements of API Design’ in the Ideation sub-section. “Obtaining information is something that you should do immediately after you’ve identified the problem and validated its alignment with business objectives,” he recommends. “Interview people that you think have the problem you’re defining,” he continues. “Understand how those people deal with the problem and what they do to solve it. With enough interviews, you’ll be able to categorize the problem into different scopes.”

Deliver Exceptional Experience

Developer experience (DX) and user experience (UX) can make or break an API intended to be a business product. In the chapter Developer Experience, Pedro observes, “A good developer experience can significantly impact the success of an API. It can increase developer adoption and engagement, improve the quality of the code produced, and reduce the time and effort required to develop applications.”

He then defines what he calls “the API hierarchy of needs,” a pyramid-shaped graph based on Maslow’s Hierarchy of Needs.

The API Hierarchy of Needs (from bottom to top)

  1. Usability
  2. Functionality
  3. Reliability
  4. Proficiency
  5. Creativity

Next, Pedro goes on to specify an aspect of delivering exceptional user experience that’s often overlooked — second-degree user experience. Second-degree is the user experience for people using apps that consume your API. He cites the Twitter API, with its infinite scroll architecture, and Netflix’s model for authenticating new devices, where you type in a verification code from the device into a web browser, as examples of exceptional second-degree user experience.

He also discusses reducing API friction to provide an exceptional second-degree user experience, adapted from an article from 2012 by David Pogue, “Make Technology – and the World – Frictionless”. In Pogue’s original definition, he describes API friction as “every website where you need to fill in a form or spend time proving that you’re a human.”

Pedro later expands on the idea, specifying some things that are particular to API friction. These include things like poor API documentation or a lack of onboarding materials. He also advises including resources like a software development kit (SDK) to help make onboarding as frictionless as possible.

Understand Your Business Value

“A business without value has no meaning,” Pedro boldly declares in the first sub-section of Chapter 3, ‘API-as-a-Product.’ If you intend to release your API as a product, you need to consider its worth. At the bare minimum, you’ll want to break even, recouping the expenses you’ve spent developing and deploying your API. At best, you turn a profit, boosting your company and making your shareholders happy in the process.

To determine your API product’s business value, you’ll have to conduct more market research. This begins by identifying what problem your API will solve. Then, you’ll interview some potential users to determine how many people would use your API, which can give you a rough estimate of your potential user base. Finally, you’ll want to examine similar products to assess the current market rate. Multiplying potential users by the market value gives you a rough idea of how much monthly income your API could generate.

Understand Monetization Models

API monetization is one of the most common ways to generate income with your API. He also recommends becoming proficient with the most common models for API monetization to see which will best suit your API.

  • The freemium model: Freemium APIs are among the most common monetization models. These APIs make some features free for everybody and then hide certain functionalities behind a paywall.
  • The tiered model: The tiered monetization model for APIs is related to the marketing research you’ve already conducted. Tiered APIs break users down into different cohorts. Then, you can break down features into different sets for different cohorts of users and price each one accordingly.
  • The pay-as-you-go model: Pay-as-you-go (PAYG) APIs are also incredibly common. In a PAYG model, users only pay for what they use, usually per transaction. Pedro uses utility bills like power or water as an example of a metered monetization model.

Spend Time On API Design

“Building an API product starts with designing what it will look like and how it will behave,” writes Pedro in the opening sentence of Chapter 5, ‘Elements of API Product Design.’ He proceeds to break down the API design process into five stages.

The Five Stages of API Product Design

  1. Ideation
  2. Strategy
  3. Definition
  4. Validation
  5. Specification

Ideation is the stage where you develop the idea for your API design. API strategy is when you start to think about API implementation. API definition is the stage where you begin making technical decisions, like which HTTP method you’ll use for different API resources. API validation checks your work, making sure that your API is working properly and suiting your users’ needs. The API specification stage is where you’ll decide which format to follow for your API.

OpenAPI is the most common, but there are others like GraphQL and gRPC for you to choose from as well. Understanding the strengths and weaknesses of each API specification will help you determine which format is best for your needs, whether it be OpenAPI, IDL (Protocol Buffers), GraphQL, WSDL, or AsyncAPI.

Once you decide which API specification you will use, you should be able to easily create a front-end mock-up. Once you have a working prototype, you should be able to easily connect it to your business logic and data. Once you get to that stage, you’ll be able to decide what programming language you want to use to build your API.

Develop an API Strategy

Having a strategy is one of the most important components of a successful API product. Understanding API success requires knowing what you’re trying to accomplish. This means having quality metrics and a thorough understanding of what objectives you’re trying to accomplish. Only then will you be able to understand how your API is truly performing.

API strategy also lets you predict how much your API will cost at different stages of its lifecycle. Expenses are highest during the earliest stages of creating an API. That number begins to fall drastically quickly, but maintenance and support rise while design and implementation expenses decrease. Different aspects of designing, creating, and maintaining an API have different costs. Figuring out each component lets you create a detailed budget over a span of time.

Calculate Expenses

After you’ve developed an API strategy, you should be able to accurately predict the cost of your API at different stages during the API lifecycle. Design and implementation are the most expensive processes, but they’re also the first to be completed. You’ll also want to decide how much you’re willing to spend marketing your API. If necessary, factor in additional expenses like creating a mock-up or integrating with third-party applications.

Final Thoughts on Building an API Product

APIs are the infrastructure that makes so much of modern life possible. Whether you’re integrating with a cloud-based or microservices environment or simply want to connect your proprietary backend to third-party solutions, APIs are likely to play an important role in the process. If handled correctly, API business products also let you transcend your business’ geographic limitations, opening up your potential clientele to a global marketplace.

These are just a few insights from Pedro’s marvelous book, which is stuffed with practical and actionable advice that’s technical enough for advanced users but legible enough for complete beginners. If you find yourself intrigued after reading this API business product primer, we recommend reading Building an API Product in its entirety. It’s one of the best technical API guides we’ve read in recent memory.