Monetizing APIs: Discerning Today’s Needs from Tomorrow’s Opportunities Posted in Business Models Nick DiFelice February 1, 2024 APIs only continue to grow in importance as companies realize their value for driving innovation, partnerships, and new revenue streams. For API developers, monetization holds much promise, like a coveted treasure catching our attention. Yet, many API developers are beginning to find out that converting this monetization potential is no walk in the park. Take the charging model, for example. Many API developers take a basic “pay as you go” approach, charging for API usage and access. Yes, this generates incremental revenue from developers and partners leveraging the APIs. But while the initial gains may appear promising, it risks leaving money on the table from more creative pricing models tuned to customer segments and willingness to pay, such as charging higher rates for bursting above rate limits or offering premium tiers with higher call volumes, additional features, and better SLAs. At the end of the API monetization spectrum are API developers creating complex pricing schemes to take advantage of every opportunity. This confusing mesh of charging plans can put customers off, said the Gartner report, Choose the Right API Monetization and Pricing Model. The trick is not just finding the suitable API monetization model — there are plenty of models to choose from. But when you ask those who monetize successfully, they will tell you that you need a careful strategy and foresight that balances meeting current customer needs with preparing for future opportunities. Finding that balance between short-term wins and long-term opportunities, like anything in business and IT, separates the winners from the laggards. The Complex Science Behind Starting Simple The rush to monetize APIs pushes us to sprint out of the gates too hard. Starting simply allows disciplined growth in complexity. Starting simple and monetizing API creations requires navigating a long, winding trail spanning business, technology, governance, and process waypoints. We often overlook the role of putting the right strategic processes in place to guide our thinking — that’s a huge mistake. So, how do we lay the proper groundwork for creating the right API monetization strategy? The obvious starting point is asking whether you have a suitable business model in place or whether we need to make adjustments. This includes examining charge models: should we meter usage or charge fixed subscriptions? Building and publishing these APIs does not mean your customers will come quickly. Beyond the apparent business considerations, API developers must face four unique challenges: governance, security, performance, and customization. Enforcing the right policy guardrails and avoiding abuse as customers and users scale are equally important as securing our APIs against unforeseen threats emerging as adoption grows. Ensuring performance remains reliable under multiplying demand is just as important. This may include considerations about whether we must evolve API designs amid changing user needs and tech shifts — matters better discussed in advance rather than making knee-jerk reactions to shifting customer behaviors. Not all your potential customers will want the plain vanilla version of your APIs either. So, you must find out how to balance customization for key API consumers in your ecosystem. How you address these challenges directly impacts your API monetization efforts right from the onset. Even if you have the right start, your efforts may peter out as scale and security challenges mount, forcing customers to look for alternatives. As any API developer knows, getting customers back is challenging once they switch and start embedding other APIs in their ecosystem. So, it is essential to have a long-term strategy that can evolve with your business. Also read: Self-Service Is Key For API Monetization Thinking Big Without Imploding Satisfying immediate API monetization urges is like securing low-hanging fruit — readily attainable. Generating initial revenue can also help validate market appetite. To tap bigger opportunities later, we also need to build capabilities in advance. This will include looking at how we gate and throttle access to govern API usage before uncontrolled spikes overwhelm. This is where metrics play a vital role. We need to instrument basic usage metrics so you can effectively price and package. We can then consider establishing starter pricing tiers and plans for different API consumer types. Converting sales is just the first step. Keeping your consumers tethered to your ecosystem will help build loyalty and recurring monetization. This is where your support model becomes critical — especially when sales conversion costs increase due to competition and market dynamics. Streamlining these various touchpoints offers a vital feedback loop for further development. So, consider providing portals and support channels for assisting your consumers from the onset. Related: 8 Developer Portal Best Practices Finding Visibility for Going Long Preset usage limits and access policies can only go so far and sometimes constrain flexibility. Besides, one-size-fits-all API packages and static controls have limited shelf-life. This is why visibility across the entire API lifecycle and monetization processes becomes essential. Stitching the various metrics and analyses offers intelligence that can lead to longer-term dividends. For example, basic usage metrics like API calls show adoption, but capturing detailed usage trends by consumer, app, location, and timing unlocks future packaging and pricing possibilities. The good news is that the visibility market is growing fast. New observability and advanced analytics tools are widening the scope and capabilities. But instead of bootstrapping these tools, it is better to make visibility a significant focus from the onset. At the same time, look to build stickiness with your customers at every opportunity. Onboarding API consumers is just the initial step — deeper integration with their systems around billing, subscriptions, and support can help drive conversion faster. Automation is another primary consideration for long-term API monetization success. After all, managing thousands of custom API packages, policies, and renewals manually is a taxing affair. Introducing automation across commercial and policy lifecycles can be vital to overcoming this challenge. Lastly, look to forge a developer community. External developers are force multipliers. Provide tools and support to nurture a thriving API developer community. Exceptional documentation, support, and community drive better API adoption than specific monetization tactics alone. By balancing immediate API monetization metrics with investments for long-term visibility and stickiness and creating a community, API developers can gear up to fully tap future potential and meet current targets. Don’t Rush It Monetizing APIs is more than choosing a single model and running with it. It requires straddling today’s basic subscription models and rate-limiting approaches with future opportunities around premium features, unique data, and emerging platform business models. Successful monetization requires a strategy and ensuring you have laid out the proper groundwork. API developers should avoid rushing into future API monetization models before fully understanding customer needs and willingness to pay extra. Those who get it right stand to gain from a market that analysts predict will reach over US$13.7 billion by 2027.