Nowadays, having an API strategy is important for any large company. Ensuring an architecture based on APIs that is agile and scalable will certainly provide benefits that directly impact the financial outlook of companies. This can be primarily related to cost reduction.
On the other hand, APIs enable more than just cost savings. They allow exploring a new revenue channel and compose the company’s “product portfolio”. We are talking about API Monetization, which is basically generating revenue from APIs through their direct consumption, whether by partners or end consumers. Let’s discover some of the API monetization models that can help your business.
First steps: Plan your API Monetization strategy
It may seem obvious, but this point is essential to your API monetization strategy. There are several models that can be used, and all of them must respect a single premise: the value of your APIs. Please note that value is a subjective term, so what may be valuable to you may not be for developers, and most importantly: the opposite can also be true!
Once the value of your API is established, the first step is to make it available. A Developer Portal is essential. There you will provide the necessary documentation, user registration and other relevant content about your APIs. This portal will ensure that all important information is communicated and will help to accelerate the onboarding process.
Most common API monetization models
To guide our discussion and make it more objective, we will use Google Maps APIs as a reference. Due to their wide use in several applications, Google has established a series of plans based on use, which are suitable for different profiles. Of course, most of the other APIs will not have this level of complexity in pricing, but these examples can inspire your business.
For developers who already have established applications and a high volume of enabled Google Maps APIs, there is a single monthly payment plan with no limits. In this case, US$ 200 is charged for unlimited use of APIs.
Pay only for what you use
Also known as “Pay as you go”, this pricing model is according to the usage volume of your APIs. In this case, a fixed price is charged every time an API is enabled, and in the end of a period all of these events are counted. Another way to do it is providing fixed price packages, so developers can choose the option that best suits their needs.
Freemium and Tiered
If we had to summarize Google’s pricing strategy with the Maps APIs, it would certainly be in this category. Many features are free, and to access more advanced features, the fees start from US$2 for 1,000 calls, up to US$30 for 1,000 calls. This model is very interesting, because it can be one of the value propositions of your API, that is, basic resources are free, and those that add more value are charged.
In addition, it is also possible to pay for features in specific categories, separated by device or features that vary between Maps, Routes and Locations. Another possibility is a Gaming solution for Augmented Reality games.
Another way to earn revenue through APIs is to charge a percentage for each transaction. This model is a little more restricted to some types of business, as it would depend on pricing each particular transaction. Typically, they are used by financial sectors that trade currencies for greater transparency on how much can be charged.
Does the opposite happen?
It may seem crazy, but companies that have strategic APIs and a business model that depends on their consumption sometimes share part of the revenue with developers. This is a strategy recommended for the early stages, as a way of encouraging use. Here we list 3 categories of this practice:
The simplest model consists of developers receiving a percentage of the revenue from their APIs usage, as a fee to reward the use and promotion of their resources. This category can establish a limit, or always be linked to usage, so the more it is used, the more revenue each side receives.
This modality is similar to Google’s ad practices. Basically, it consists of spaces on websites that belong to the API ecosystems. Cost per acquisition, cost per click and space purchases are the most common compensation models.
When we talk about API monetization, we have some reference models, but some secondary methods must be considered. It is not just through volume of calls that it is possible to generate revenue through APIs. Currently, many companies offer APIs as a product in their sales force, that is, APIs are offered as a solution to compose a mix of offers. This scenario is common at merchants, for example, to complement payment terminals.
In increasingly digital landscapes, and with purchases made through digital channels, the POS (Point of sales) gave space to digital payments, via link or QR Code, for example. So, APIs offered as products start to make sense and become a key part of the portfolio, no longer relying only on developers to promote them.
Marketing and business intelligence
99.999% of C-lvls dream about having a data-based business for decision making. However, in many cases, it is difficult to collect and process all this data. In this context, APIs can really help your business through access analysis, for example. Imagine that you have an app for your e-commerce. Through APIs it is possible to monitor access peaks as well as measure in real time the impacts of a campaign. If the campaign ran on a Monday at 8pm on a major television channel, and minutes later there was an access peak, good job! Your campaign was a success and you can see the customer behaviour on your website, if they completed their purchase or left items in the cart.
Although it is not a model that generates direct revenue, this strategy can save a lot of money or even identify revenue opportunities that other competitors cannot see. This shows how APIs are directly related to your company revenue and can help the business directly or indirectly.
For success in your API monetization, it is necessary to consider items such as availability, security, monitoring, convenience, value, promotion and engagement for developers. In addition, access management and traffic analysis are important to ensure security and monitor the health of your APIs. It is also important to have market references to understand which ways provide a faster ROI. There are experts who can guide your company in these journeys, offering specialized tools and teams that will understand and apply the best practices to your business.