API Monetization Models: How to Get the Most Out of Your API Product
APIs now power 57% of all web applications, reflecting how widespread APIs have become in the digital world.
Monetizing API products isn't always a straightforward process as it's not always apparent for organizations how to use them to generate more revenue.
That's especially true if your API product is a cog inside of a larger machine - multiple APIs from different companies often get buried inside apps and technologies developed by others.
APIs have evolved from basic assets to full-fledged products capable of generating profit. The first step to monetizing an API product is familiarizing yourself with the most popular API monetization models available.
You want to structure your pricing model in a way that best fits your API product and meets the needs of your API consumers. Here's a look at five of the most common monetization models for API products.
1. Freemium/Tiered Monetization
One of the most prevalent models for API providers is the freemium or tiered monetization strategy.
In this model, organizations offer basic API functions for free with some restrictions. These limitations can include time-bounded free trials or a certain number of allowed calls (similar to rate limiting). Alternatively, an API provider can offer a completely free option for non-enterprise users subsidized by enterprise clients.
This model is based on the concept of accelerated cost for accelerated usage and works well with other monetization strategies. To make this model work, you need the ability to track the API access period, enforce rate limiting, and manage user tiers and billing.
The tiered monetization model pairs well with an application gallery or showcase to incentivize citizen developers to innovate and engage with the free access.
Ultimately, the free offering should not reduce the demand for the premium plan while simultaneously ensuring that the free option drives real value for those who use it.
2. Bulk Cost Model
This model goes by several different names depending on how revenue is generated from the bulk cost process.
Standard versions in this model include Pay-As-You-Go, where API consumers only pay for the product they used without subscribing, minimum payments, or tiers.
This model also includes bundling multiple products and services offered by the organization, allowing anchor customers to engage in the API product strategy and expand the relationship with the organization.
While bulk cost models are common and well-liked among consumers, businesses should note that the revenue is unpredictable at times.
Examples of bulk-cost API providers include Google Maps and Amazon API Gateway.
3. Subscription Models
A subscription model is a cost-capped version of the Pay-As-You-Go model and typically has an active period (for example, subscriptions may be monthly or yearly).
This model allows API providers to have more predictable revenue and is usually accompanied by the ability to increase your subscription as the demand for access increases - which can be supported by ecommerce upgrades or integrated into an existing sales pipeline.
Popular subscription API providers include Netflix, Shopify, Stripe, and Paystack.
4. Partner Model
In this model, organizations give select partners access to their APIs - they're either existing partners or the companies that need to apply through an API portal to become one.
Using the partner model, organizations typically provide access to their inventory or ordering system, so money is collected for the sale, not the use of the API.
Most of these contracts are handled outside the portal, so there is no commerce within the ecosystem.
5. Unit Costing
This model determines discretely defined units and their cost to charge utilization.
For example, an API provider might charge per unit of use for infrastructure (e.g., the number of GB utilized, number of discrete processor cycles employed, etc. - common with solutions like AWS), but can also charge per “unit” of the process (typically called an “instance”), e.g., “5 Docker instances” or “3 users of the API".
As an alternative scenario, a customer or partner can buy access to specific APIs.
Examples of this model include cloud services where you purchase specific storage amounts.
6. Revenue Sharing
In this model, API providers offer a monetary incentive to an API customer for sharing or selling the API product.
The revenue-sharing model is best supported by a white-label marketplace or an ecosystem, showcasing applications or APIs. The merging of ecosystems and white labeling APIs leads to a new revenue source for both parties.
For example, affiliates advertise an API through their content, drive traffic to the API, and receive a commission based on product sales.
Additionally, Google's advertising systems integrate advertisements on a given website, and API consumers can claim a certain percentage of the revenue, but not the revenue as a whole.
Popular revenue sharing API providers include Amazon Affiliate Program and Google AdSense.
How Achieve Internet Can Help You Monetize Your APIs
Depending on your business goals and API assets at your disposal, you may want to opt for one or multiple API monetization models listed above.
If you have an application gallery, the freemium, revenue sharing, and subscription models might be the most optimal options for you. In contrast, the unit costing, bulk cost, and partner models might be a good fit when you work primarily with enterprise clients.
Regardless of your API monetization model, the first step towards monetizing your APIs often involves developing an API portal since it helps make your API products accessible to developers and non-technical business units.
Achieve Internet specializes in developing API portals for organizations of all sizes, helping you boost adoption rates and improve the revenue you generate from your corporate API assets.
Do you want to revolutionize how you create, manage, and deploy your APIs? Reach out to our team today to discuss transforming your business through digital transformation.