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API monetization is an alluring topic for many enterprise leaders. While there are huge opportunities in monetizing APIs, many companies are struggling to see positive API ROI. In this blog, we will explore various API monetization models, examples, and approaches to help you take advantage of this emerging trend.
API monetization is the process by which enterprises generate revenue from APIs. It’s an advanced tactic in API management, which can fuel digital transformation in the enterprise.
During API monetization, the enterprise exposes digital business capabilities and products to a developer audience using APIs. The developer audience integrates relevant APIs within their products, digital services, or applications thereby exposing the enterprise to a larger external audience and greater revenue.
With that definition in mind, let’s examine API monetization models. This will help you understand how to approach API monetization within your organization.
A quick disclaimer: API monetization is complex. Success will depend heavily on the nature of your enterprise, customer base, and technical infrastructure.
To monetize an API, an organization must align a unique business value or service, with a unique digital capability. They then expose this unique digital capability via an API to a developer or consumer audience. This end user must, likewise, find significant value and use to consume an API. The end result is either direct or indirect API monetization.
There truly is no single way to monetize an API. The methodologies for doing so are as diverse as the businesses that benefit from monetization. Nonetheless, there are three key steps which are each directly linked to an organization’s appetite for risk and innovation:
Monetization is an important component of any API strategy in the enterprise.
API revenue represents the potential business income available to your organization through APIs, which are packaged, promoted, and distributed as a digital service or offering.
Similar to other business metrics such as customer lifetime value (CLV), an enterprise can forecast and predict API revenue. This can be achieved by assessing the potential size of a developer audience, and potential reach of a distributed API ecosystem, developer community, or external property.
API revenue is often viewed using a narrow lens. As organizations have scrambled to incorporate API management in their digital transformation and composable enterprise efforts, many are not fully appreciating the revenue potential.
When APIs are treated as digital products, as opposed to IT properties, organizations are able to assess the specific business value of APIs. In turn, this allows them to make strategic investments for scaling APIs as a revenue driver.
There are dozens of ways to monetize APIs. The path you choose will be heavily dependent on your industry and digital capabilities.
In our recent webinar, Forrester analyst Randy Heffner shared guidance on the types of API monetization. Watch the webinar below, or keep reading to dive deeper into API monetization models.
For the purpose of this blog, we will assume you are not monetizing your APIs through direct sale. Rather, we assume you will seek to supplement revenue by delivering services or content in an external environment via APIs. This exposure often yields new customers and greater service exposure.
Consider the following option, which is most common in the enterprise context.
Many B2B and B2C organizations will expose APIs for business partners and other external organizations to incorporate or use. This is common in scenarios where quoting, estimating, or pricing are frequent business processes. You’ll find this practice common across insurance, banking, retail, travel, hotels, real estate, or software. Here are some sample scenarios:
Now we will turn to indirect API monetization options.
There are several indirect API monetization models including indirect content monetization, internal monetization, B2B API monetization, and innovation or business services expansion via APIs. In short, this is all about increasing exposure by making services and apps available in new channels. Or, incorporating external services via APIs within your organization.
Let’s explore each model in greater depth.
This approach involves the delivery of content via APIs, either using syndication or acquisition. Many modern digital businesses run on content. This includes social media applications, streaming entertainment services, and digital commerce.
APIs allow for the distribution of content externally, and also allow you to incorporate external user content within your organization or platform. Here are two options:
APIs are developed to enable third-party content creation, with your organization acting as a platform for sharing and monetizing this content. eBay is an obvious example. As it has grown, eBay has offered APIs to businesses who wish to list eBay products, marketplaces, or shopping and checkout features. eBay make money through ads, listings, and taking a percentage of each sale.
APIs enable the sharing of your content outside your organization. Restaurant review applications and digital newspapers are two obvious examples of this. Likewise, Twitter and other social media sites use content syndication to increase distribution of content.
APIs can create business value even when they are not exposed to a public audience. For example, you can expose services and apps via APIs using an internal API marketplace. Developers can access this marketplace and innovate on enterprise tools to improve various enterprise software and systems. This can create serious business value if your developers are motivated and focused on internal IT or services.
Here are a few examples:
Many enterprise organizations create value and service exposure by partnering with other organizations using APIs, or creating greater B2B customer value via APIs. When your enterprise can offer a unique service or value that B2B customers benefit from, this will increase customer retention and profit.
Examples of this include:
When your organization develops a toolset, software, or service which will benefit from greater marketplace adoption, API monetization often includes a service expansion approach. It is common for consumer-level applications and organizations to use indirect monetization in this fashion.
Consider a weather or streaming music application. By creating an API for their service, they are hoping that thousands of websites and applications incorporate their service or feature. This will either expose them to greater ad revenue through additional reach — or help gain additional customers via channel exposure.
The same concept can apply to more complex services and applications. For example, consider digital commerce players. As the marketplace has become streamlined, consumers have come to expect a single-click shopping experience. Players on all sides of the commerce equation have rushed to build APIs on top of payment, checkout, store-level, and delivery applications
The more readily other organizations can incorporate these APIs, the more likely consumers are to use the service at scale.
UberEats and DoorDash are two prime examples. If you wanted food delivered a decade ago, you would have been limited to specific restaurants that focused on takeout cuisine and delivery.
Fast forward to the modern era and delivery has become critical for survival. The early adopters who incorporated delivery app functionality in their payment infrastructure saw rapid rise in revenue. In the context of COVID-19, restaurants that failed to adapt and incorporate delivery apps have perished.
This same trend can be seen among B2B and B2C software organizations. A modern SaaS platform must have an API-centric approach because customers expect nearly all of their software to work together.
The enterprise messaging apps, such as Slack, that have thrived are those that can easily sync up with other email, notification, project management, and productivity apps. Among B2B applications, this trend has been slower but is nonetheless being ushered in rapidly.
So what does all this have to do with monetization?
API monetization takes many forms. In reality, few players directly sell APIs to make a profit. Indirect API monetization has become a complex methodology for scaling services and offerings across an increasingly competitive enterprise landscap
Akana offers a full lifecycle API management software, with many out-of-the-box features. These include a developer portal, API gateway, analytics, and security features. With Akana, you can have your APIs scaled in a public API marketplace designed for monetization in a matter of hours. Without major customization, this can take minutes.
Sign up for free 6-month trial, or watch our on-demand demo to see Akana in action.
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