March 9, 2021

What Is API Monetization?

API Lifecycle Management

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.

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What Is API Monetization?

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.

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How Do I Monetize an API?

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:

  1. Develop unique business value and service: Your business must be offering a unique service or value in the market if you are to successfully monetize an API. This is a fundamental first step in any monetization strategy.
  2. Create an API on top of this service: The next step is to build a sound and secure API on top of your service, application, or business capability. This can be done manually or by using an API management platform.  
  3. Promote this API accordingly: The final step is to make this API available to a relevant audience through an API marketplace, or via another channel. Your audience should be specific and your users should gain a unique value from leveraging or accessing your API.

Monetization is an important component of any API strategy in the enterprise.

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What Is API Revenue?

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.   

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API Monetization Models

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.

API Exposure via Business Partners

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:

  • An insurance company makes an estimation tool available for competitors and insurance aggregators. 
    • Rationale: Exposing an estimation tool in new environments can yield business intelligence, new customers, and greater service exposure.
  • A real estate company offers a home listings API hoping aggregators and digital real estate websites incorporate their listings. 
    • Rationale: Gain greater exposure of home listings through aggregator traffic and digital brand awareness in new channels.
  • A hotel company offers a room booking API for external websites and apps. 
    • Rationale: Exposing booking features across new apps and websites will increase traffic and bookings. It will likewise offer a channel to expose pricing deals when room reservations are low.

Now we will turn to indirect API monetization options.

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Indirect API Monetization Models

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.

Indirect Content Monetization  

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:

Content Acquisition

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.

Content Distribution or Syndication

APIs enable the sharing of your content outside your organization. Restaurant review applications and digital newspapers are two obvious examples of this. Likewise, other social media sites use content syndication to increase distribution of content.   

Internal Closed Enterprise APIs

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:

  • Developers could increase business efficiency using APIs built on payment, billing, or project management systems.
  • APIs could be scaled on top of an evolving IT stack, which often includes on-premises, cloud, and hybrid storage solutions. Developers can stitch these APIs together in order to more tightly manage an enterprise IT environment.
  • Organizations can host hackathons and other internal competitions to create API-centric services that benefit the functioning of the enterprise.

B2B API Monetization

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:

  • Insurance or banking organizations offering easy-to-use broker and agent tools via APIs.
  • Using APIs to partner with businesses which offer related or ancillary services. For example, an insurance organization could create a car insurance quoting tool which dealerships could easily incorporate. This creates an easier sales process for the dealership, and improves customer acquisition for the insurance organization.
  • SaaS platforms frequently develop APIs around services that other SaaS platforms can incorporate. This creates greater application portability and usability, when the software complement one another.

Service and Channel Expansion API Monetization

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.

Weather or Streaming Music Applications

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.

Food Delivery Applications

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.

Enterprise Messaging Applications

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.

How API Monetization Applies

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

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API Monetization With Akana

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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