What is API monetization?

And how do we start making money with our APIs?

What is API monetization?

API monetization is a way that businesses can use APIs to make money—either directly or indirectly. A variety of API monetization models exists—from pay-as-you-go to monthly/annual billing to “bucket” purchases of API transactions to be consumed over time.  Monetization is essentially the creation of a business plan for your APIs. And the plan should always include ensuring that you deliver high-quality, consistent value to your API users.

As the growing popularity of APIs continues to drive new opportunities and broadens the marketplace, an API monetization strategy is essential for any company that wants to jump on the new API economy.

Monetization models

APIs have transitioned from a technology asset to a product on which you can build your business. They’re embedded in everything from mobile apps to cars to fitness devices. The data and services they provide are valuable commodities – but it’s not always obvious how to turn them into a growth engine when they’re often buried inside other technologies developed by someone else.

The first step is to consider the API in terms of its value to the individual who will be paying for it. In a few cases, an API will have obvious value for the end user; but in most cases, it’s a tool for developers who are building apps. Connecting with and incentivizing developers is essential to the success of your API business model. Once you’ve determined who will benefit and what other options they have, you can better select the monetization model.

There are several pricing approaches you can take for monetization.

  • Pay-per-use: Each API call is a separate charge. This can also be extended to data where you charge per MB of data used. This is the most straightforward approach, but it works best for API providers that are already established as digital product vendors.
  • Subscription: This is a simple flat subscription fee for access to an API or a set of APIs. This is most appropriate for APIs that deliver useful functionality but not large quantities of data which might generate unpredictable costs for the provider’s operation.
  • Freemium: In this model, developers have access to a basic API for free up to a certain threshold and transition to pay-per-use in a tiered pricing model when they exceed that line. This model is one of the most popular for monetized public APIs since it encourages wide adoption of the “free” API. From a business perspective, it’s easier to anticipate operational expenses since they will scale with the income as customers move up the tiers.
  • Pay-per-transaction: Developer pays per transaction where one transaction can span several APIs. Just as with pay-per-use, this strategy will be more successful for known digital providers.
  • Revenue share: The revenue for the API is split between the provider and the developer. This makes sense when the API provider benefits each time the API is used. For example, a travel website created by a developer might expose an API provided by a car rental agency.
  • Pay for ad-free content: In this model the API is supported by ad revenue, and ads are removed if the user pays. This model is usually seen in high-volume, low-cost apps.
  • Paid partner: In this model a partner includes your content to drive potential traffic to you, whether through clicks, impressions, or even purchases. They can get paid based on how engaged the end user becomes or only when the customer purchases an item. This technique helps online retailers fine-tune their ability to target customers.

Other indirect considerations can influence the business decision to invest in an API. These include:

  • Interacting with partners and suppliers you haven’t worked with before
  • Adding customers from new segments
  • Internal APIs can improve employee productivity, quality, or help accelerate internal processes

How to get started

As you develop your business strategy, a good place to start is by talking to your current API users. API Portals and other API engagement platforms are ideal not only for building a community but analyzing what APIs are successful. Ask the developers on the Portal what they believe is valuable and whether they would be willing to pay for it; sponsor a hackathon to gauge interest; and pay close attention to complaints about quality and ease of use.

Ensure your APIs are ready to scale and that they provide the level of security and protection end users will expect. And implement strong end-to-end governance for ongoing quality and top-of-the-line performance.

API monetization with Software AG

The webMethods API Management Platform provides a powerful solution for API monetization, helping you manage the entire API life cycle more easily and expose APIs to external developers, partners and other consumers. 

With webMethods, you can: 

  • Manage the process of designing, developing, deploying, versioning, and retiring APIs and services 
  • Securely provision APIs, providing authentication, mediation, payload transformation and API monetization 
  • Analyze usage of APIs, collecting metrics for performance dashboards, SLA violations and invoicing for API monetization 
  • Gain real-time visibility into the status of service transactions as they flow across heterogeneous architecture 
  • Get notification of events and alerts so you can take immediate action to address problems 
  • Enable process automation and automatically create API documentation and provision policies 
  • Integrate easily with back-end systems and applications 

webMethods also includes an API portal available in the cloud, providing developers with easier access to your APIs.

Benefits of webmethods API management platform for API monetization

Software AG’s webMethods API Management Platform offers key benefits for API monetization. With webMethods, you can more easily expose unique corporate assets as APIs, provisioning mobile and Web apps to serve any device or technology. Leveraging the development community, you can reach new markets more easily, creating new sales channels and extending your reach. webMethods also helps to accelerate enterprise cloud, hybrid and mobile strategies. 

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