Using APIs is an excellent way to monetize your services. An API lets you reach customers through multiple channels and allows third-party developers to use your data, extending your reach by proxy.
When you’re building an API, you need to create a management strategy that maximises its potential. API monetization is a key part of that. You need to know who will use your API and how so that you can build the necessary access points and payment plans.
There are multiple ways to make money from your API. In this article, you’ll learn about your options and when best to use each of them. Many of these options can be used concurrently, so even if you have an existing strategy, you may be able to incorporate the others.
Main API Monetization Strategies
You may already use one of these methods to charge for your API, but there are many possible strategies. Look at this list to see if there are others you could implement as well.
Freemium
A freemium model is a great way to attract new users. Offer a limited version of your service for free, then charge for extra features or higher-tier plans.
Giving users a free tier makes it easy for them to test your API. It also encourages them to build services or products that integrate with yours. If their products are successful, they’re more likely to be interested in upgrading to your paid tiers, which could offer options like higher call volume, more hands-on support, or a wider selection of calls.
Try to give users plenty to get started with, but make sure to reserve features that are of value.
Analytics can tell you which of your data and services are getting the most attention. You can track what calls are made and by whom, and see how the data varies for different types of customers.
You can build tracking into your API, though many management platforms include analytic features. Learning what your users value can help you improve your API and give you a better idea what features to charge for.
If you use a freemium model, your paid offerings can include most of the other strategies listed.
Subscription model
Having users pay a monthly fee to subscribe to your services is a good way to bring in revenue. It’s a simple structure for you and for your clients.
Many subscription services offer an API as an additional feature, often on their non-free tiers. Cloud platforms, for instance, commonly offer an API so companies can integrate the platforms with their own applications.
For example, content management platform Box offers its API to all users, but higher-tier users can make more calls. Freedcamp includes an API for all users.
Offering an API may also encourage the release of plugins and extensions to help drive your ecosystem and broaden the appeal of the platform. The Atlassian marketplace, for example, is full of software that extends Atlassian’s products , such as Jira and Bitbucket.
In many cases, API access is offered on a premium tier. For example, project management tool ClickUp offers its API to business and premium users.
With subscriptions available alongside other services, you can directly compare the ARPU of API users with that of those who don’t use your API.
Pay as you go
With a metered system, your users pay for each call to your API. This means they can start out cheaply and scale naturally. If users are making a profit on their calls, then you can grow your revenues together.
You need to track each call for billing purposes, which also tells you how your API is being used. Knowing what users are willing to pay for helps you refine and target your services.
On the other hand, this system can add overhead to your processing and bandwidth costs and introduce an added layer of complexity.
Some users may be worried about not having a price cap. If an error or malicious user causes a higher-than-expected call volume, they could get a large bill. That does happen on services like AWS. You could offer users an automatic service ceiling or cutoff point to mitigate that problem.
Pay as you go is a useful option for teams that want to offer their customers flexibility. It’s affordable for those just starting out, but it can bring you plenty of revenue as the product’s reach expands.
Revenue share
With revenue share (including affiliate and referral systems), you offer users a percentage of the money you make from the call. That could include advertising or money from affiliate links.
This can work well if your API provides articles or other content.
Sometimes sites sell something directly on your behalf. For example, Expedia allows developers to access its deals via its API and then lets them take a commission for any sales made through websites or mobile apps using this API.
Revenue sharing is a high-potential area with a lot of competition. Though challenging, if you can make a dent in Google Ads market share, you’ll do well.
Indirect API monetization
There are several ways an API can help you indirectly. Even when you don’t charge clients, your API can help you grow.
An API can encourage third-party sites to integrate your product, which gives you visibility and social proof. For example, Facebook logins are useful on many sites. Potential customers can see your product in use around the web and might want to try it out.
If you store data, then creating an API allows users to add to that data store. This data could be anything from traffic data to health care information. For example, financial data company Refinitiv allows users to contribute data via its API.
You can also drive traffic to your site with your API. If users publish your content on their sites, then their site visitors can follow the links in the content back to you.
If you make money from indirect API monetization, it may be best to make your API free. After all, there’s no point charging for API access if the customers’ use of your API generates more revenue than your fees. You could be losing money by scaring off customers.
Indirect API monetization is excellent if you have other sources of income and want to use the API to provide additional revenue.
User donations
There are many services, such as Buy Me a Coffee and Patreon, that allow users to donate to you. Donations can take the form of one-off payments or a regular subscription.
This is great for small teams or individual developers who provide a service to a community and would like to get something back for their time. Though this is more of a small-scale method, it can be a key part of a multi-income stream strategy.
Building up enough money to make a living can be a challenge with this method, as donations can be irregular. Still, it’s a good way for hobbyists to launch and grow their own projects, though it’s not recommended for larger teams.
Why you need API management
The task of developing and deploying APIs relies on multiple factors. Your software needs to be updated to handle security threats. You need a good user management and authentication process. And as you grow, your product needs to scale effectively.
An API management platform like Tyk can help you meet those challenges by automating much of the work; this helps decouple the business logic and technical tasks from the administrative activities. After the decision-makers set goals for the product, the API development team(s) can focus on accomplishing those stated goals.
With your infrastructure well in hand, you can focus on API monetization, using analytics to determine your API’s usage. For instance, you can track the average revenue per user, or ARPU. Comparing the ARPU to your costs helps you calculate whether you’re turning a profit, and targeting the ARPU to different sections of your client base helps you see where you can improve.
How to monetize your APIs
Irrespective of which of these API monetisation strategies you pick, there are three key steps in how to monetise your APIs for maximum return:
- Driving adoption of, and access to, your API products
- Defining your monetisation parameters
- Building the key components of your monetisation approach
Let’s walk through each of these in turn.
Drive adoption and access to API products
You can have the greatest API product in the world, but unless you take steps to drive adoption of it, you’ll be missing out on revenue opportunities.
Driving adoption of your API product begins early – in the design phase. The more thought you put into creating a useful, usable product, the easier you will be making it for developers to access and adopt. Think about how your API can save developers time and solve their problems, keeping the user experience firmly in mind at every stage.
Creating outstanding documentation is also key. The better your documentation, the easier developers will find it to adopt, work with and troubleshoot your API product.
Making your API discoverable is important too. This means making your API machine readable and delivering a developer portal with a clear explanation of what your API does, a link to your documentation and an easy way for developers to try your product.
Define monetization parameters
Whichever API monetisation strategy you are using, you need to ensure that your products are delivering the returns you expect. What is API monetisation, after all, if not a means of ensuring that your API products grow your bottom line? This means you need to define in advance the value you expect your product to generate and the appropriate parameters to measure that API monetisation.
The particular API monetisation tactics you use will depend on your strategy. For example, if you’re using an indirect monetisation model, you’ll need key performance indicators or some other measurable metric in place. For direct monetisation models, on the other hand, you’ll need to tweak tiers to evaluate the financial impact of adjusting where you set your limits. Other API monetisation examples depend on the model you’ve chosen for your products.
Build key components of monetization
Data is at the heart of successful API monetisation. This means that you need to put components in place to ensure that you can monitor consumption and charge for it accordingly as you monetise API usage.
Combining your chosen API management solution with an analytics platform that reports on usage and provides granular detail on a wide range of metrics works well here. Doing so means that you can drill into activation funnels and track the metrics that are most relevant to your chosen monetisation approach. This kind of API monetisation management is something we explore in greater detail in our case study of how Tyk works with Moesif.
Understanding your data in depth feeds into the overall success of your API monetisation. It enables you to adjust tiers and SLAs to ensure that your business profits while your customers receive outstanding value – and that balance is essential to understanding how to monetise API products successfully.
Conclusion
There are many ways to monetize your API. The key is in picking the right method or methods for your business. Metrics give you added insight when making decisions, and with careful analysis of what’s working for you, you can adapt to fit the market.
Whichever strategy you use, Tyk can help you implement it. Our platform simplifies the management of APIs, letting you build and evolve your system so you can monitor and scale it as needed.
For more on Tyk’s API management services, check out our documentation.
