Monetising APIs can offer a primary or secondary revenue stream for organisations. However, it requires some thoughtful planning and execution to make it all work in harmony.
In this article, we will explore why you may wish to monetise your API, remind ourselves of some API monetisation strategies, and look at some steps you should take as you prepare to monetise your APIs.
Why API monetisation?
API monetisation is the process of generating revenue from one or more APIs. There are several motivations for an organisation to monetise its API.
Generating revenue is the primary reason for API monetisation. This may generate revenue from developers or be used to upsell existing customers into a new subscription tier or partnership agreement to gain access to APIs for automation or unlock new business workflows.
A second reason is to reach new customers and markets. APIs can make it easier for developers to build applications that integrate with their products or services. When this happens, the API provider can engage in new marketplaces without building their sales and marketing pipelines.
Increasing brand recognition uses the API to demonstrate an organisation’s focus on digital strategy, attracting developers and thought leaders as full-time employees.
Finally, APIs can encourage innovation by offering access to data and functionality that can be used to create new applications or services. This can lead to new use cases and business models that the API provider may have yet to consider.
API monetisation strategies
Monetising an API typically involves charging developers or companies for access to the API or for using the data or functionality provided by the API. In some cases, the value derived isn’t revenue; it may be for brand recognition or reducing customer churn through integration.
Let’s remind ourselves of common monetisation strategies:
Freemium: Offers a limited version of your service for free, then charges for extra features or higher-tier plans.
Subscription model: Users pay a monthly fee to subscribe to your services. This is a standard model as it is simple to understand while offering a predictable monthly or yearly budget.
Pay as you go: Users pay for each call to your API. This means they can start cheaply and scale naturally. This is a good option if API calls map directly to value generation as both sides grow together.
Revenue share: Users are offered a percentage of the money they make from the call, including advertising or revenue from affiliate links.
Indirect API monetisation: You don’t charge clients, instead opting to let your API help you grow through increased brand awareness and traffic. In some cases, a business case is made to offer free API access for existing customers to encourage a deeper integration and therefore reduce the chances of customer churn.
User donations: Users donate to you through a donation platform, either as a one-time or recurring payment. This is most commonly used for side projects or smaller initiatives where the API is provided as part of a “give back” to the community.
If you want to learn more about these strategies, refer to our article titled ‘API monetisation strategies‘.
Essential steps to API monetisation
The path to API monetisation can be challenging. There are often too many things to do and insufficient time to complete them all. Let’s explore the essential steps to help drive your API monetisation efforts.
1. Establish a monetisation strategy
Your monetisation strategy must be clear for everyone in the organisation. This will ensure efforts are focused on continuing to drive API monetisation. Select a revenue model from the list above that will be used.
Use your market insights to determine the appropriate pricing structure and model. For pay-as-you-go and related strategies, focus on the desired outcomes of those benefiting from the API. Identify the API operations that deliver on those outcomes, then establish a fixed price or percentage per transaction that will be charged.
2. Establish an API product culture
If your organisation is traditionally project-based, your teams will want to deliver the API with a fixed timeline and budget. No room is left for future improvements and product support. This will leave the API in a perpetual state of maintenance, preventing opportunities to innovate and respond to market needs.
This may require a cultural shift in how the enterprise structures teams and engages in product ownership of API offerings. The organisation must shift to a product culture with a budget to reach v1.0 and sustain funding for continued improvements and developer support.
Remember that depending on the size and scope of the APIs you offer, you may need one or multiple API product managers. They must engage with current and prospective customers to understand their needs and incorporate them into the API product.
3. Establish an API style guide
A great developer experience will provide a greater chance of growth and success. You must establish a clear set of standards and practices that your API program will follow. This will drive consistency and speed up the API consumer’s integration efforts.
This may require you to revisit your existing and planned APIs to see if they match the established guidelines. Address any design inconsistencies as early as possible.
4. Invest in continuous delivery
An API will require continuous improvement through regular updates, bug fixes, and new features. An API that is continually improving can help increase customer satisfaction and retention, as well as attract new customers. Reduce the friction of delivery by implementing an automated, continuous delivery process. Create a public health dashboard that tracks the status of your API at runtime and provides feedback to developers if you are encountering an outage.
5. Expand your API documentation
Provide a well-designed developer portal that is easy to use, provide comprehensive documentation, and offer developer tools such as code samples, tutorials, and SDKs. Remember that your documentation must support non-technical personas such as executives, product managers, and solution architects.
Consider adding case studies highlighting common API uses in different industries. Offer getting-started guides to offer help jumpstart a developer’s integration effort. Include an API change log to share newly released features. This will also help prospective customers gain confidence that your API has been abandoned or is in maintenance mode.
Final thoughts on API monetisation
Monetising APIs offers an opportunity to extend the reach of your existing SaaS product or enterprise services. However, your organisation should carefully understand the goals of your monetisation efforts and align your processes to support them. Address any gaps you may have identified, then prepare to invest in delivering a great developer experience.
Finally, create a culture of continuous improvement so that you can retain your existing customers and attract new customers as you listen to your market, innovate, and deliver value.
