So You Want to Monetize Your APIs?
By John Rethans
Application programming interfaces, or APIs, are the way developers leverage data, functions, and apps to create new things, and when companies make their APIs available to others, remarkable things can happen.
When we use a voice assistant to order coffee, for example, systems across a range of companies communicate — inventory APIs that let us pick our drink, payment APIs that let us pay for it, voice APIs that let the coffee app utilize a new interface, platform APIs that let the coffee app exist within a mobile ecosystem, etc. If rather than being its own app, the coffee-ordering experience were to surface within the context of another app, such as a location-aware mapping app with contextual search, still more APIs would be involved. With more developers getting their hands on more APIs, the diversity of use cases multiplies by the day.
All of this is to say, APIs aren’t just some systems integration detail — they’re products that empower developers to delight end users. But not all products come with a price tag.
Some companies offer free, open APIs in an attempt to build developer communities around their brand and unlock ecosystem opportunities by adding partners at scale. In other cases, the API provides access to data or functions that are so valuable, the API can be monetized and even create new lines of business. How does an enterprise know which path to pursue?
Creating Direct and Indirect Value With External APIs
APIs can come in many varieties and drive both direct and indirect value.
For example, many enterprises make their store location APIs available for free to third-party developers. For these third parties, the value proposition is data and functionality to enhance their apps, and for end users, the value is being able to access the things they need within a continuous experience, without having to hop between apps. A developer might combine mapping APIs, restaurant location APIs, and restaurant ordering APIs to let users search for nearby restaurants, browse their menus, and make orders all within the same interface. The company providing the store location APIs does not derive direct monetary value from the process, but it may enjoy indirect value in the form of increased customer engagement, increased ecosystem reach, and increased variety of ecosystem partners and participants.
On the other hand, some companies have digital assets so valuable, the best option is to charge for API access — that is, to create direct value. AccuWeather — the world’s largest weather big data company and a customer I’ve worked with through my employer, Google’s Apigee team — is a good example.
AccuWeather’s leaders recognized that the next breakthrough weather app could come from an independent developer as easily as from a big company. They also realized their APIs might be monetizable because they could offer unique functionality and data to small businesses, independent developers, and others outside its traditional enterprise partner pipeline. To capitalize, AccuWeather launched a self-service developer portal that serves as an online store for it API packages and a hub for its external developer community.
AccuWeather’s inventory of monetized APIs span a spectrum designed to fit different developer needs — one option offers continuous updates in near-real time, for example, while another offers more periodic updates for developers who want to keep traffic demands low. Within 10 months of launch, the portal had attracted more than 24,000 developers, issued 11,000 API keys, and generated hundreds of paid package purchases. And on top of these direct benefits, the company also enjoyed indirect value from a growing developer ecosystem around its services and exposure in new markets as developers leverage its APIs in new ways.
Not Everything Can — or Should — be Monetized
Unused APIs are of no value to anyone. As noted, having developers consume your APIs is often more valuable than trying to pin a price tag on each API call.
If the value of your API is chiefly indirect, chances are, you shouldn’t charge for it. The better bet is likely to give the API away to drive adoption or perhaps even to incentivize developers to use it. A retailer, for instance, might not only offer developers free access to inventory, ordering, and payments APIs, but also incentivize them with a share of profits. Because the retailer should reach more users as more developers use its APIs, it is still positioned to come out ahead, even as it gives away a cut of its earnings.
Needless to say, before monetizing an API, you should understand if there is a market for the service — and if there are any competitors. If there’s no existing market for your offer, ask why. Have you done any market testing with a minimum viable product to assess your core proposition? If your API is about data, how rare is your data and how difficult is it to obtain? If your data isn’t as rare, how are you adding value? If you’re going to charge, make sure you’ve thought it through.
Planning a Monetization Strategy
Okay, you’ve thought about it, and you’ve determined you want to charge for your APIs. That means you will likely need a store — which is to say, you need a developer portal, including documentation, sample code, testing tools, and other resources to get developers up and running quickly. It also means you should focus on making your APIs as user-friendly as possible. Exposing data or a service isn’t enough in a competitive market. The best APIs are designed to be highly consumable.
But APIs and a portal are just the beginning. There is no “if you build it, they will come” in the digital world, so you may need marketing to get the word out. What’s your go-to-market plan? Who’s doing the selling? Organizations with successful API programs often invest in an API evangelist to help collaborate with and nurture the developer community, and they typically work to establish a presence at conferences and events where their target developers will already be present. An architect dedicated half-time to “developer relations” may not cut it.
Goals and metrics are also important. How much do you charge? Is some sort of freemium model optimal, with a basic API made available for free alongside escalating pricing tiers based on increasing traffic needs and add-on services? Do you need to offer developers any incentives after they’ve paid to use the API? Do you have mechanisms to detect and react to changes in user behavior, such as support for dynamic pricing? Have you identified metrics to track not only financial returns but also usage patterns that may inform iterations to API products?
Enterprises that don’t have answers to these questions are not positioning themselves for success. Many of them will need to invest in tools that make it easy to test the market, make adjustments to pricing, and run concurrent strategies to A/B test them. Ideally, insights and adjustments are quick and accelerated by technology, not the result of a labor-intensive, months-long approach.
API Monetization Means You’re Launching a New Software Product
Never forget: if you’re monetizing an API, you’re launching a new software product, not just exposing a system.
Just because you launch an API doesn’t mean you will succeed. Successful APIs — and successfully monetized APIs in particular — demand all the product management attention that any software release would, from finding ways to improve the user (i.e. developer) experience to marketing the product. Businesses can generate tremendous value by opening their APIs to new audiences — but only if those APIs are designed, managed, and brought to market the right way!
[Interested in more tips for managing APIs and driving digital business? See Apigee’s new ebook, “The API Product Mindset.”]