Madhuka Udantha

API Monetisation Models

Past few years have been great for API Gateways and API companies. APIs (Application Programming Interfaces) are allowing businesses to expand beyond their enterprise boundaries to drive revenue through new business models.

Past few years have been great for API Gateways and API companies. APIs (Application Programming Interfaces) are allowing businesses to expand beyond their enterprise boundaries to drive revenue through new business models. Larger enterprises are adopting API paradigms — developing many internal and external services that developers connect to in order to create user-facing products, as the number of APIs management products increased in 2018. API and API Management / Gateways can be found in a lot of enterprises today. Those enterprises level API management solutions allow external companies and external users to use these APIs. Enlightened businesses are recognising a new channel to market through APIs.

Companies with API-M and End-users

As the above figure shows, companies A, B, and C are interconnected with API-M solutions. End-users are also connected to the APIs. Developers are rapidly driving new opportunities for businesses, developers, and customers from these APIs.

API Economy

The API Economy allows access to business assets and digital services through a simple to use API. Software developing company see the economic advantages of integration, many large, monolithic software systems currently supported on premises will decompose into highly-organised sets of microservices available in the cloud.

The ultimate goal of the API economy is to facilitate the creation of user-focused apps that support line of business goals. Enterprise uses APIs to bring together ecosystem partners and unlock new sources of value. Successful companies or enterprise will see APIs not just as technical tools, but as sources of strategic value in today’s digital economy. As managers look for creative ways to monetise services and assets through APIs.

API Monetisation

Access to the assets or services is provided via APIs enabling new and innovative usage of the assets to drive additional revenue. This is referred to as API Monetisation. APIs can also be used in this indirect or direct monetisation model. However, the monetisation model leads to someone paying you for the use of the API (For example APIs on banks, news, telco etc.), you pay them to use (API for advertising, marketing).

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The Free Model

Free Model is used when there is typically low valued assets. While no money is exchanged, clearly there is a business purpose. Free model is tried when a company drives brand loyalty, and enter new channels. There are many portals used this API, for example rapidapi and any-api. Some companies used this free model to identify user usage patterns. An example is Facebook APIs

Subscriber Pays

API must be of value to the subscriber. The Subscriber may obtain downstream revenue through its use of the API. This Subscriber may develop application/mobile App using those APIs. See below the type of subscription payment models: 

  • Pay As You Go: Developer / Subscriber pays for what has been used. There are no minimums, no tiers. It is usually billed periodically (e.g. monthly / weekly).
  • Freemium: The Basic API is free, however, ther higher  and more detailed APIs are priced. 
  • Tiered — Multiple tiered options: A developer/subscriber chooses the tier they believe they need and pays for the tier. Tier contains the level of access.
  • Unit Based: There are different API features or APIs have a different value. Those are assigned a number of units/score. The developer buys the unit before API use, and the point will reduce upon the usage.
  • Point (Box) Base: Same as the Unit Base, a point will buy before the API usage. Point reduces upon call and call will contain the Categories, like Freemium.
  • Transaction Fee: A fixed or percentage of a transaction is paid to the API Provider.

Subscriber Gets Paid

In the Subscriber Gets Paid model, the API Gateway holder provides a monetary incentive for a developer to leverage your web API. Basic scenarios include you selling an asset or services through an agent. This payment method can be seen in the marketing industry very often. See below:

  • Revenue Share: It is acting as an agent to help sell a provider product/asset. A fixed or percentage of a transaction is paid to the API Consumer
  • Affiliate: In this model, a partner includes your content/ advertisements to drive potential customer traffic to you. There may be several possible sub-models. 
  • Cost Per Action (CPA): This specific Developer earns the affiliate a commission based on a successful conversion. Generally, a flat rate per user who subscribes to the merchant’s API / service. There can be commission structure as well.
  • Cost Per Click (CPC): In this method developer / API subscriber is paid for every click they send to the merchant’s site / API consume.
  • Sign-up Referral: Developer gets paid once, however he is able onboard multiple consumers for his API / Applications. There are two sub-models to this, one scenario is, he completes a full list of API consumers he gets paid the amount of money (a predefined amount) for each completion.
  • Recurring: This is where the developer gets paid by each consumer after the 3rd party completes the process of API calls.

Indirect Payment

With Indirect Payment methods, APIs achieve some goal that drives the business model. For example: 

  • Content Acquisition: APIs allow for content submission by 3rd parties which attract customers to you.
  • Content Syndication APIs: Allow third parties to distribute your content. Multiple financial models may surround this, and you might create a contract between parties.
  • Software as a Service (SaaS): More than one lever should drive SaaS pricing, API based pricing makes things one-dimensional. It’s easy to set up any additional user parameters as your parameter to define pricing as an add-on. This model can be seen in many places, for example,  Salesforce (Upsell — model). Software as a service is a software licensing and delivery model in which software is licensed on a subscription basis it helps reduce licensing price and bring cost also depending on the feature in the software.
  • Internal use Consumer: APIs are used by employees within the same company to build customer-facing capabilities for your company. Typical scenarios include creating Mobile Apps and Web Commerce sites.
  • Internal Nonconsumer: APIs are used internally to assist in productivity. It aligns cross-Lines of Business and Business units in the company. Typical scenarios include providing simplified secure access to systems of record, and managing assets that help handle or charge bills in company assets amongst business units.
  • B2B Customer: APIs are used by your customers to integrate into your enterprise. Customer value is provided through the use of the API since they are incented for using the API. Similarly, those APIs are used to expand into new geographies or new demographics, offer new products, or upsell new capabilities to existing clients.
  • B2B Partner: APIs are used by your partners to integrate into your enterprise. This is used to increase existing partner relationships or expand to new partners.

Conclusion

Although APIs are not a new concept, APIs are reasserting their position at the center of almost every digital use case. While many may view APIs as just a technical concept, the rising strategic significance of APIs cannot be overlooked. Especially with enterprise digitalisation to all types of products and services, the influence of APIs is growing far beyond just technology firms, and every CEO will soon need to find ways to align APIs with their specific growth strategies. 

If you are interested in more information about managing APIs and driving digital business, please contact us at innovate@mitrai.com.

Madhuka Udantha

Madhuka Udantha

Associate Software Architect | Mitra Innovation