How to start with API monetization?
All APIs are not created to meet the same objectives. That’s why there are many different ways to monetize your APIs. Below, we will highlight the different steps for a direct monetization model of your APIs.
In order to monetize your APIs, you’ll need to think of your audience to define who your users are. You’ll also have to understand their exact needs, the value you provide to them and the value metric you want to follow closely. Finally, you’ll need all the necessary info to decide on the right API business model for your data monetization strategy.
Determine the audience of your API
The initial step is to write down the customer segments to target. For each of them, you need to define at a high level what information is valuable to know for their own business. Usually, this is best to get this clear exposing APIs.
For that, you might need, if possible, to analyze your existing customer base, to identify industry trends, to analyze competition, etc. Below are a few examples that might help.
You’re already working on the topic of carbon offsetting. You have clients out there that would like to use a Carbon Offsetting API to easily compute their carbon emissions and be able to offset them through climate-friendly projects in different countries. What companies exactly would be interested in using your carbon offsetting APIs? How would they use the API and for which purposes?
You are a former AI engineer at a big company. Right now, you’re thinking of launching your company where you would use AI to sell personalized sales outreach at scale.Which companies would be interested in using your prospecting APIs? In which sectors? What would be the sizes of the companies? Having a look at the competition would help here.
You are a data aggregator in the crypto space. You are already providing data for crypto buyers and sellers to make decisions. You would like to open up an API that allows people to access accurate and real-time NFT analytics. Who among your existing customers would be interested in using this API? Why would they use your API more than the platform in itself to access the data?
Year after year, you've collected a lot of music analytics data. As there’s an ever-growing music data demand, you'd like to target some music companies to sell the data to them. Which companies do you approach first?
Understand the data points value for your audiences
Here, we assume that you’ve built the main API you’d like to share. You now need to assess the value of the different data points provided by the API and for each business case.
Are you an API-First company? Is your product based on an API? Are you an API-Side company, where the API is not the main product, but the APIs support the actions of third parties?
Does your API provide something the companies you target simply can’t afford to develop? Are they increasing their competitive advantage thanks to your API? Are they using the API as a direct way to save money? How will they use those specific end points for their use case?
Quite often, the issue is that the number of data points and potential use cases is huge. Therefore, this is hard to find where to start. Prioritize your work by selecting one or two use cases that came out as the most promising ones during the first analysis. Then, dig into the data points. You absolutely need to define the value metric that you want to follow.
- You are providing a few endpoints so that people can compute their carbon emissions and offset them. The value metric you might want to follow is the number of tons of carbon emissions that have been compensated.
- You are providing an API so that your users can access real-time NFT analytics and prices. You might want to follow the number of active users, actually benefiting from this data.
Choose the right API Monetization model
When speaking of API monetization, we generally speak of direct, indirect and even partnership-based business models.
An indirect API monetization means that the API is used to achieve some goal driving the business model. This can be increased awareness, customer retention, among others.
A partnership business model means that the revenue is shared between the one offering the API and the one consuming it.
Below, we will focus on direct monetization.
Passed this step, you have defined your audience and the value you bring to them. APIs have transitioned from a technology asset to a real product that you can put a business model on while marketing it.
Choosing the right API business model means having a set of pragmatically laid out assumptions about how your business creates value for your end users. Let's jump into the different business models.
Subscription model (also called flat-fee)
Buyers’ habits have changed as subscription is the by-default business relation that many SaaS businesses want to establish with customers. The underlying cause is that now buyers want to pay, not for the sake of ownership but for the value they get. For sellers, it’s a simple business model as it is a prepaid business model that helps to project future revenue. This business model also gives the chance to offer additional services to existing customers. It is adapted when the cost of providing your API is the same whatever the usage.
An example would be accessing a database for which you pay a fixed monthly fee for hosting your database server. Whatever the number of API requests, your costs remain the same. A simple subscription fee makes sense.
Note that you can also tweak a bit that subscription business model. Many businesses have their users consume their API for a fixed price per month (subscription model). Once users reach the limit, they can still be allowed to use the API but need to pay a fee per extra call. This combines the subscription model and the pay-per-use model which will be discussed in more detail below.
Pay per use model (also called “pay as you go” or “metered” business model)
Here, making people pay for the value provided becomes even more meaningful. The pay-per-use business model is a straightforward approach where users are charged for what they use. This model improves customer satisfaction since they are more flexible and get a better control over their costs, that are directly linked with their usage. An example is to pay per call.
Another example is to pay based on some custom unit, for instance data processed. The drawback of that business model as an API Provider is that you have to anticipate your monthly income depending on the number of active subscribers you have. This is what we call a post-paid business model. This business model adds some complexity as you do not know for sure to what extent your consumers will use the API products.
This model allows you to sell your APIs at different costs, depending on the consumption. This is very useful when you want to offer your API for free up until a specific threshold (Freemium business model). Giving users a free tier makes it easy for them to test your API. If using your API is successful for them, they are then more likely to upgrade to paid tiers.
This tiered model in general also ensures you can reach different types of customers with different needs in terms of usage. The drawback though is that it can be hard to build the right segments and sometimes users may not understand the value you provide.