What is API Monetization?
API monetization is the process of generating revenue from an API. In short, it’s when a company chooses to make its API profitable. Such companies can have an API as their core business - making API monetization critical: it’s what we call API-First companies. Others can have it as a side business, to exploit internal data or provide an additional feature to their tool: those are called API-Side companies.
In this chapter, we’ll review the basics of API monetization, from business opportunities to a practical lexicon.
What are API monetization business opportunities?
The emergence of service-oriented architecture in the 2000s and the Bezos Mandate in 2002 - enforcing the use of APIs for Amazon - made APIs a must-have way to connect multiple web applications. APIs would soon move out of internal infrastructures and serve as a way to expose data and bring value to businesses. By 2010, all the top 100 most visited websites were using or providing APIs.
In 2015, several companies whose primary product is APIs, such as Stripe, Twilio, and Plaid, raised millions of dollars, with a valuation exceeding billions of dollars. They embody the vanguard of API-Firsts - companies whose primary asset and revenue stream are APIs. GGV, a venture capital firm estimates that API-First companies have raised over $14 billion.
And the business opportunities of API monetization don’t end there: looking at the market estimates for this decade, data and AI, the industries that primarily use APIs, are also on the rise. According to Fortune Business Insights, the market of Big Data Analytics is expected to reach $655 billion by 2029, and Zion Market Research projects a $422 billion market for Artificial Intelligence and Machine Learning by 2027.
Source: Fortune Business Insights, Zion Market Research
So, if you have an API-related business idea, now is a good time to launch it. We'll now look at what you need to launch your business and - spoiler alert - you don't have to be a developer to do it!
What do I need to monetize my API?
Here are the main steps to monetize your API the right way. Each step will be expanded upon later in this guide.
1. An API, and API Product ideas
Before you start, look at your existing business (or business idea). If your API is (or will be) the primary asset of your business, you are an API-First, otherwise, you are an API-Side. This will help you align your API business strategy with your goals.
If you are an API-First, this means that API monetization is essential. If you are still defining your audience and business model, monetization is the way to go: it will help you test and find your minimum viable product and evaluate your core proposition. Being an API-First has an advantage for monetization, as you will be thinking about your API from a product perspective from the start.
If you're an API-Side company, you probably have the API and the business that goes with it. In this case, the challenge is to change the way you see your API from a technical angle to a product angle. That means shifting your focus from seeing your API for what it does to see the opportunities it brings.
But in both cases, the key to success is to develop a unique business value or selling point. Take all the endpoints and start identifying the associations between them, these will be your API products - and what will make your API unique.
2. An API Documentation, to expose it the right way
The most important thing when it comes to monetizing your API is how you expose it. An API alone with OpenAPI-generated documentation will not suffice. You need concise but comprehensive documentation, testing tools, code samples, and, as we just saw, API products tailored to your audience, each with a unique selling point.
That’s why you need to choose the tool that will provide the best API documentation and all that comes with it. When choosing, you need to look for something that will bring:
- API Documentation
At the API Product level, only exposing what’s necessary for your API consumers. A few steps on how to implement your API product is enough to drive API adoption.
Along with the doc, a “Try it out” button to test the endpoint in real time. A needed feature to help your API consumer visualize how it works and what data it provides.
- Sample code
Covering the basic languages, from Curl to Ruby.
3. An API Store, to brand your API Products
But API documentation and a clear idea of how you will expose your API will be nothing if you don't have the next element: an API portal (or developer portal) to promote, share and monetize your APIs.
An API portal is where your future API consumers will access your API products. Gone are the days of the developer portal that served only technical purposes. Today, if you want to expose your APIs as products, you need the accompanying API portal.
This API portal needs to be:
- White-labeled, to extend your brand to your API portal. With a custom domain name and the right colors, it is possible to make this API portal what will appear to be a natural extension of your main website.
- User-friendly, easy to use, and understandable for both developers and product profiles. API products are clearly displayed, prices are highlighted, and the documentation provides only what is needed to implement the API.
- Self-service, adds an additional layer of convenience for both the API provider and the consumer. API keys are generated automatically and usage is managed by the portal. The API provider does not have to track usage and the API consumer does not have to request access and wait for it.
You need to look at those three points when choosing an API portal. Together, they enhance API adoption and reduce the time to first call. A good API portal is a true storefront, bringing a marketing angle to API products.
An ABC to API monetization
Refers to all the metrics used to follow API consumption. Those metrics can be technical (uptime, latency, errors, etc.) or related to the API product use (retention, engagement, revenues, time to first call, etc.).
It is the stakeholder who consumes the APIs. Their goal is to find an API product that meets a need, at the best price and, most importantly, is easy to integrate into their application.
It contains instructions on how to implement the API, a list of endpoints and how they work - including classes (GET, POST, etc.), return type (Boolean, string, text, numbers...), arguments, etc. API documentation is essential for successful API adoption. Unfortunately, it is often an afterthought when it should be the cornerstone and essential companion to a good API. Guides and workflows help enforce specific use cases for your API.
An API-First company refers to companies whose main business is based on one or several APIs. Those companies usually provides a headless solution from them. Famous API-First companies include Twilio, Stripe or Checkr.
This expression also refers to companies who chose to use an API-centric approach for software development.
This is the process of creating and publishing APIs, controlling access to them, enforcing usage policies, collecting and analyzing usage statistics and reporting on performance. While all API management solutions can make your API self-service, they do not offer the same functionality. They will often lack basic API monetization or documentation capabilities.
An API product is how you tailor your API to a specific use case. When you identify a way your consumers use your API, you can create a separate API product that will include only the necessary endpoints. This allows you to break your API into custom sections, each of which can be monetized as you see fit. API products help you find new audiences for your API while improving its adoption.
It’s the stakeholder exposing APIs to consumers. Their goals are to build an API responding to an audience, limit the technical debt of its design and figure out how best to monetize or share it - through API documentation, API products, and an API portal.
Also called API Store. It’s a dedicated section where you display your API products. A clear and concise portal, with well-designed API products, will help your users select, adopt and use the API products of their choice.
When an API needs to be refactored - that is, one or more endpoints need to be added, deleted, or changed - API versioning is the next step. Effective communication is then essential to avoid abrupt changes and keep API consumers informed.
This is the time it takes for your user to implement and start using your API, from the moment they sign up. A short time to first call means that your API documentation is optimized and your API can be easily understood and implemented. An average first call time of less than 5 minutes is a very good sign.