A Quick Guide to Business Models for APIs

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10 min.

APIs are becoming increasingly important for businesses to stay competitive and maximize efficiency. The use of APIs can result in improved customer service, a more efficient development process, and a better user experience. But do you know the differences between the API business models?

From the partner API to the API-as-a-product models, we will dive into each of them to understand which one is best suited for you. Then, we’ll help you start to think about how to share your API, with a quick intro to the API-first concept and the must-haves to start sharing it efficiently. With the right strategy in place, businesses like yours can use APIs to gain a competitive edge, increase efficiency and maximize customer satisfaction.

What are the different types of API Business Models

The Partner API model

The partner API model involves two or more partners in a business relationship that use APIs to exchange data. This model is particularly popular among companies that are working together on a specific project and need to share data between them. This type of model allows partners to collaborate more effectively and take advantage of each other’s unique capabilities.

The partner API model can also be used to strengthen existing relationships and create new opportunities for mutual benefit, while allowing businesses to make decisions based on the collective knowledge and skills of the partners involved.

Example

Vending machines are now built with Internet connections and APIs enabling partners to integrate and connect to them. Those APIs provide a full set of info, they can report issues and real-time status of the stocks available in the machine and enable digital payment; thus helping contractors limit stock-shortage and service breakdown, optimize their routes and stocks, and provide a better service to the consumer. Here, the API is an additional service that helps leverage more efficiently vending machines, without being an important part of the business.

The standardized API model

The standardized API model, on the other hand, is designed to be used by a wide customer base. It provides a standardized interface for customers to access a product or service, thereby allowing a single product or service to be used by numerous customers.

This model allows businesses to make their services widely available and easily accessible to a large number of users, and helps to reduce development costs associated with customizing services for individual customers. Additionally, standardized APIs can help businesses to generate more revenue by making their services available to a larger customer base and taking advantage of economies of scale.

Example

Amazon is a standardized API pioneer. The API allows its partners to access its products and services, providing a comprehensive set of services that allow partners to easily share data. By using this model, Amazon is able to reduce the time and effort needed to manage its relationship with partners, allowing them to focus on providing the best possible experience for its customers. Amazon APIs are an important part of their business and their initial growth, but they are far from being the core product.

The Productized API model

The productized API model, on the other hand, provides a simple “plug-and-play” solution for customers to access a product or service. The API is the product, and the business model of the company usually revolves around it. This approach enables businesses to quickly and cost-effectively roll out their services to customers, allowing them to gain a competitive edge in the market—by disrupting the existing competition.

Stripe and Twilio are the most widely known examples: both have an API as their core product, and both have used it to disrupt their respective markets. The first is by providing a new way to quickly implement financial services and the latter by doing the same with SMS and automated messages. Both have become references when it comes to displaying and explaining their API, with scores of use case-based resources.

Example

Another example, Duffel, is an API-First company that has merged the APIs of more than 300 airlines thus providing a unified API to access and book flights. Developers and third parties can use Duffel to integrate such services into their apps, without having to build an integration with all the different airlines’ APIs. This API is Duffel’s main product and its entire business model is built around it.

How to choose your API business model?

Choosing the right API business model for your business is no easy task. It is important to understand the different models and their associated benefits to make an informed decision about which one is best for your particular needs.

When choosing an API business model, the first step is to identify what your business needs are. Are you looking to generate revenue, increase efficiency or gain a competitive advantage in the market? Once you have identified your goals, you can then begin to evaluate the various models available and decide which one is best suited to your needs.

  • The Partner API model is primarily used by established companies with existing internal APIs. Those companies can either have a large set of data or looking to use APIs to improve existing products. This model is the best one if you want to keep your API closed to a few selected partners. Here, the API will add value to one of your existing products and will not be a stand-alone product.
  • The Standardize API model is aimed at being used by a larger audience. It can help businesses to generate more revenue by making their services widely available. Companies using standardized APIs are often digital-native, with heavy use of APIs, both internally and externally. The API can provide a service or be a feature of an existing product. Here, the API can help your business drive growth, without being your core product.
  • The API-as-a-product model is quite simple to understand: here the API is front-and-center. He’s the one providing the service and leveraging the business. Here, your API will be a stand-alone product, meaning that you will need to have a whole different business approach and strategy.

What is essential to start sharing your API?

Whatever the business model you choose, before opening it to the world, you need to define your API value chain, which starts with you, the API provider. The API value chain is an essential part of developing and deploying successful APIs.

The API provider is responsible for packaging data in a way that is easy for the API consumer to integrate into their applications. To provide the most efficient API for your future use, you need to think of the usages and structure of your API. This is why the API-first approach is so relevant.

Develop: the API-First approach, from design to testing

The main goal of API-First Design is to ensure that APIs are intuitive, consistent, and easy to use. This is achieved by first designing the API before the application that will be using it. This means that developers can focus on the needs of the API consumers and create a product that is tailored to them.

By designing the API first, developers can ensure that the application is consistent across platforms, which can improve the user experience. Once the API is created and has started being shared, you will need to monitor its usage, using both analytics and user feedback.

Using design thinking can also help uncover hidden needs and prototyping and test ideas. By doing this, the API provider and consumer can work together more effectively and create more successful APIs that are attractive to use.

This is why the API provider and API consumer need to collaborate closely. This includes regular communication to understand each other's needs and challenges, as well as to identify opportunities for improvements.

Deploy: Choosing the right way to share your API

The way you share your API is as equally important. You need to provide developer-friendly documentation, manage the access to your API and have access to a whole set of analytics. Building an API portal from scratch can be time consuming and delay the launch of your API. This is why using a third-party tool can be relevant to share your API.

Such a tool can be used to set usage limits and restrictions, like rate limits, and allow API providers to control who can access the API and what they are allowed to do. This helps ensure that the API is used in a manner that complies with the provider's terms and conditions.

A third-party tool can also provide user analytics. Whatever the chosen business model, and even if you don’t directly monetize your API, user analytics need to be both business and product-oriented. Analytics should be utilized to track usage and trends to better understand how the API is being used.

They also provide logs to help the provider improve the user experience, and debug instantly your users. This can help API providers to identify areas where the API can be improved and make decisions about how to best monetize their API.

API business models are becoming increasingly important for businesses to stay competitive and maximize efficiency. From the partner API to the API-as-a-product models, it is important to understand the different models and their associated benefits to make an informed decision about which one is best for your business needs.

Choosing your API business model is half the work, as you need to think carefully about the way you will share your API and the API value chain, which starts with you, the API provider. By understanding the different API business models and ensuring the API is shared correctly, businesses can reap the benefits of using APIs and ensure their success.

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