API monetization models highlight strategies and tactics for using APIs to make money. This can come in many forms, helping impact the bottom line directly or indirectly.
Read on for definitions and examples of API monetization and an overview of different monetization models. We’ll also dive into a classic API monetization case study and share various use cases and steps to consider as you design your API strategy for maximum ROI.
What is API monetization?
API monetization, in its broadest sense, is the ability to drive revenue with your APIs.
The way of monetizing APIs that typically springs to mind for most people is direct monetization, i.e., charging for API access, but monetization can go far beyond this and provide indirect revenue in many ways.
Watch: Indirect vs. Direct API Monetization
Let’s look at some examples.
Direct API monetization
A few of the more direct API monetization models include pay-as-you-go, monthly, or quarterly billing, or purchasing a bucket of API transactions for a specified period of time.
In a discussion on monetizing APIs, it’s impossible to skip the topic of API products, where APIs are treated as valuable digital products in their own right with all the packaging, documentation, and marketing effort this entails.
As Bas Van den Berg, VP Amplify Platform at Axway, explains:
“Just slapping a price on an API is not enough to ensure adoption in the market. The key to driving revenue in an API marketplace is to offer value to developers and give them a reason to use your API over others.”
Dive Deeper with his blog on growing digital product revenue with a marketplace.
When the API is the product – i.e. an organization provides extensive capabilities to integrate with other services through APIs, and access to these capabilities is metered and limited through consumption plans – direct monetization is a viable and likely option.
Direct API monetization is most easily explained with a few well-known examples:
- Twilio (pay-per-call pricing). Twilio provides a cloud communications platform that enables developers to integrate voice, messaging, and video functionality into their applications via APIs. Twilio charges developers based on the number of API calls made for services like SMS, voice calls, and video conferencing.
- Salesforce (subscription-based pricing). Salesforce offers a range of APIs that allow developers to integrate with its CRM platform. Developers can access APIs for data integration, automation, and building custom applications. Salesforce monetizes these APIs through subscription plans with various pricing tiers based on usage and features.
- Stripe (transactional pricing). Stripe is a fintech that provides payment processing APIs that enable businesses to accept online payments and manage transactions. Stripe charges a small fee for each transaction processed through its APIs, typically a percentage of the transaction amount plus a fixed fee per transaction.
- Google Maps (usage-based pricing). Developers can integrate maps, directions, geocoding, and other location-based features from the Google Maps Platform into their applications. Google monetizes these APIs based on the volume of requests made, such as the number of map loads or geocoding requests.
Indirect API monetization
In the vast majority of cases, however, a direct monetization model might not be a good choice.
This is where it’s helpful to think ofAPIsas somethingto improve the value that you’re generating with your business. Or as former Axway Catalyst Erik Wilde puts it:
“Don’t make APIs your business; make your business with APIs.”
APIs can be monetized indirectly by driving revenue through increased usage or adoption of complementary products or services. For example, a company might offer an API for free to encourage developers to build applications that drive traffic to their platform, ultimately leading to more sales or ad revenue.
Here are a few examples of ways enterprises are monetizing APIs indirectly:
Enabling digital transformation that attracts new customers. Commerzbank established a robust, API-powered architecture to support seamless digital experiences, resulting in a significant increase in API calls and attracting new customers who value the bank’s extensive API catalog.
Streamlining new client onboarding — and API consumption in general. Bankscan choose to open their relationship onboarding (a process that can cost several hundred dollars) to their partners via free APIs, thus making an indirect gain with each onboarding.
Bringing new services to market to edge out competition. One leading German insurance provider offers an API-powered portal that updates users on their insurance claim statuses.
In another example, industrial leader Bosch found that opening up APIs free of charge for the electric motors of their bicycles allowed startups to create accessories and services that form an ecosystem which builds customer loyalty (geolocation, training, sports, connection to Strava, etc.).
Delivering real-time personalization to support existing partnerships. CommunityAmerica Credit Union leveraged their API platform to aggregate years of financial data so they could gain a comprehensive understanding of their members’ behavior, needs, and preferences, leading to more personalized marketing, automated recommendations, and increased cross-sell and up-sell opportunities.
Defining new business models to access hard-to-reach markets. PermataBank, a leading Indonesian bank, extended its customer base by embedding its banking apps in fintech apps and services, leading to an increase in new account creation by 375% over three years.
Diver deeper into these examples with this blog on 5 ways enterprises are monetizing APIs.
It’s vital to think of all the possible ways of adding value when building your API strategy, rather than stopping at a simple exploration of direct monetization.
While each model has its own unique benefits, it’s also important to study API monetization models that have generated the most revenue.
These more customized API models may at times blend a combination of pay-as-you-go or bulk purchasing elements, for example. But what they have in common is that these API monetization models have generated revenue for major organizations.
One classic example of this is how eBay made billions of dollars with APIs.
An API monetization case study: how eBay made $5 billion dollars
During a compelling interview with Erik Wilde, distinguishedeBayengineerTanya Vlahovicexplains how her team generated $5 billion dollars of revenue with theirBuy APIsprogram.
Simply stated, these APIs allow eBay partners to look up inventory and to sell it to buyers. Partners can build their own experiences around those APIs.
eBay invested heavily in developing their Buy APIs, Tanya explains, yet they chose not to charge for their use. Instead, they focused on the business metrics: the value that was being exchanged via the APIs.
“If [customers] improve their velocity, that brings value to us and brings value to our buyers. We generate more GMV (Gross Merchandise Volume) or GMB (Gross Merchandise Bought). The same applies to the Buy APIs. If our partners do well and surface our inventory into their own experiences, drive traffic to eBay, transactions, then we get a lot of value. So, it didn’t make much sense to monetize this set of APIs,” says Tanya Vlahovic.
This is a classic case of value co-creation on a platform: eBay has a large inventory of goods, and partners can invent and serve new sales channels to buyers that otherwise would not have existed.
For this to work well, the APIs must be designed in the best possible way for the target scenarios.
Tanya walks us through herKnow Your Developer (KYD)model which she uses when designing and implementing APIs. It involves seeking feedback from pilot users, including multi-day on-site workshops with them to make sure that the APIs are as useful and as easy to use as possible.
eBay has a large ecosystem of APIs, and Tanya is responsible forAPI governanceacross all those APIs. In the interview, Erike Wilde and Tanya Vlahovic also talk aboutKPIsand how these can help with APIs.
There are operational KPIs that provide insights into system health, and these are essential at the operational level.
On the business level, however, the simple metric for the Buy APIs is how much revenue they generate.
There are some secondary ones such as making sure that misuse is detected (to avoid consumers systematically crawling eBay’s inventory, for example), but at a very high level, driving revenue is the primary focus of the APIs.
Download the infographic: Start aligning your API metrics with these 3 objectives
For more details on eBay’s API monetization model and story (whichstarted in 2000 with their first APIs!), watch the full interview below where Tanya discusses their journey and guiding principles.
How to generate revenue with APIs
API monetization encompasses many facets. For starters, you need a unified solution to motivate revenue and have a viable business model for API monetization.
This is where anAPI marketplace comes in. Amplify Enterprise Marketplaceallows you to build a customized API marketplace where you can bundle and create digital products in a way that simplifies and improves their consumption.
Among other features, it provides product monetization services, allowing API consumers to subscribe to API products using specific plans.
Read also: 3 steps for API monetization
Here are five ways API monetization works:
- API monetization drives revenue: API monetization can be all-encompassing, and it allows enterprises to generate real revenue with their APIs.
- APIs drive fiscal gains:When it comes to APIs and money, API monetization is a key generator for producing fiscal gains from your APIs. This helps to increase your API usage. With API monetization, you can go further than the business model and add balance to your APIs, this creates new money-making ideas.
- Full-scale capabilities:API monetization offers full-scale capabilities that permit revenue-making systems and allow for easier payment methods and reports on profits. These capabilities enable an API provider to move rapidly and APIs to benefit financially.
- Integrated reporting:Reporting on API usage is certainly an important part of API monetization. This allows for financial adjustments and credits when necessary and helps with financial tracking and transparency. As you get a full-on scope of your API, detailed reporting is very practical.
- Bonus features:There are many features that are bonuses for API monetization. For example, billing accommodations are useful because you have in place a centralized payment center for your APIs. Another piece is a rate plan. This is a set plan in place with rates for API use. Also, API monitoring and management allow you to have insight into what is going on with your API.
A common thread here is that for APIs to be used in ways that generate revenue, they must be easy to find and adopt.
API marketplaces are critical for growth and adoption because they make API consumption faster and easier. App developers don’t have to hunt around for the right API because it’s already packaged and neatly categorized in a central API marketplace you built, where it can be found and adopted instantly.
And an API marketplace makes it easy to implement subscription plans that support direct or indirect API monetization.
See also: 10 things you need to know about an API marketplace
How monetization factors into API business models
In 2012, API engineering leader John Musser started collecting the different ways in which organizations use APIs to improve their business. He then started categorizing them into what he called “API Business Models,” and this model and his presentations have become a classic in the API community.
In a separate interview with Erik Wilde, he discusses models for standardizing, productizing, and marketing APIs to help improve organizationsandmake money.
They also discuss several examples of API business models that may be helpful in understanding how enterprises often combine both direct and indirect monetization models:
Example #1: Walgreens Photo Prints API (partner API)
The Walgreens Photo Prints API operates on a partner model, allowing partners to integrate photo printing services into their platforms. This API enables partners to offer photo printing capabilities within their own services, such as photo-sharing websites or mobile apps, thereby enhancing user convenience and experience.
By embedding their API into various workflows and products, Walgreens can reach customers wherever they are, generating both direct monetization opportunities and indirect revenue through increased foot traffic to their stores.
This strategic choice of API reflects the potential for direct monetization, as well as the opportunity to drive additional sales through downstream transactions and increased customer engagement.
Example #2: Ford Pro Vehicle API (productized API)
The Ford Pro Vehicle API, developed in collaboration with autonomic.ai, aggregates and cleans telemetry data from connected vehicles, presenting it in a clean, RESTful API format accessible to developers internally and externally.
This API serves as a valuable tool for fleet management, enabling businesses to monitor vehicle health, location, and status, facilitating applications such as insurance-based pricing and commercial fleet optimization.
The API’s pricing and sales models cater to various business needs, making it a versatile solution for the commercial marketplace, including fleet owners of all sizes.
Through the Ford Pro division, Ford focuses on serving the commercial marketplace with innovative solutions, leveraging telematics data to enhance fleet operations and drive business efficiency.
Example #3: X (formerly Twitter) Authentication API (marketing API)
The Twitter Authentication API serves as a strategic tool for X to grow its business and maintain its presence across various platforms.
By offering an authentication API that allows users to easily sign in to other services using their X credentials, X can streamline the user experience and attract new signups.
Additionally, by being integrated into various third-party services, X can expand its reach and presence, potentially leading to increased user engagement and data collection.
While the exact balance between attracting new signups and collecting user data for analytics may vary, the authentication API serves as a valuable asset for X in both aspects.
Whatever monetization model you choose to implement as part of your API strategy, it will be essential to unify the provider and consumer experience so that API consumption and adoption are made easy.
As Axway Catalyst Brian Otten describes in a recent webinar, an API marketplace is an essential tool for generating more revenue from your API products.
Watch the full replay for more advice on deriving value from APIs.
