API monetization is often a consideration of digital transformation leaders, whether their digital journey has recently begun or is one that has achieved some initial success. More often than not, what these leaders are looking for is how to increase revenue as a result of their API program and how to ascribe benefit to the API part of their digital strategy.
An important distinction is the difference between monetization of the API program and API monetization. The best way to achieve monetary value from an API program depends on business model and strategy. These five methods alone or in combination provide a way to achieve revenue goals associated with APIs.
Turbocharge existing channels
The most common method uses APIs, and the apps and websites that use them, to drive more customers into traditional stores or channels. Retailers recognize the extra monetary value there is for spur of the moment purchases when customers visit their retail stores. Ever go into a Costco store and buy only the item you intended to?
Expanding digital ecosystems
Another method of driving revenue through the use of APIs is with the leverage of a growing digital ecosystem. The use of your APIs by partners expands your reach and potential revenue. APIs dramatically simplify the task of partner integration of your services or catalog making it easy to increase the number of partners you work with and the reach that you can achieve.
New business models
The flexibility that APIs provide lowers the bar to competition. It also lowers your bar to experiment and try a new business model. A new market segment that you may be considering can provide the test bed for business model innovation.
New product configurations
A new version of a product may be best suited to a different segment of your market. For example, in the software industry, stand-alone business apps have dominated for years. Expanding business ecosystems, as noted earlier often provides value, and using APIs to introduce a version that embeds app functionality in a partner application can be a win-win-win for the user, partner, and your company. The integrated product streamlines the tasks your app delivers, adds value to your partner app, and provides another revenue source. This is for example what Dun & Bradstreet did by implementing a Data as a Service business model consisting in having their customers integrate the D&B APIs into their own systems to access business data information instantly as part of their existing processes.
API monetization by charging for the use of APIs
Metering the use of APIs is often thought of as a practical way of API monetization and to derive revenue from an API program, but in actual use, it is best suited to a minority of business cases. If your business is selling information then charging for API use may be appropriate for you. If your business is just about anything else, there is a big chance that charging for API use will be a disincentive and instead hurt the business. In any case, we recommend to set up some API quotas to protect your internal systems and offer a high level of service.
A related use case, internal to the enterprise, uses the same techniques as a mechanism for IT chargebacks across the company for the use of services and systems provided by API.