What business models for API product are leading the charge for tech companies? In this blog post, we will discuss a few options growing in popularity among API developers.
Many companies are reaping the rewards of making APIs a core part of their business strategy. APIs are making data more accessible and consumable, giving both established enterprise and new ventures the opportunity to get the most value from their data. The top two approaches for what business models for API product are used by tech companies today include the freemium model and the paid API approach.
The Freemium API product approach
It may sound counterintuitive to offer free access to a company’s API product, but there is method to the madness. For a company like Facebook, offering free access to its API expands its reach by expanding its users’ ability to “like” content from around the web. Google allows its API to be used for users to log in to various sites via their Google accounts. But Google also charges premiums to use tools like their Google Maps API.
SEO Company Moz, for example, sells access to its Mozscape API, allowing developers to use Moz data to build applications. Moz does this via a freemium, but charges fees when an API developer reaches a certain volume threshold within a month. Still, some companies decide to skip the freemium model altogether for a more traditional paid approach.
How to monetize an API Product
The most common approach businesses use to monetize their API product is price per API call. Still, this may not be the right approach for all companies since the revenue model may be cost prohibitive to some customers of your API product. For example, if a company is selling a specific data set using an API call model, the company may lose customers who see the option as overpriced, or if the customers do purchase, they only purchase the smallest amount possible.
The other option for monetizing your API product is to charge a subscription fee. This can either be charged monthly or by an annual agreement that is collected upfront. While this is a more obvious and easily measurable method, you should make sure your audience is willing to pay a regular fee for your API product.
When considering what business models for API product you will choose, make sure to know your user base. If you monetize your API product are you risking cannibalizing your user base? Whatever you decide, make sure you have your business goals in mind first and foremost. For some companies, absorbing the cost of managing their API product may even make the most sense to continue the growth of your API user base.
Don’t forget to check out our previous blog post about why should you treat your API as a product.