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The Digital Gold Rush: Freemium Business Models

nikhil
Oct 17, 2013

In our Digital Gold Rush blog series, we’re on a quest as digital cartographers to map out the different business models for monetizing digital assets. 

So far we’ve identified 2 business models for monetizing APIs:

  • The revenue share model where the API consumer gets paid for the incremental business they trigger for the API provider
  • The fee-based model where the API consumer pays the provider for API usage.

The third and final business model is freemium. Freemium models can be based on a variety of factors such as volume, time, or some combination; they can be implemented as standalone or hybrid models (in conjunction with the rev share or fee-based models we’ve already discussed). The broad array of sub-models and plan types creates an a-la-carte type menu where you can mix and match to suit your business needs. TradeKing, an online brokerage and financial services platform, employs a tiered approach; it offers a freemium API for delayed financial data but charges for real-time data.

API Monetization Model #3: Freemium

The Facebook Like API is free to use; anyone can embed a “Like” button on their web or app property. For Facebook, the benefits of this model are clear: it expands reach by spreading the Like button everywhere, enriches the company’s social graph, and positions Facebook as a leader in the social recommendation space. By enabling free access to their Like button, Facebook now has 2.7 billion likes per day with 2.5 billion websites using the Like button and 1,000 websites adding it daily. Compete, a digital marketing platform, uses a hybrid model and exposes its data via free and paid APIs, with the free access being limited by quantity of data points provided. 

Any of the revenue models we discussed earlier (revenue share and fee-based) can have a free element:

Duration: The provider can set a free period over which the API consumer will not be charged. For example, setting a free duration of one month means that the developer will not be charged for the first month after they purchase the plan.  

Quantity: The provider can set a free quantity for which the API consumer will not be charged. For example, Pearson sets a free quantity of 5,000 API calls for its FT Press API, meaning that the developer will not be charged for the first 5000 calls. In this case, the attribute is API calls; in other cases it may be any other custom attribute the provider sets after the  plan is purchased, such as number of keywords searched. This can give the API consumer the flexibility to ‘try before they buy’.

Combination: The provider can set both a duration element and a quantity element; in this scenario, the API consumer will start being charged when the first threshold is it, irrespective of element type.

Another consideration is that the freemium element can be set on a generic basis (to cover all products in the package) or on a product-specific basis (to give a different free duration/quantity depending on the product).

For those of you who have stuck with us and are still wondering, “Great, but my API program is internal, so how does this apply to me?” Join us next time when we talk about an internal B2E use case around API monetization.


Digital Monetization and Apigee

Apigee delivers Monetization Services as part of its Digital Business Platform. It is a critical part of Developer Services offered to API providers to partner with their developers. Monetization enables definition and management of the commercial relationship between the API provider and API consumers by setting in place the business model for the digital value chain. Apigee Monetization Services offers the flexibility to create customized plans or use out-of-the-box plans that cover all of the fee-based models and options described above.

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