API Business Models and Monetization
Even with the success of APIs like Twitter, Amazon and Facebook, it can still be a struggle to articulate the value of opening an API to execs and other business folks whose support is needed. (Maybe this is why so many APIs are launched as skunkworks projects.) But we can start by identifying the business model. Common ones with open APIs are:
APIs as a marketing channel
Kipp Bodnar argues than any CMO should consider an API to extend brand awareness and consumers’ perception by letting developers write applications to distribute your content. And this might be at a fraction of your online marketing budget. To measure ROI, you could start by looking at the number of interactions you are getting through APIs or by tracking the traffic boost to your website.
APIs as distribution channel for your content
If your company has some valuable content or data, APIs are a natural way to increase syndication. Indeed data accessible through APIs is easy to retrieve and can be embedded in other websites and applications. Many consumer web products, such as Google's many search API products, use this effectively to distribute content all over the web, which in turn drives their main advertising business model.
APIs are the cheapest and fastest way to build applications
You would love to build applications on all the different platforms your customers use - iPhone, Blackberry, Pre, Facebook, MySpace..the list goes on. While it may never be possible to cover every platform, with an open API developers can help you create applications much faster than your team might. For example, Twitter has no shortage of apps for every platform.
APIs to distribute services
SaaS companies often use an API to distribute additional services. Your API could be either free because it's part of their existing subscription (a great way to differentiate service from competitors) or as an 'add-on' service for incremental revenue. SpinVox Announced last week 600 Registrations for SpinVox API which converts voice to text. They charge 35c for a 30 second message. Apparently their pricing did not discourage developers.
APIs to let third-parties extend your product
The same way than you would not be able to build all type of clients for different platforms, you might not be able to build specialized solutions for each market segment and vertical. By opening APIs you might create an ecosystem of partners and developers that augment your core offering with specialized solutions and innovative ideas. This makes your offering much stronger for your customers. Saleforce does this well - Force.com and the App Exchange cover a rich spectrum of specialized solutions they might not be able to provide otherwise.
APIs make your business more sticky
There is no secret than in the enterprise industry software integration projects are expensive and once in place, integration code rarely changes. SaaS vendors and services providers that managed to get deeply integrated in their customers IT stack tend to stick.
So, what is your API business model?
Up next: Roadmap and technical considerations for API monetization.