API Monetization

API Management: Generate Value with Monetization

Digital assets or services provide real value to customers, partners, and end users. So why  shouldn’t they be a source of revenue for your company and an important part of your business model?

In the pre-API world, monetization was accomplished via long, drawn-out contractual processes, or data sharing agreements. In some instances, data was given away for free. APIs enable you to expose data and services securely, publish it to partners in a scalable manner, and, with a sophisticated API management platform, charge for usage, revenue-share with developers, and track billing in real time.

Sophisticated API management, in other words, provides the robust infrastructure that empowers your business model—and opens the door to new revenue opportunities.

Attract developers, generate revenue

Innovative models, like revenue sharing or pay-by-performance, go a long way in attracting and keeping developers on your platform.

There are many successful examples of how this works today. Take Uber. It offers third-parties who develop on its API $5 to $10 per new user acquired.

Offering data, content, or services via a platform that enables third parties to create powerful new experiences that extend your brand. It also offers a clear path to charging your partners or, indirectly, your end users for the valued content or service.

Pinterest, Instagram, and Facebook have generated enviable investor and consumer interest by creating fresh content, and making it accessible to third-party development for further mashups and innovation.

Google, Yelp, Mapquest, and Stripe enable partners and third parties to access and innovate on services such as maps, location, payments, and real-time offers, ultimately leading to better end-user experience and engagement—and significant revenue.

The price business partners are charged for building on the Google Maps API, for example, starts at $10,000 annually and generates further revenue for the search giant from ads linked to map searches.

Create and derive value

The common thread we observe across these winning businesses in the new economy is one of:

  • value creation via content, data, or services
  • a platform approach that enables partners and third parties to innovate

  • a powerful experience for the end user that creates more traffic, which equates to more revenue for all the players in the ecosystem

In addition to a deep understanding of the market and a clear articulation of value across the ecosystem, it takes a sophisticated API management solution to enable this business model.

To learn more about API monetization and API management, read the eBook, “The Definitive Guide to API Management.”

Blog home page image: Gerald Wildmoser/The Noun Project

Monetize Your API Program (webcast & podcast)

APIs have not only become a competitive advantage for enterprises but are also an important innovation tool and a source of revenue. Finding the right monetization program is crucial to help you deliver the right business model for your digital assets.

In this deep-dive webcast, we explore:

  • how to think about your APIs as a strategic revenue opportunity
  • how to build and energize your developer ecosystem with creative pricing
  • how Apigee monetization services changes the game

 

The Digital Gold Rush: Freemium Business Models

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.

The Digital Gold Rush: Stake your Claim. Get the Tools. Unearth the Value.

Enterprises are drawing on the tools of the digital trade -- APIs, data, and apps -- in what is amounting to a gold rush in the new digital world. A treasure map of how these tools can be used to transform digital assets into revenue streams is critical to navigating this uncharted world and discovering gold. In our Digital Gold Rush blog series, we're charting the different business models for monetizing digital products. Last time we discussed the revenue share model in detail where the developer or partner using the API gets paid for incremental business or traffic they generate. This blog entry discusses fee-based models where the developer or partner using the API pays the API provider.

API Monetization Model #2: Fee-based models

Fee-based, or ‘Developer Pays’, models enable enterprise providers to generate an immediate revenue stream by assigning price points to their digital assets. A common scenario under this model is to enable developers to search for (and retrieve) information based on the provider’s knowledge database. At the end of the day, the end game remains the same -- to maximize the value of your digital assets. 

Amazon Web Services (AWS) delivers a set of web services (storage, database, computing power, servers, application services, deployment, and management) accessible via APIs, each following some type of fee-based model. By projecting and externalizing a suite of services, Amazon has realized impressive business results: 905 billion objects stored in AWS, $750 million in revenue in 2011, and $1 million in savings for NASA after moving the agency’s IT into AWS. 

One of the most popular fee-based models is Google Maps, which charges developers for use based on volume. By paying a variable fee, developers can integrate Maps functionality into their mobile apps.

There are a variety of constructs under fee-based models. These can be combined with the revenue sharing models outlined in our last blog:

  • Transaction fees: These types of fees can be by API transactions or some other custom attribute that the API provider designates.
  • Transaction volume: The API consumer is charged based on the volume of the API transactions. The rate can be fixed or variable (see below). A typical example would be for messaging or identity APIs.
  • Custom attribute: The API consumer is charged based on the quantity of custom attributes within a transaction. The rate can be fixed or variable. A typical example of this would be for search APIs (charge based on the number of words returned in the transaction), or cloud storage (charge based on number of megabytes stored). 
  • One-time fees: The provider can charge the API consumer an upfront, one-off fee, such as a set-up fee or a joining fee.
  • Subscription fees: The provider can also charge the API consumer a recurring fee that is charged on an ongoing basis at a preset frequency. A typical example would be a weekly or monthly subscription fee for access to a group of API products. The volume of access can be controlled using hard limits, or combined with a volume-banded plan to charge for excess usage. 

These are factors to consider so that you choose the right type of fee-based model for your business:

  • Flat rate card: The API consumer is charged a fixed rate per transaction/custom attribute, irrespective of the volume of transactions.
  • Flexible volume banded: The API consumer is charged a variable rate per transaction/custom attribute, depending on the total volume. This model can encourage developers/partners to use higher volumes by charging lower rates as usage increases.  
  • Configurable bundled: The provider charges the API consumer for each bundle of API transactions up front as soon as they use the first transaction in the bundle.

There are other important considerations when exploring fee-based options:

  • Product-specific or generic plan: Often there is also the need to differentiate these models as generic (one rate plan to cover all products in the package) or product-specific, where you have a rate plan for each of the products in the package.
  • Group or local company plan: Where an API provider has local subsidiaries, you need the flexibility to set up plans at a group level (the same rate plans and tax models are applied irrespective of the subsidiary) or at a local level (where you can have a different rate plans and tax models depending on the subsidiary).

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. 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.

Check back soon. Next time we'll explore freemium models.

 

Staking your Claim in the Digital Gold Rush

API Monetization Model #1: Revenue Sharing

Today’s world is becoming digitized, precipitating a digital gold rush for businesses. Enterprises are drawing on the tools of digital trade, APIs, data, and apps, in their pursuit of treasure. Discovering gold requires a map of how these tools can be used to transform digital assets into revenue streams. In this blog series, we'll explore the different models for monetizing products of digitization.

Revenue Sharing

Businesses in retail, travel/hospitality, media and advertising commonly utilize the revenue sharing model. In a standard rev share scenario, an API provider exposes a digital asset, such as a product catalog, to developers and digital partners. These third parties can then consume the asset and sell it on their web and app properties, collecting a percentage of the returns.

 

Walgreens uses this model with their QuickPrints API.

Sears uses this model in their Affiliate Program, currently offering up to 7% in commissions.

Expedia uses it in their Affiliate Program.

Some key benefits to the API provider:

  • Extend reach by expanding your business across other various digital channels
  • Increase top-line growth via affiliate sales
  • Decrease overhead costs with a reduction in physical branches and sales force required

The benefit to consumers is simple – they get a slice of the pie.

Revenue sharing sub-models

Fixed revenue share: The API provider shares with the developer/partner a fixed percentage of the net or gross revenue generated in each sale made via the API.

Flexible revenue share: The API provider shares with the developer/partner a variable percentage of the net or gross revenue generated in each sale. The percentage is a function of total revenue generated across API transactions over a specific period of time.

Revenue share and rate card: The API provider shares a fixed or variable revenue share percentage of the net or gross revenue generated in each sale, but also charges a fee per API transaction. This model is used in cases where the provider wants to do a rev share split but also make a minimum amount per transaction (irrespective of transaction amount).

Product-specific or generic plan: Often there’s also the need to differentiate these models as generic (one revenue share plan to cover all products in an API product package) or product-specific (a different revenue share plan for each of the API products in the package).

There are other important variables when considering the revenue sharing options.

Billing documents: For all of the above models, periodic billing documents will need to be generated.

Tax models: If billing documents will be generated, commonly used tax models must be applied to the statements.

Group or local company plan: Where an API provider has local subsidiaries, you need the flexibility to set up plans at a group level (the same revenue share is given irrespective of the subsidiary) or at a local level (where you can have a different revenue share and tax model depending on the subsidiary).

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. Monetization Services offers the flexibility to create customized plans or use out-of-the-box plans that cover all revenue share models and options described above.

Check back soon for our next blog post in this series, where we talk about fee-based revenue models.

Monetization: The Right Business Model for Your Digital Assets (webcast & podcast)

What's the right business model for your digital assets?

As enterprises build and grow their mobile value chain with app, data and API technologies, digital assets become not only a competitive advantage, but also a source of revenue.

In this recent webcast, Anita Paul and Bryan Kirschner discuss the opportunities for value creation presented by APIs and data. They shared monetization models that apply to any industry, and explain how Apigee Monetization Services can help you deliver on the right business model for your digital assets.

  • The business context in the new digital world
  • Business use cases and revenue opportunities
  • How Apigee Monetization Services changes the game

Monetization Services: Enabling New Revenue Streams and Flexible Business Models for Digital Assets

"The divide between digital and nondigital assets is to some extent disappearing; everything has a digital side to it. To manage those assets, traditionally you had to bring IT people in to make changes in the business model, and so on.  With Enterprise Monetization Services, now you just manage the asset and the models." ~Bryan Kirschner, Apigee Institure

This week we launched Monetization Services, a complete end-to-end solution for companies to monetize their APIs and other digital assets. Monetization Services is the latest edition to the Apigee Enterprise platform and is designed to make it easy for companies to maximize monetization and to manage the developer and partner relationships the owners of APIs (the digital assets) have with the developers who are using those APIs.

Check out this short video for a summary of how Monetization Services enables you to deploy flexible business models to bill and charge for API Products.

The point of view from the owner of the digital assets: As a business you can change the plans you offer for your digital assets (your APIs) – revenue models, pricing and more. Critically, you can analyze performance, to determine which business models are working best. You gain a data-driven understanding of your business models, what works and what doesn’t, which in turn informs your choices about how to monetize digital assets.

The point of view from the consumer of the digital assets (the developer). What does the developer see? Just as for the API provider, the system is self-service for developers. Developers can choose amongst plans and implement them with a mouse click in real time. It’s possible, for example, that as the developer’s business changes – a change in volume is a simple example – they will want a different plan from the API provider. Making such changes and choices is easy.


For more information about Apigee Enterprise - the complete API Platform for your company's digital transformation -see apigee.com/about/enterprise.

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.