We’ve talked quite a bit in this space about web APIs and their growing importance to the IoT. But have you thought about how you could make money using APIs? From a business model point of view, APIs offer dozens, if not hundreds, of ways to monetize your data, content, or technology. So where do you even begin?
We’ve come up with this top 10 list, showing you some API models that could help you generate revenue:
Make it free. Using this approach, you can allow users to get completely free access to your API. But why would you do this if there’s no money in it? The idea is to get your end users to consume more resources from your app, such as those that are actually tied to specific plans. By offering API access for free, you’re simply encouraging developers to use your API more often and build more apps on top of it. That way, those developers will then hopefully consume more storage and maybe end up subscribing to a paid plan. You could also use a “freemium” model, as Facebook, Apple, and Google do. While these companies offer their APIs free to anyone, they do get a cut of any in-app payments.
Charge directly. The most obvious monetization model is to charge directly for an API. Using this strategy, you could charge subscription fees or per API calls, or employ a “pay as you go” model where developers pay only for what they use. With the pay-as-you-go model, you could set up a usage limit so developers can’t make more calls until they pay for their previous API usage. In a typical pay-as-you-go model, you would use the total number of API calls made to calculate how much developers should pay.
Choose the best pricing model. Whatever charging model you end up using, you’ll need to figure out a pricing structure, which could include a setup fee, a fixed monthly recurring fee, or a variable monthly fee based on costs per call. And if you choose to use a fee-based model, you’ll need to determine the specific kinds of fees to charge. Some examples: transaction fees, which can be charged by API transaction; transaction volume, in which you charge the API consumer based on the volume of API transactions, using a fixed or variable rate; custom attribute, where you charge an API consumer based on the quantity of custom attributes in a transaction, such as search words returned; flat rate card, a method of charging the API user a fixed rate per transaction; and bundled, where the API consumer gets charged per bundle of API transactions once they use the initial transaction.
Measure API usage. Whatever strategy you’re using, you need to make sure you’re measuring API usage. This doesn’t directly tie into revenue, but it’s an important point to think about. In fact, measuring the overall number of API calls is probably one of the most important steps of monetizing your API. Only by getting a solid understanding of how your API is being used by your customers can you get a sense of the possibilities of revenue.
Use your API to promote your product. An interesting monetization approach is to have your API allow content to be extracted and used by other people. In this case, you could require branding information to be shown when the API is reused, even though you’re not charging directly for the API. By doing it this way, you get the value not through API use, but through the traffic or transactions that are driven back to your main app or product. Media giants Netflix and NPR, for example, use this model for their APIs.
Explore revenue sharing. Revenue sharing is a common way for many online companies to make money today, and it’s starting to show up in the API world as well. With revenue sharing, an API provider can expose a digital asset to developers and other partners. Those third parties can then choose to consume that asset and sell it on their own website or through their app and keep a percentage of the revenue. As an example, Google uses API revenue sharing for its AdSense product, through which websites earn money by displaying targeted Google ads on their sites. The AdSense Host API enables other community websites to share AdSense revenue with users, as incentive to create content.
Make money indirectly. There are also some indirect ways of generating revenue for APIs, such as content acquisition. Online seller Ebay uses this approach by offering APIs that support sellers in populating content such as product listings, or managing content such as feedback or tracking information updates. Both of these could indirectly result in revenue.
Drive revenue-generating activities through your API. Once again, this is really about indirect revenue. Email marketers, as an example, sometime monetize their software through the number of emails sent out, but they also use APIs in a critical role: automatically filtering out contacts from customer databases. After all, without all those contacts, the actual emails are useless.
Look for micropayment opportunities. Micropayments, referring to those small payments made each time a user accesses a service, are a somewhat new monetization method in the world of APIs. But in the IoT, this method makes a lot of sense, especially when you consider the opportunities parking lots or toll booths could present in terms of tying in micropayments to cars connected to the Internet.
Think about security. Security is obviously a critical aspect of the IoT, and it might actually have some potential as a monetization opportunity. As device manufacturers continue to focus primarily on perfecting their products, they’ll likely be looking more and more to outside sources to ensure solid security. That could mean more opportunities for developers of security APIs to make money. It’s definitely something to think about.
While this is certainly not an exhaustive list, it gives you an idea of some of the better monetization models and pricing strategies to consider.