Monetizing APIs: Strategies and Considerations

Monetizing APIs: Strategies and Considerations

We all know what Android and iOS look like. Most of us have our favorite social media platform. A game we play when we're bored. All of these have distinct (and hopefully very straightforward) user interfaces. Behind all of them a set of connections and integrations we never get to see. Still, each time you send a mobile payment, order a meal, or use a rideshare app — you're relying on it to do the hard work.

They're called APIs, and they have been around since the 1940s. They connect user-oriented software into a seamless whole and help build digital environments. APIs are essential to our highly-connected world, so it’s only natural that some people are working hard to build them. And, of course, some of those people want to earn some money while at it. Yes, you can use them to make money — and here’s how to do it!

What are APIs?

API is actually an acronym. It stands for Application Programming Interface. Unlike a lot of programs and apps we are familiar with, APIs aren’t user-oriented. Instead, they serve as a software intermediary. They allow two applications to "talk" to each other and exchange information. They are meant to be invisible, and only accessible to developers.

Web APIs are the most common, as they allow computers to communicate over the internet. There also are, however, APIs that serve software libraries, programming languages, operating systems, and hardware.

Documents or standards called API specifications serve as a blueprint for building APIs. The software can be custom-built for a specific purpose or be open-source — shared standards enabling interoperability between systems.

Monetizing APIs

There is, however, another layer to it. APIs can also generate a healthy profit. Traditional models offer a service to their customers or other businesses. API monetization, however, means that API access is sold directly to software developer teams. The developers can then leverage them to access data or perform other actions. The most basic way to do this is by strategically charging fees for certain API endpoints.

Success of API monetization largely depends on the size of the enterprise. The bigger, the better. It also depends on the customer base as well as the existing technical infrastructure. In most cases, it demands a certain amount of custom software development.

How does this work in real life?

Let's say you have an online store selling multiple brands. Such an enterprise will almost certainly need efficient feedback channels, such as a rating or comment system. The analytical reports you can get from those channels are a goldmine for similar businesses which can then pay for that information. All you have to do is sell real-time access to a part of your analytics.

An airline company is also a great example. Its online platform lets passengers book a cab in-flight to wait for them at their destination. That means that ride-sharing platforms have connected their services with the airline systems via an API. Of course, they do that after paying a fee to access the airline systems. That way, everyone in the equation can benefit from the integration of these diverse systems.

Do you have what it takes?

Even if this is a comparatively new business model, there are already countless ways to use it. APIs are embedded in mobile apps, cars, and even fitness devices. The resulting connections and data can be a valuable commodity for a lot of businesses.

So, if you’re thinking about building and monetizing your own API, ask yourself this — are you able to offer significant value or a unique service? Is your digital capacity attractive to developers or other businesses? You can always try following these simple steps.

  1. Develop a unique value or service that others are ready to pay for.
  2. Create an API on top of that service.
  3. Promote it accordingly to the relevant audience.

Direct monetization models

There are two ways to make a profit here, namely direct or indirect API monetization. Let's first talk about the direct option. It has two subcategories. In the first one, the developer pays the API provider to use the API. There are multiple pricing options:

  • Pay-as-you-go — the developer will pay only for what has already been used.
  • Freemium — certain features are free, others rest behind a paywall.
  • Tiered — offers different price points for different access levels.
  • Point-based — specific features have points values which the developer has to buy beforehand.
  • Transaction fee — a portion of the revenue from every transaction goes to the API provider.

The other type of direct API monetization is the one where the developer (also) receives a profit. It's a great financial incentive for them to use the API. There are three basic models:

  • Revenue share — API drives revenue for both the provider and the developer.
  • Affiliate — developers or partners share the provider's content and the revenue depends on the engagement model (i.e., per impression or click).
  • Referral — similar to the affiliate program but here the profit happens only when the end user makes a purchase.

Indirect API monetization

The indirect method is a bit less obvious as it doesn't involve direct payment. Still, it can have a positive impact on company revenue and growth. It can facilitate integration with your services and make it easier for others to do business with you. There are several indirect API monetization models:

  • Content monetization — delivery of content via APIs such as streaming or syndication.
  • Content acquisition — content created by a third party gets shared on your platform.
  • Internal closed enterprise APIs — building and improving the functionality of APIs.
  • B2B API monetization — partnering with other organizations using APIs.

Security concerns

Even if users don't have direct access to it, API is still public-facing software. As such, it carries multiple risks:

  • SQL injection — backend database manipulation used to access undisplayed information.
  • Denial-of-service attacks (DoS) — flooding the target with traffic which then triggers a crash.
  • Broken authentication — impersonation of legitimate users online.
  • Exposing sensitive data — personal data theft, including credit cards, medical records, etc.

Even if risks do exist, you shouldn't feel discouraged from using or monetizing APIs. Correct measures of precaution, such as HTTPS (the secure version of hypertext transfer protocol) and API keys can make a difference. Encrypting and encoding can also play a part. Depending on your budget, you can consider hiring developers specializing in online security.

Setting the wheels in motion

API development and monetization is a trend that is only gaining momentum. If you want to ride this digital tidal wave, better do your research first. Know which digital assets can be valuable and gauge any potential interest among developers.

When considering a specific solution, pay attention to complaints about quality and ease of use. Learn from other people's mistakes. If you succeed, be ready to scale. However, make sure you never risk security for the sake of growth. Only top-of-the-line performance can secure long-term API monetization.