APIs: Show me the money!
Unlock the value of your data by monetizing your APIs.
It’s understandable that—for some people, in certain contexts—the real-world value of the application economy can still seem a little abstract. This is particularly true when talking about the technologies that enable the creation and maintenance of applications, as opposed to the applications themselves. In the age of mobile and cloud, the API is emerging as the most important of these technologies.
How does someone trying to sell their organization on the idea of launching an API program explain the cold hard cash value of an application programming interface?
There are numerous ways to drive business value through APIs. The API represents a fundamentally new kind of integration technology—one focused less on backend efficiency or cost savings and more on new revenue opportunities. By allowing companies to connect backend systems with partner organizations, mobile devices and the Internet of Things, APIs create a host of new business opportunities.
These opportunities may come through stimulating innovation, enabling greater customer engagement or increasing market reach. These benefits may still seem a little abstract—it’s particularly hard to assign a dollar sum to the first two. But it turns out that it’s also possible to generate actual revenues directly from the API itself. This is usually referred to using the term “API monetization”.
Broadly, this term is used to describe any way an API enables your organization to generate revenues. For example, an API may facilitate the quick and cost-effective development of new retail apps for mobile devices. In many contexts though, this term is specifically used to describe the increasingly common practice of charging external developers for access to an enterprise API.
It is actually more common for enterprises to pay the developers who use their APIs. This generally happens through revenue sharing—when an enterprise makes a sale via a third-party app, that enterprise will often share some of the resulting revenues with the app developer. This is a great way you can incent external developers to build powerful apps that generate revenue for your organization.
However, in some cases, it may be appropriate to charge developers for access to an API. This may be done on a “freemium” basis—in which developers are only charged once their apps reach a certain threshold of data usage. Alternatively, the enterprise may feel it is appropriate to charge for all usage. How does a program manager decide whether to charge developers for API access and whether or not to go with a freemium model?
It comes down to the perceived value of the data and application functionality your API exposes. The more value your information assets offer, the more likely it is that developers will pay you for access to those assets. If your data and functionality empowers developers to create apps they can generate their own revenues from, there’s a good chance they will be willing to pay for access.
Not only is this kind of direct API monetization becoming increasingly common, but we are also starting to see the emergence of “API-first” companies (Twilio being the classic example). Rather than using APIs to maximize the value of existing information assets, these companies are creating whole business models based on designing APIs for which other companies will be willing to pay.
To learn more about what API monetization looks like in the real world, read the CA eBook API Monetization: Unlocking the Value of Your Data.