API Commerce – Business Models for API Monetization
One of the key components of a data strategy is whether you charge for your API usage or not.
Some APIs are more appropriate for free usage. If your API strategy is focused around breadth or indirect monetization, such as using your API to drive traffic to your website, then unpaid usage may fit your goals. For example, a retailer may publish an API to enable mobile applications and web developers to integrate product, inventory, and pricing data. Although metered to ensure appropriate usage and analytics, generally the retailer would not charge for API use in this case.
However, if your API strategy includes monetization, such as usage based billing, API management becomes much more complex. This is the case for many companies who have found a latent asset in their data. For example, if the same retailer has been collecting data about consumer behavior and propensity to buy additional products or services, they may want to enable adjacent service providers to consume this data for a charge.
There are a variety of billing models that are common in the API commerce space. Finding the best model depends on blending the value your customers will be receiving and your business goals.
Common API monetization models include:
- In arrears / pay-as-you-go – At the end of a period, typically a month, the customer is billed for the usage.
- Monthly – The customer is billed monthly for either unlimited usage or based on a subscription tier (e.g. 1,000,000 API calls per month)
- Annual – The customer is billed annually for either unlimited usage or based on a subscription tier (e.g. 10,000,000 API calls per month)
- Bucket – The customer buys a bucket of transactions that they can consume over time. The bucket may or may not expire.
Each model can have an overage amount that is applied at a different rate. Additionally, each model will have to support different prices for each customer, subscription tiers, etc.
Of course, there are other variants, but most API monetization models fit into these listed above.
When looking at operationalizing these models, the API management layer must support the desired subscription types to report and bill each customer. Additionally, the API management layer must allow customers to upgrade, downgrade, and switch business models.
Unlocking the value of your information assets oftentimes involves directly monetizing your data. API’s provide the ideal way for your customers to consume your data.
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