Enterprise API Strategy

API monetization model: deconstructing a $1B API strategy

API monetization model

API monetization models highlight strategies and tactics for using APIs to make money. These API monetization models can help impact the bottom line directly or indirectly. A few of the more direct API monetization models include pay-as-you-go, monthly, or quarterly billing, or purchasing a bucket of API transactions for a specified period of time.

While each model has its own unique benefits, it’s also important to study API monetization models that have generated the most revenue. These more customized API models may at times blend a combination of pay-as-you-go or bulk purchasing elements, for example. But what they have in common is that these API monetization models have generated revenue for major organizations. One example of this is how eBay made billions of dollars through API monetization.

How to make a billion dollars with APIs

All too often, direct monetization (i.e., charging for API access) is what people think about when they think about API monetization. In the vast majority of cases, however, this monetization model is not a good choice. Instead, think of APIs as something to improve the value that you’re generating with your business.

Don’t make APIs your business. Make your business with APIs.

During a compelling interview on the subject of API monetization models,  distinguished eBay engineer Tanya Vlahovic explains how her team has generated $5 billion dollars of revenue with their Buy APIs program.

How this API monetization model works

Simply stated, these APIs allow eBay partners to look up inventory and to sell it to buyers. Partners can build their own experiences around those APIs. This is a classic case of value co-creation on a platform: eBay has a large inventory of goods, and partners can invent and serve new sales channels to buyers that otherwise would not have existed.

For this to work well, the APIs must be designed in the best possible way for the target scenarios. Tanya walks us through her Know Your Developer (KYD) model which she uses when designing and implementing APIs. It involves seeking feedback from pilot users, including multi-day on-site workshops with them to make sure that the APIs are as useful and as easy-to-use as possible.

eBay has a large ecosystem of APIs, and Tanya also is responsible for API governance across all those APIs. While we do talk about governance issues and how to evolve an API landscape, a more detailed conversation about API governance is reserved for a future conversation with Tanya.

In this conversation, we focus on the buy APIs and their successful monetization. We also talk about KPIs and how these can help with APIs. There are operational KPIs that provide insights into system health, and these are essential at the operational level.

On the business level, however, the simple metric for the Buy APIs is how much revenue they generate. There are some secondary ones such as making sure that misuse is detected (to avoid consumers systematically crawling eBay’s inventory, for example), but at a very high level, driving revenue is the primary focus of the APIs.

If you are interested in more details on eBay’s API monetization model and story (which started in 2000 with their first APIs!), listen to Tanya explaining their journey and their guiding principles and methods.

5 ways API monetization works

API monetization in its broadest sense is the ability to drive revenue for your APIs. This encompasses many facets. For starters, you need a unified solution to motivate revenue and have a viable business model for API monetization. This is where an API marketplace solution comes in.

  1. API monetization drives revenue: Amplify Marketplace is an API catalog service solution that provides – among other features – product monetization services, allowing API consumers to subscribe to API products using specific plans. API monetization can be all-encompassing. API monetization allows enterprises to generate real revenue with their APIs.
  2. APIs drive fiscal gains: When it comes to APIs and money, API Monetization is a key generator for producing fiscal gains from your APIs. This helps to increase your API usage. With API Monetization, you can go further than the business model and add balance to your APIs, this creates new money-making ideas.
  3. Full-scale capabilities: API Monetization offers full-scale capabilities that permits revenue-making systems and allows for easier payment methods and reports on profits. These capabilities enable an API provider to move rapidly and APIs to benefit financially.
  4. Integrated reporting: Reporting on API usage is certainly an important part of API Monetization. This allows for financial adjustments and credits when necessary and helps with financial tracking and transparency. As you get a full-on scope of your API, detailed reporting is very practical.
  5. Bonus features: There are many features that are bonuses for API monetization. For example, billing accommodations are useful because you have in place a centralized payment center for your APIs. Another piece is a rate plan. This is a set plan in place with rates for API use. Also, API monitoring and management allow you to have insight into what is going on with your API.

For a deeper dive on the topic, check out this interview with API engineering leader John Musser where we discuss other API monetization models that help enterprises create value with APIs. In 2012, John Musser (then at Programmable Web) started collecting the different ways in which organizations use APIs to improve their business. He then started categorizing them into what he called “API Business Models”, and this model and his presentations have become a classic in the API community.

In the video, John Musser talks about the history of API business models, presents the main categories of the updated model, and walks us through some examples for API business models, such as:

  • Walgreens Photo Sharing API (Partner API) @ 13:05
  • Ford Pro Vehicle API (Productized API) @ 15:36
  • Twitter Authentication API (Marketing API) @ 18:13

We also discuss models for standardizing, productizing, and marketing APIs to help improve organizations and make money.

For more reading, this updated guide to API business models provides a more comprehensive discussion of how various organizations use APIs, and lists examples for all the API monetization models presented.

Discover our guide on getting the maximum value from your APIs for six guided steps for an enterprise API strategy.