Your API is the backbone of your digital ecosystem, so it’s no surprise that some businesses are using them to create new revenue streams. APIs are no longer just about technical integration; they’re becoming a crucial part of business strategy.
Although APIs are ubiquitous, many organisations still haven’t unlocked their true potential.
This article is for you if you’re a novice in API ecosystems. We’ll outline 6 API business models you can use and the factors you need to consider when crafting your API strategy.
6 Typical API Business Models To Grow Your Empire
When choosing an API business model, you must select an option that corresponds to your organisation’s strengths and your needs.
It would help if you also considered factors such as monetisation, management, and the methodology you’ll use to drive adoption.
Here are six of the most common API business models:
Model 1: Use Your API As A Product
One way you can use your API is as a product. In this business model, your API is your primary product. This option is standard among companies that provide developer tools or platforms.
For example, Amazon’s API Gateway lets developers build and run their own Amazon-like applications. The API is the primary product and is what developers use to develop their applications.
To succeed with this business model, you need to focus on creating an API that is easy to use and provides value for developers. You also need to understand your target market and what they need from your API.
There are a few risks associated with this business model. Introducing new customers to a product they’ve never used before can be difficult. You need to plan how to drive adoption and get developers to use your API.
Model 2: Leverage Your API As A Marketing Tool
Another standard API business model is to use your API as a marketing tool. In this model, your API drives traffic to your website or mobile app.
For example, Yelp uses its APIs to allow developers to add Yelp data and functionality to their applications. This exposure helps increase awareness of the Yelp brand and drives users back to the Yelp website or mobile app.
Remember, the API doesn’t have to bring money directly into the business for it to be a valuable part of the overall business model. Instead, it will bring new users or customers you can monetise in other ways.
Model 3: Establish API Partnerships
API partnerships are a great way to expand your reach and build a community of users around your API. In this model, you partner with companies using your API in their applications.
For example, Facebook has an extensive partner program that allows other companies to use Facebook data and functionality in their apps. This exposure helps increase awareness of the Facebook brand and drives users back to the Facebook website or mobile app.
Partnering with other companies can significantly increase your reach and build a community around your API. You can licence your API to a third party or partner with them to create something new. Then, use integration and marketing to help promote your API and bring users back to your site or app.
Model 4: Create API Business Functions
Creating API business functions is a great way to monetise your API. In this model, you build an API that allows developers to access specific functionality in your application.
For example, Twilio provides APIs that allow developers to add voice and SMS functionality to their applications. This exposes new users to the Twilio brand and drives them back to the Twilio website or mobile app.
However, it is worth noting that this model won’t bring money directly. Instead, treat it as a supportive secondary offering or gateway that leads customers to a product or service with a monetary value.
Model 5: Use Your API For Interaction Metering
Interaction metering is a great way to get valuable insights. In this model, you use your API to track user interactions and application interactions.
For example, Google Analytics provides an API that allows developers to track how users interact with their applications. This data can improve user experience and drive more website or mobile app traffic.
This model allows you to directly monetise your API by charging for access to the data. However, it is essential to note that this model requires a high volume of users to succeed.
Model 6: Start With API Tiering
The idea behind API Tiering is to start with a free API and then charge for premium features. In this model, you offer a basic set of API functions for free. This is popularly known as freemium.
For example, Twitter offers a free API that allows developers to access tweets and other data. However, they also offer a paid premium API that provides access to more data and functionality.
This model is a great way to increase the adoption of your API and then monetise it down the line. It allows you to build a community of users before you start charging for access to your API.
3 Considerations To Choose The Best API Business Model?
Regardless of the model you choose, the following considerations will help you decide which is best for your API strategy:
Identify Your Ideal Audience
API ecosystems are not one size fits all. Depending on your business goals, you will want to consider who your target audience is for your API.
Some APIs are better suited for developers, while others are geared towards businesses or end-users. Your ideal audience will help shape the business model you choose as well as the features and functionality of your API.
Determine The Benefits You Need
What do you hope to gain from your API? Are you looking to generate revenue, drive traffic to your website or increase brand awareness?
Understanding the benefits you need from your API will help you choose the right business model. For example, a subscription or pay-per-use model might be best if you’re looking to generate revenue.
A free API tier or interaction metering might be a better option if you want to increase brand awareness.
Choose The Appropriate Business Model
Choosing the appropriate business model is key to the success of your API. The wrong business model can lead to low adoption and little return on investment.
The prime consideration while choosing a business model for your API should be the willingness of your consumers to pay. You might have the best product in the market, but if your target audience is unwilling to pay, all your efforts will go in vain.
Therefore, it is crucial to segment your audience and understand their needs before finalising a business model for your API.
Don’t Turn Your API Into A Business Model Without A Trusted Partner
At Digitlab, we can help you determine your company’s best API business model. We have a team of experienced digital business consultants who can help you build a flourishing API ecosystem.
The right partner will help you choose the right business model, build a robust API and drive adoption. Contact us today to learn more about how we can help you turn your API into a business model.
