What is API Monetization?

Application Programming Interfaces (APIs) are sets of definitions and protocols that allow two applications to communicate with each other. API monetization is simply a way to unlock the potential of these interactions to find new revenue streams.

API Monetization involves API providers, API consumers (developers), and the end user or the customer. API providers choose which products and services to offer as an API, stipulating specific terms and conditions. There are three common API monetization models—free, developer pays, or developer gets paid. Free APIs offer a free tier or point of entry for the user to sign up and use API products, to help them realize the value the API delivers before a purchase is made. These “Freemium” plans typically offer a basic menu of services for free, then charge for services after a certain threshold is met, i.e. if a user exceeds a certain number of requests or uploads per day.

Providers often establish a pricing plan for API access, which can be tiered, pay as you go or unit based. Services can be bundled in multiple tiers, or levels of paid access, increasing in cost depending on perceived value. Pay-as-you go models allow users to pay only for their actual API usage, dependent on bandwidth, storage, and other costs, as do unit plans, which require the purchase of units rather than levels of access. API monetization also involves revenue sharing between both the provider and consumer. Ad revenue sharing, affiliate, and credits to bill business models all generate revenue from advertising, whether an API offers it as part of an their platform, applies cost-per-click (CPC) to drive revenue share, or returns on investment based on advertising or affiliate revenue.

API monetization has the power to:

Create new revenue streams. API monetization helps users and providers to find previously untapped sources of revenue. API providers offer advertising opportunities as part of their platforms, allowing consumers to embed advertising in their sites that generates a return for the both provider and consumer.
Profit from strategic partnerships. API products demonstrate value not only in generating data, but through partnerships with organizations looking to an API as a facilitating resource. This objective is often achieved by direct licensing of some aspect of a business API involving a proprietary process or offering products that are adept at solving a specific challenge.
Market products. APIs are often used as marketing demos to showcase products. For example, a free API that uses machine learning to invoke imagery when prompted by a specific query on a web page could attract attention of free users, increasing brand awareness. In turn, this activity could attract business users who perceive greater value in contracting with a company to replicate the underlying technologies involved.
Discover new product capabilities. Providers offer free APIs to purposely expose their capabilities to third-party developers who create applications on top of them, taking them in new directions in a way that helps providers discover new ways to innovate and find greater reach.