Table of Contents
- What is API Monetization?
- API pricing options
- Strategies to monetize APIs
- How to monetize API endpoints
APIs power more and more parts of web apps, mobile apps, and desktop apps today. An API, also called “Application Programming Interface”, allows an app to access functionality created by a third party through software.
As APIs continue to prove their value, businesses are finding new ways to fit API monetization into their API management. But some of these ways aren’t obvious. So, let’s explore the different ways you can monetize your own API, in order to increase your business’s revenue.
What is API Monetization?
API monetization is a relatively new business practice, which businesses use to increase their revenue as part of their overall API management plan. By strategically charging fees for certain API endpoints, your API management plan can have a positive impact on your business’s overall revenue.
In traditional business models, monetization is done by offering a service directly to consumers or businesses. With API monetization models, businesses sell API access directly to software developer teams. The developers then use the API to access data or perform other actions.
API pricing options
On RapidAPI.com, there are there pricing methods you can choose from:
- Pay per-use: API consumers only pay for the requests they make.
- Freemium: API consumers can test the API’s free tier, and can pay for higher tiers.
- Paid plan: API consumers must pay to access any API functionality.
When developing your API, it’s important to think of these business questions:
- Which plan best fits the value delivered by your API.
- The best way to recover the financial costs of maintaining the API.
- What target price point best fits the target customer’s budget.
- How much the competing API providers are charging for similar values.
Tip: See the Plans & Pricing page on RapidAPI’s documentation for more information.
Pay per-use for APIs
In this financial model, customers can use your API at whatever rate they need and only pay for what the API calls use. Unlike the Paid or Freemium plans, the Pay-per-use pricing option helps app developers to scale their costs along with their business growth.
In other words, the more users they acquire and charge, the more API requests they will make, so that they have higher API costs, but only after earning more from customers.
On the other hand, if there are almost no customers, and therefore no revenue stream, then there is almost no cost for API usage. In this way, pay-per-use helps developers to scale their startups with confidence and assurance.
Freemium and Paid APIs
These two pricing options have multiple tiers, each with fixed pricing, which allow a certain volume of API requests. The higher the tier, the more API requests can be used.
This model works best when a business’s budget is less flexible. Sometimes a business will have a hard limit on how much they can spend on the service which an API provides. In this case, a pay-per-use model may put the business over its limit. This is where a fixed-price tier comes in handy.
The difference between Freemium and Paid APIs is that Freemiums have a free tier that allows API consumers to try out the API. This gives them a chance to make sure the API works, and to get their source code prepared to use it. So offering a free tier is often a great way to attract developers on the fence about using your API.
Strategies to monetize APIs
Knowing the available pricing options can help you to come up with a model that works best for your business and the services you can offer through an API. But we still need to think of how to use this pricing method effectively.
There are three main strategies for monetizing an API:
- Provide your main services to users through your API.
- Use your API to draw attention to your main services.
- Offer an API on behalf of an existing non-API service.
Strategy 1: Provide your main services through your API
Offering your main services through API has been the first and most popular usage of monetizing APIs. For example, SaaS platforms provide necessary app functionality to app developers for a small fee.
This is the strategy used by services such as SendGrid for sending emails, and Twilio SMS for sending texts. It works best if your service only makes sense as a feature within the context of another product.
Strategy 2: Use your API to draw users to your site
Sometimes your primary service is offered only in your app or on your website. In this case, an API can draw attention to your site. This strategy helps a lot if your main product is monetized in another way.
For example, the Imgur API allows app developers to embed images into their apps. This can draw their users to the Imgur website, which relies on ads for their business model.
Strategy 3: Offer an API for a non-API service
Sometimes a service doesn’t have its own native APIs. This is usually the case when the product is offered in its own app or website, such as a web store. A third party could offer an API for this website on their behalf, assuming they adhere to the terms of service of the first party website.
For example, a website may offer a listing of its products only on the website itself. Then, an independent app developer might want to show a portion of the website’s product listing. This developer would need to have an API that can access the website’s product listing.
How to monetize API endpoints
When you offer your API through RapidAPI, you have a lot of flexibility. The following steps show you how to break up your paid offerings into tiers:
- For each tier, you can enable features and objects.
- You can group Endpoints into Features and Objects.
- Each tier can either be a monthly subscription, or pay-per-use.
- Tiers can be rate-limited, either per second, minute, or hour.
How to divide Tiers
One method is to split up all four tiers into groups of progressively enabled functionality. As the user pays more for a higher tier, they gradually get access to more of your API’s functionality.
Another good way to divide tiers is to offer full functionality with all of them, but offer higher quotas for higher tiers. This way, all API users get the full functionality of your offering, but they have to pay more based on how much they need to use your API. It might be divided up like this:
- Basic tier: free, but with a hard limit in place.
- PRO tier: around $25 for a much higher limit.
- ULTRA tier: perhaps $75 for an even higher limit.
- MEGA tier: could have unlimited API requests.
How to decide between Objects or Features
Different endpoints might represent actual data items, objects, or resources. For example, you might have endpoints that manage a remote file resource. One endpoint would create the file, one would update it, one could get the current file contents and metadata, and another could delete it.
These make sense to enable as an Object of a tier. Simply create a new Object, add all these endpoints to that Object, and add that Object to the tier.
But some endpoints represent related purposes, although they don’t deal with a common data object. For instance, you may have some endpoints for enabling a new product promotion, which fire off SMS messages, send emails, and create a banner to be added to your website.
These make sense to enable as a Feature of a tier. Just like with creating Objects, you can create a Feature, add endpoints, and add this Feature to different Tiers.
How to decide between Subscriptions or Pay-per-use
Monthly subscriptions work really well when the cost of providing a service through an API doesn’t vary with usage. For example, if your API just has to access a database, and you pay a fixed monthly fee for hosting your database server, then you would choose the Subscription option.
On the other hand, some APIs are backed by services which charge a varying rate, based on how much you use their service or data. For instance, if you send an SMS message for every API call, the SMS carrier you use may charge per SMS message. In this case, you would choose the Pay-per-use option for your Endpoint.
Rate limiting your API
It is very rare that an API be offered in an unlimited capacity. Usually, APIs are powered by services which themselves have their own limits. In this case, it’s important to come up with reasonable quotas for each tier. This helps your company’s API management team to balance incoming revenue and outgoing costs. It also helps developers using your API, by setting clear expectations to them about your API’s usage.
Here’s a good strategy for choosing your quotas, based on the laws of supply and demand:
- Look at competing APIs to see what they’re charging and what their quotas are. Take note of how this compares to your prices, and figure out what your equivalent quota would be after price conversion.
- Figure out what your typical API consumer has available in their budget, based on the size of their budget and how fundamental your API is to their business.
- Choose a quota that you think you can reasonably offer to your consumers for the given price of your tier while making sure that it doesn’t push your own internal API hosting costs overboard.
For the final tier, it’s a good idea to offer unlimited service. This gives enterprise users more confidence in choosing your API. At the same time, be available to help with downtime issues, to give them even more confidence in your ability to be a long-term partner with their own business needs. And finally, make sure to choose a price point for this tier which allows you to offer this support.
There’s no right or wrong way to jump into API monetization. The key to success is to figure out what works and what doesn’t work. By using RapidAPI to host your API, you will have a lot of power and flexibility for how to divide up your APIs into different tiers. You can choose monthly subscriptions or pay-per-use models, depending on what fits your business. In short, you have all the tools at your disposal needed to monetize your API effectively and competitively.