In today’s business environment, with customer expectations changing at an unprecedented rate, more organizations are using APIs to expand their digital ecosystems to reach new customers. Although APIs are ubiquitous, capturing the value of an API in a business model and monetizing those APIs is not an easy task.
The most difficult part about monetization is identifying the value an API provides and getting an accurate sizing of its target audience as this requires new infrastructure, stakeholder support and strategy, and much more. In this blog post, we will share a three-step framework to help you — the API provider — define a strategy and establish the infrastructure required to monetize your first API.
APIs are value drivers, not revenue machines
As organizations take the plunge into monetization, they often mistakenly view APIs as a channel to generate direct revenue. Rather than capturing revenues from your APIs right away, start by defining your API business model to effectively capture and measure the economic value from an API. Defining your organization’s API business model can help your organization identify the right methodology to bring together important technical and business metrics. The right business model will also establish a framework that aligns to your overall digital strategy and paves the way for a sustainable API ecosystem.
Before you monetize your APIs
Instead of a myopic focus on an API, you should approach API monetization with a holistic view of how the API fits into your ecosystem. Identifying what value a specific API provides to its ecosystem is certainly art mixed with science that requires infrastructure and stakeholder support. Prior to implementing monetization, ensure your organization can clearly articulate:
- The intended audience for your API.
- The desired purpose and the expected benefits of an API.
- Choose an API business model — based on the two factors listed above.
To identify the role of a business model in an ecosystem, refer to the seven-step methodology for cultivating an API ecosystem.
How to monetize your APIs
Based on the business model and associated framework your organization is using, you can use this three-step methodology to build a monetization strategy:
#1 Drive adoption and access to API products
Driving adoption is a key component of any successful API investment. Many organizations fail at monetization as they fail to establish an active API-driven revenue channel. Driving adoption is a key component of any successful API investment. Sustaining a business model in an API ecosystem requires a robust developer portal acting as a communication nexus for all personas served.
Anypoint Platform customers can use API Community Manager (powered by Exchange) to create personalized developer portals to engage partners and developers in CRM-powered branded experiences. The developer portals are the battleground to test and implement your business models with internal and external customers.
#2 Define monetization parameters
API monetization captures how an API improves the businesses bottom line. Based on the chosen business model, organizations should define objective parameters to correlate the investment in an API and the value generated by the API. Direct monetization models involve fine-tuning thresholds and tiers, whereas indirect monetization models rely on defining measurable goals and KPIs.
#3 Build key components of monetization
Start by collecting and aggregating the usage data in Anypoint Platform in a format that maps directly to your business model. For example, in a direct monetization model you can capture the total number of orders placed through a given channel using built-in or custom metrics. Define SLA tiers to manage the different levels of paying customers. Integrate this information with a billing/chargeback system your enterprise uses to charge your customer.
Organizations also need an infrastructure to price, meter, and bill their API products dynamically. MuleSoft is partnering with HyperCurrent — a platform based on an immutable distributed ledger technology (DLT) — to provide the foundation to track, review, invoice, and chargeback for services delivered to internal and external customers globally.
The platform also offers chargebacks, dynamic pricing, along with invoicing, rebates, and analytics allowing customers to establish a comprehensive monetization engine. The solution comes with flexible administration controls, and developer dashboards for simplified management, billing, rebating, and invoicing. The platform also offers service level agreements (SLAs), “Wallets” for easy funding methods, rebates, and credits to provide a complete monetization solution.
Today, MuleSoft customers can meter and charge back for API utilization using fixed tiers and rate limiting on Anypoint Platform. To set API pricing on these MuleSoft APIs, organizations need to understand who the consumer is, the type of data exchanged, as well as the business value of the transaction.
HyperCurrent provides a domain-specific language (DSL) allowing businesses to easily define API pricing rules that are dynamically evaluated, enabling variable pricing scenarios. For example, MuleSoft customers can easily disperse organizations API value based on geographic region, fluctuating exchange rate, and different compute costs. Finally, the solution enables MuleSoft customers to use immutable digital ledger technology that handles all aspects of invoicing for API utilization, SLA based rebates, and integration with IT financial systems-of-record such as Salesforce.
Ensure a value quid pro quo
Whether an organization decides to directly monetize an API or offer it for free, there is always a value exchange in the form of data between the API provider and consumer. In an attempt to maximize the short-term value, providers often rush to monetize the APIs without evaluating the actual value provided to the consumer. Especially in the scenarios where APIs are used to collect and share personal data, the value of information captured might sometimes be greater than the value provided to the consumer.
Organizations must critically evaluate their API business models, not just on data exchange, but also on long-term ramifications like privileges, transparency, and engagement. With this context, it’s imperative you ensure a balanced quid pro quo in value exchange to establish a sustainable business model.
Summary
An API business model is a set of pragmatically laid out assumptions about how your business will create value. API business models should be used to quantify the value in potential savings or earnings in API products and guide your future investments.
If you want to dive deeper into the different API business models and how to get the most value from your APIs, read our How to choose the right API business model whitepaper. To learn more about API monetization with HyperCurrent, visit their website.
