In today’s business environment, with customer expectations changing at an unprecedented rate, more and more organizations are expanding their digital ecosystems to extend their reach to new customers and create more connected customer experiences.
Leading organizations are reshaping markets with their expanding ecosystem footprints. They are doing this by leveraging their platforms built on the foundation of API-led connectivity. APIs are the critical bridge in connecting an organization’s core competencies to new channels to better engage with customers.
While 80% of organizations are adopting APIs, only 12% have a leadership-mandated API strategy in place. Without a formal strategy, you are choosing to limit the value of your APIs — relegating them to a tool that can simplify project implementations. However, if your organization is looking to use APIs beyond that — to forge new partnerships, monetize assets, and open new innovation avenues — you must establish a formal API strategy, embrace core ecosystem principles, and choose the right API business model.
Whether you are new to the API economy or you already have an established API strategy, having a pragmatic approach to choosing an API business model will help improve your share in the API economy.
Choosing the right API business model
Though APIs are ubiquitous, constructing a sustainable API business model is an ever-evolving process that requires nuanced approaches. In partnership with ProgrammableWeb, we have developed deep experience in API business models by working with thousands of organizations at varying stages of API maturity. Rather than providing you with an exhaustive list of models to choose from, we have created this guide that will enable you to select the right business model and get the most value from your APIs. The steps are: identifying the intended audience of an API, defining your desired purpose and the expected benefits of the API, and choosing a suitable business model. We will also talk about what to do after you’ve selected a business model to ensure the continued success of your APIs.
Step 1: Identifying your intended audience
API ecosystems are organized with the goal of “win-win-win” in value creation for all stakeholders involved. The first step to choosing the right API business model is to identify the three fundamental constituents of the API value chain:
- API provider: Stakeholder building an API product to expose a digital asset.
- API consumer: Partner, internal, or external stakeholder consuming the API to create new experiences for the end customer.
- End customer: End-user benefiting from the use of API in the provided experience.
Step 2: Defining your desired purpose and expected benefits
The second step is to define the “why” behind the API. This is done by defining the intended purpose and expected benefits. Note that not all APIs are designed to drive direct value.
Step 3: Choosing the suitable API business model
With your audience identified, the purpose and expected benefits of your API defined, you are now ready to take that information and choose the right business model.
Business models for internal audiences
Organizations in every industry are turning more to APIs to transform their tech backbone to be able to support next-generation technologies. APIs streamline operations by establishing connectivity between existing business capabilities and new innovations. In cases where APIs are used for internal development, your investments should be valued-based on the magnitude of reduced operational expenditure, increased efficiency, or improved agility provided by modernizing monolithic architectures. To account for the value in internal investments, you should choose an API business model based on the purpose served by the internal APIs. Two examples are:
- Legacy modernization: Using APIs to refactor traditional bulky software infrastructure into more easily serviced components.
- Digital transformation: Improving the customer experience and evolving the underlying technology to increase the speed of delivery of these experiences to the market.
Business models for external audiences
Any API exposed to stakeholders outside of your organization should be considered as an external API. External APIs should not be misconstrued as only direct revenue channels — frequently, organizations expose APIs to comply with regulatory requirements or to market their brands. Before trying to monetize an API, as the provider, you should identify the consumer’s willingness to pay for the asset and the direct and indirect benefits to the organization. Based on the target audience and the expected benefits, external business models can be further classified into:
- Partnership: Closing the gap between your customers’ desired experiences and your capabilities by collaborating with partners.
- Standardization: Responding to market pressures, avoid regulatory fines, etc. by standardizing API initiatives.
- Productization: Creating API products as a doorway to monetize underlying data or capabilities.
- Marketing: Using an API to support marketing initiatives to help promote the core platform, grow a network, increase brand awareness, or honor commitments to transparency.
In the end, 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 choose the right one to help you get the most value from your APIs, read How to choose the right API business model.