API Monetization Strategies for Success

More software developers consider APIs products and build them into their revenue growth strategies.

application-programming-interface-API-monetization

Postman’s 2023 State of the API Report included research on a new topic this year. For the first time, Postman asked, “Do you view application programming interfaces (APIs) as products?” Nearly 60 percent of the 40,000 developers and API professionals participating in the study said yes, with most of them working in larger organizations or financial services. Furthermore, 65 percent said APIs generate revenue, and 43 percent said that API monetization generates more than one-fourth of their business’s total revenue, again, with larger companies cashing in more than smaller organizations.

What the API Does Makes a Difference

APIs have a wide range of uses and, therefore, various opportunities to monetize. A common example is a bank’s API communicating with a payment gateway when a consumer books a hotel room or purchases airline tickets online. API users pay a fee.

However, other APIs provide developers with integration tools, supply data to chatbots and generative AI, allow users to log into an online service with credentials from another account (i.e., “log in with your Google account”), or enable consumers to access updated product information on an e-commerce website. Because APIs vary in type and use, one API monetization model is unlikely to work for every business. But there is probably at least one option that will help you build a new revenue stream with the API you develop.

API Monetization Models

You have several options for API monetization. The first is simply to charge users for the requests they make, using a pay-as-you-go model. This option is most attractive to users that don’t use the API routinely or may go for a period without using it at all.

On the other hand, frequent users may incur high costs with a pay-per-use model. They will likely prefer a subscription, possibly with a choice of tiers that allow them to choose the usage level that best suits their needs and pay a predictable monthly fee. However, unlimited-use subscriptions may not be the best option. A spike in use could result in more costs for you.

The subscription model may also include a freemium tier to introduce users to the service or to allow users with minimal requirements to use your API free of charge. This option can be a part of an effective plan to transition users to paid subscriptions.

Partnerships Create Additional API Monetization Opportunities 

Companies can also work together to generate API revenue. For example, a company’s website could include a vendor’s API. The API developer and the company could share the ad revenue from the vendor. Another option is to charge the end-user for ad-free content, bringing in added subscription revenues.

In both cases, an API can provide the basis for new partnerships and extend market reach, which can increase revenues even more.

Cost-Saving APIs

You can also leverage your APIs to improve internal operations. Examples of these APIs include tools that enable:

  • Streamlining software development
  • Accessing company or customer data
  • Automating systems
  • Sharing data asynchronously across lines of business
  • Efficiently managing the hiring processes

Although these aren’t revenue-generating use cases, they can help employees do their jobs better, increase productivity, and enhance product quality, all of which can help control costs and improve customer satisfaction, leading to a better bottom line.

How Much Money Is Your API Bringing In?

As with any product, there’s more to monetizing an API than simply creating one. You need to research your market for the need for the API and develop it so that it will provide the most value to users. Market research, including user feedback, can help you make investments that will pay off.  Then, once you’ve developed your API, you need to promote it, for example, through an API marketplace or directly to users if you have a well-defined niche audience.

As the Postman report shows, many businesses that once thought of APIs as tools now view them as moneymakers. However, about 40 percent of developers and API professionals responded to the survey that they don’t consider APIs as products or they aren’t sure. If you fall into the latter category, consider evaluating your business practices to determine if you are overlooking the opportunity to monetize APIs.

Mike Monocello

The former owner of a software development company and having more than a decade of experience writing for B2B IT solution providers, Mike is co-founder of DevPro Journal.


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Mike Monocello

The former owner of a software development company and having more than a decade of experience writing for B2B IT solution providers, Mike is co-founder of DevPro Journal.