Making Money in the New API Economy: A Primer for Enterprises

Even if you consider your company to be “traditional” if your company is not becoming “digital” your future may not be as secure as you think. Even the most industrial companies are embedding digital features into their products (for example smart industrial equipment leveraging the Internet of Things phenomenon…)

If you are a technology company, it is more than likely you are already using APIs for your solutions, consuming information and services from partner platforms, and you may also be looking into the monetization of APIs you provide to other companies who can benefit from the information and intelligence your products and services create.

One of the most obvious vertical industries benefitting from the growing API economy – and contributing to that growth – is telecom. The chart below, from MindCommerce, shows the dramatic growth of Telco API revenue:

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24% of web apps and 15% of mobile apps are using APIs this year. That grows to 80% over the next two years, according to Mind Commerce.

So how can other industry verticals, for example financial services and the hot “fintech” market benefit from this brave new market going forward?

The success of an API strategy can be measured by how well it moves a company’s business initiatives forward, including offering its unique data to other enterprises which is not that much different from the market data economy that grew dramatically in the traded markets as trading went electronic.

Financial services companies can generate revenue (“market data” model) and reach (by extending their branded information to a much larger audience than they currently reach).

Here are some basic API Economy models:

Freemium: the “Trojan Horse” approach creates a way into the API world by offering basic or limited data to developers, betting on the come, that they will build applications around the data and want more and then pay for more. Freemium creates useful exposure for your APIs but in order to succeed companies must offer full support and maintain an aggressive marketing model.

Subscription: charge directly for an API to get started, then charge for API calls into the real time data you are generating. Companies can go straight to the subscription model, skipping the Freemium marketing path, but in order to succeed the data, functionality or features must be proprietary and powerful, credible and world-class.

Premium: companies like Salesforce and IBM (Bluemix) are succeeding at this by upselling to premium packages. In short, these premium API services enable other enterprises to white label the data or services, to customize experiences for their end-users, and otherwise increase the value of their current offerings.

Platforms like the Kandy communications Platform as a Service (cPaaS), for example, are successfully offering white label full real time communications services that can be embedded into applications (web and mobile), enabling instant collaboration within workflow. Their APIs make it possible for enterprises to enrich their digital offerings by connecting people without having those people have to jump out of the application to dial a phone number or join a separate web conference.

There are more mature and sophisticated models you may not realize are being driven by APIs. PayPal is a great example of this. They’ve succeeded by becoming the easiest secure way to pay for things with a single click. They make money on transactions, not their API per se, but without the API they could have built or continue to build their presence by making it easier for people to use PayPal than traditional credit cards and other payment means.

A few suggestions to those enterprises considering how to build their digital businesses and revenue using APIs:

  1. Think deeply about how the investment of time and money into API capabilities will enhance the economics of your business even as the API Economy continues to grow
  2. Don’t even think about Freemium if you don’t have the “Freemium 2 Premium” strategy worked out, unless you aim to be a non-profit!
  3. Research what your competition is doing and identify an expert in pricing to help ensure your offer is competitive and scalable
  4. Work with the best partners you can find and afford
  5. Engage the smartest people across many business units – including product development and marketing, finance, legal, and of course “IT” – to initiate and implement API offerings rooted in reality, but with a vision for competitive excellence and long-term profitability

We’ve been working in Enterprise APIs for many years and would love to share our experience with you.

Andy