What Is API Monetization?

In the present cloud-based ecosystem, APIs have become extremely popular as a way to integrate or connect different applications or systems. 

Valued at $4.5 billion in 2022, the API management market is expected to triple in size between 2022 and 2027 – all while growing at a CAGR of 25.1%.

In the payments domain, the significance of APIs is immense. In fact, applications like embedded finance could not have existed without APIs. But the question is – can APIs drive revenue generation for businesses? 

Yes, through API monetization. With the “API-as-a-product” approach, companies can now unlock monetization opportunities by offering their APIs as a product or service. Some of these products include third-party payment gateways, security tools, and data-sharing tools.

 

What Exactly Is API monetization?

Simply put, API monetization is the process by which enterprises can earn revenue from their APIs – either directly or indirectly. Typically, through API monetization, companies can earn by charging fees at every API endpoint.

In traditional revenue models, businesses earn by offering their products or services directly to the customers. But in the purview of API monetization, businesses charge for direct API access to other application development companies. Through API access, these development companies access third-party data (for example, customer data) or perform actions like:

• Completing online payments
• Performing data analytics
• Authenticating payment transactions

Adding to these capabilities, AI-powered APIs can support business functions like face recognition, spam filtering, and location detection. As the scope and functionality of APIs grow, API monetization would help enterprises drive more innovative API development for more earning opportunities.

 

Importance of API Monetization

At their core, APIs are all about “not reinventing the wheel.” In other words, use an existing solution – and not build it again. Google’s “State of API Economy” report found that we are seeing explosive growth in the adoption of APIs across industries. In the wake of the 2020 pandemic, API use increased by 400% in the healthcare industry and 125% in the financial services industry.

API monetization enables enterprises to diversify their income streams. In a 2023 Postman survey, two-thirds of the respondents said their organizations earned revenue from APIs. 43% of the respondents said APIs generated nearly 25% of their company’s revenue. 

By offering their APIs to third-party developers and partners, enterprises can build a larger customer base without any additional time or financial constraints. Customers can improve their productivity and operational efficiency by depending on third-party APIs. They can also expedite their product development and improve workflows using little effort. 

APIs are also integral to the digital transformation initiatives. To leverage the benefits of API monetization, companies offering APIs must answer the following two questions:

• How do our APIs deliver business value to third-party developers in their industry?
• Which industries are using APIs at the highest rate?

The three main components of any API monetization strategy must be the business use case, the value to the third-party developer, and the value delivered to the end-user.

 

Types of API Monetization Models

To implement a successful monetization strategy, organizations must choose the right API monetization model. They can select the right model based on the customer’s value metrics and use case. 

Here are the different types of available API monetization models:

1. Pay-Per-Use Model

This is the most common and straightforward strategy where customers pay for each API call. You can also extend this model to data usage. That said, this model is best suited for established API providers or vendors.

2. Subscription Model

With this model, customers pay a fixed subscription fee for accessing any number of APIs. This model is suited for APIs with extended functionalities. However, it could prove costly owing to the involvement of large volumes of data.

3. Freemium Model

In the freemium model, customers have free access to basic APIs – or up to a selected threshold. Once they cross the threshold, they are automatically switched to the pay-per-use model. This model is popular among customers adopting the “free trial” API.

4. Pay-Per-Transaction Model

In this model, customers pay for each transaction, which can involve one (or more) APIs. Like the pay-per-use model, this strategy is effective for well-established API developers. 

5. Revenue-Sharing Model

In this model, the API provider and third-party developer share the earned revenue from the API. This strategy is feasible when the API providers benefit every time end-users use the API.

 

How To Implement API Monetization

With the right API monetization model in place, organizations can go about laying out a concrete API monetization strategy. This strategy can be inspired from the following three practices:

Offer API-Based Services to Customers

To monetize their APIs, organizations must start offering their customers services through APIs. This strategy is useful only when the functional API can work as a feature within another product. Payment processing is a good use case here.

Use APIs to Attract Customers to Your Website.

This strategy works if the primary API service works only on the provider’s website or app. In this case, the API must attract customers to their website or app. For example, image-based APIs can embed images into third-party applications.

Use an API for Non-API Service

This strategy is useful when the service does not have native APIs. In this case, the third-party developer can add the API to access the provider’s website or app (assuming they comply with all the terms of service). An example would be an API to display a product listing on the website.

Today, API providers must consider monetizing their offered APIs to pave the way for an additional revenue stream. At Verinite, we are constantly enabling our banking and fintech customers to leverage the power of APIs. Get in touch now for more information.