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Top 5 ways to API monetization aka pricing strategy

Top 5 ways to API monetization aka pricing strategy

In today's market, APIs are designed to drive business models. APIs are mostly consumed by app developers. These app developers can be internal API consumers or external API consumers.

In the last post, essential tips for building cloud API management strategy, we discussed how organizations can build sound API management strategy.

Once APIs are ready it is important to monetize those APIs. But to monetize the APIs, there has to be a mechanism to monitor API consumption. 
Monitoring infers to three states of APIs,
1. Who has access to APIs?
2. How APIs are accessed?
3. How many APIs are accessed?
3. What are the limits to a number of API calls?

It is not always the case that enterprises bill internal API consumption. But monitoring must be in place to understand API consumption and how they are aligning to business results. In order to generate revenue or measure return on investment of digital transformation, different monetization models can be implemented.

Below are the few well thought out API monetization models,

1. Volume-based

In this model, app developers will be charged based on pre-defined set of the volume of APIs. Google Maps follows a volume based model where they charge developers from free toward the premium model. In other words, it's freemium model.

2. Based on digital assets

In this model, app developers are not charged for API. In fact, API is a feature that helps app developers utilize underlying assets. Amazon Web Services uses this model where they charge for backend digital assets such as compute, storage, networking, DNS etc.

3. Revenue sharing

This is a classic Paypal model, where a certain percentage of the transaction is retained as a revenue. Other possible variants include a curated partnership with other consumers such as giving access to Hotel catalog etc. They could charge upfront fees for such services. Some may offer them as free.

4. Free Access

This model is generally used to promote underlying digital services or promote a platform. The good example of this model is Facebook Like, Google plus and twitter buttons. One can fix these buttons anywhere inside newsletters, blogs or even inside mobile apps. This helps them build their audience for their respective platforms.

5. Mixing of models

In possible other mechanisms, vendors can mix and match all of the above revenue generating models for their APIs.
 
Again, all these models will work only if these are these are aligned with business objectives. 

We summarized API monetization models above. If there are any missing API monetization models then tell us (and everyone else) in comments below.

By Mandar

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