Common misconceptions about API monetization

APIs have well-established themselves as the standard way of creating value out of data and “API Economy” has become the buzzword for generating cash out of APIs. In order to take advantage of this trend and generate the most value out of API programs, you might be looking for effective ways to open your organization’s data for business. API monetization is the first strategy that comes to mind to boost API revenues encouraged by the success of some prominent examples such as Google Maps and Twilio APIs.

Monetization is more of an art than science and there are no direct guidelines that are applicable to all organizations. But there are some common misconceptions that you should be aware of which can help you avoid wasting valuable resources while developing your monetization strategy.

Misconception 1. Direct monetization is the only way to generate revenue from your APIs

When organizations think of monetizing their APIs, they rush to the conclusion that sharing those APIs and charging for access is the only way to generate value out of them and they will be lucrative. However, most of the time, the value of an API is the data or the products it exposes. By making this information available to your customers or your partners through APIs, you are enabling new value chains, new ways of selling your products, or new value-added products all together.

My colleague Mathias Biehl wrote a great article on the ways that you can indirectly monetize APIs. I won’t repeat those here; I suggest you check it out.

Misconception 2. Your APIs are your products

There are some APIs that offer crucial functionality that other applications cannot function without. Maps or payment APIs are examples of that. But in the majority of the cases, APIs are not your products, but a channel to get to your product. They offer the means to expose your products, their functionality, their value. Only by making this information easily available, you can sell more of your product and increase your revenue. This means that in order to generate revenue from direct or indirect monetization, you should work on making sure that your products bring value to your customers.

Misconception 3. Build it and they will come

Let’s assume you have great products and great APIs that you are sure will be a monetization success. You share them in your developer portal, but you don’t get the traction you expected. The reason might be that your developer portal doesn’t deliver a good Developer Experience (DevEx) to attract developers. In order to have developers to find your APIs, let along start using them, you should create an appealing portal enhanced with good documentation and ways to try your API before buying into it. You can check out my previous post to see ways to attract developers to your API portal.

Misconception 4. API monetization is a one-time exercise

Creating your monetization scheme will probably take months of analysis and strategizing, but releasing it is unfortunately only the beginning. Devising your strategy is not a one-time exercise; you must keep looking at its performance and usage metrics, and fine tune your value chain which includes the backend application and other backend applications that might supplement your API to revise your strategy. As I said in the beginning, monetization is an art, and you must keep practicing it to make it perfect.

Misconception 5. Your APIs are inherently valuable

You have invested a significant amount of time and money to create your API program and have created excellent APIs that enable access to your data. These APIs have proven to be internal successes and you want to open them up for external use and monetization. One thing that you should keep in mind is the fact that just because your APIs are internally valuable doesn’t mean that they will be valuable for external entities. They will use APIs that will grow their business. Therefore, if you want to monetize your APIs (whether directly or indirectly) you should take an “outside-in” look at your APIs and make sure that they are valuable for your target customers.

Misconception 6. You can only make money through API monetization

It’s good to remember that monetization is a two-way street: one party charges for APIs while the other party pays for them, and you can be on either side of this transaction. It’s good to keep an eye out for the APIs your organization is using in order to avoid an unexpected big bill for those APIs that are monetized. Software AG VP of Product Management for API Management Przemek Kulik’s blog post is a great read about this concept referred to as reverse monetization and the need to manage 3rd party APIs.

Monetization is a very appealing concept for all API programs, after all, isn’t generating revenue the goal of every business? What I want you to take away from this post is that monetization is a complex concept that you should be looking at from different angles. Don’t be hung up on your previous conceptions on how APIs can be monetized. Always take an outside-in look at your program and think about what your target API customers would or do find valuable, continuously analyze your API usage, and adapt your program accordingly.