How to Create a Business Model Around an API
APIs aren't just hobbyist projects anymore. They are increasingly at the heart of some significant business models. And, if you're a solopreneur developer, you may be thinking about how to monetize your API.
However, there are various API business models and monetization methods, meaning creating an API business is not crystal clear. Also, API-based products require a unique value proposition that solves a common need. Not to mention, an unparalleled developer experience.
Below, we'll cover some tips for creating your first API-driven business. We'll consider how to monetize your API and the API management tools you'll need, and look into some API-as-a-product companies to see how they're generating revenue.
Choose The Right API Business Type#
The first thing to note is that not all APIs are public software-as-a-service (SaaS). In fact, 61% of them are private APIs, found the 2023 State of the API Report.
Internal API-first strategies can benefit the business, making software more reusable and consistent. There is also the potential for utilizing APIs to enable partner ecosystems. For instance, if your API involves reselling products, a revenue share model might make more sense than a model where the customer pays.
One whitepaper from ProgrammableWeb lists over 20 different API business models. Your path to revenue generation might look different depending on your use case. So, consider your options before diving headfirst into monetization.
Create Unique Value With Zero Friction#
If you are shooting to build an API as a product, it's a good idea to specialize in a niche that represents a common need for which developers do not want to reinvent the wheel to create. And, the service must be friction-free.
What does your API do? Whether it's international payment automation, natural language processing, airline data aggregation, PDF generation, or something else, hone in on the functionality and design a fluid onboarding process so developers can reach "Hello World" in minutes.
Design The Appropriate API Monetization Model#
Productizing an API will involve crafting a suitable direct monetization model. The thing is, there are various types of API pricing strategies to deploy. And your model will likely combine multiple methods.
One popular method is usage-based pricing, also called "pay-as-you-go." For example, Anvil, a paperwork automation API, provides PDF filling at a per-call flat rate of $0.10 per completion.
Another standard method is to utilize subscription-based tiered pricing models. Get developers hooked on a freemium tier, then upsell them to plans with higher limits, bulk discounts, and add-on features. For instance, Nylas, a platform of communication APIs, offers a free tier with additional plans it calls Entry, Core, and Plus.
Some API calls are more processing-intensive, and you might want to weigh them differently than others. For instance, OpenAI gauges the cost of requests to its AI models using tokens and bills you for your monthly usage.
Use A Gateway To Meter API Requests#
Not only can an API gateway help enforce rate limiting, authentication, and authorization policies, but it can also be used to meter requests on a per API key basis.
An API monetization platform can significantly help automate operational aspects like API usage metering, and billing. Some API gateway consoles with monetization capabilities include Amazon API Gateway, Zuplo, Moesif, and others.
Final Tip: Make It Self-Service#
API reliance is increasing. With the advent of more generative AI, API use (and monetization) is only anticipated to grow. And Silicon Valley is taking notice. For instance, the 60+ startups on the API-First Index have collectively raised over $22 billion in funding.
Above, we've covered some ideas on building an API company and looked into types of API monetization models to help you generate revenue from your services. But keep in mind that an API business is not a "set it and forget it" enterprise — it's more than just wrapping an endpoint with an API monetization platform.
Reaching API unicorn status requires continual maintenance, listening to developer needs, and optimizing self-serviceability. And let's not forget, a killer service at the core.
