There are a number of common business models for API exposure. Which model is appropriate for a given API depends on the goals of the API provider which may include
monetization, brand awareness etc. These models include but are not limited to free APIs, developer pays, developer gets paid and indirect:
Available for consumption at no charge such as the APIs for popular social networks. Free APIs can drive adoption of APIs and brand loyalty as well as allowing the API provider to enter new channels. Examples of free APIs are limited. While there is usually no direct business benefit gained from exposing free APIs the majority of examples do have an indirect business benefit (see below).
This business does not include direct monetary exchange, however the API providers benefit significantly from exposing these types of API by generating revenue in other ways. For example a media streaming company could expose an API to make it easier for many consumer devices to easily support them and thus help increase the number of subscribers. An online auction company could offer an API to give developers access to trading services thus extending the reach of listings and thus helping drive revenue.
In most cases, developers pay for usage in order to drive their own business ventures, analogous to being a cost of doing business. There are also significant sub-categories
within this business model:
- Pay as you go: Pricing is determined by metered usage. For example a cloud computing platform’s usage price could be determined by the operating system platform and size of platform on an hourly basis.
- Tiered: Developers sign up to and pay for a particular usage tier based on the number API calls over a fixed time period. While the cost increases per tier the cost per API call usually drops. Vertical Resources uses the tiered business model. Prices drop with consuming more volume (API calls), so after analyzing usage over a time frame, users can adjust their tier. This works similar to how cell phone voice plans have worked for the past ten years, where levels of phone calls determine the per call charge.
- Usage based: Pricing is determined by consuming units of measure, such as API calls. For example a cloud storage company could charge per gigabyte of usage per month.
- Transaction fee: Pricing is dependent upon the value of the transaction. For example an electronic money transfer company could charge a percentage of the transaction as their fee for providing payment services.
- Freemium: In this model companies offer developers some of their APIs capabilities for free and then charge for additional functionality. For example, a web mapping service could allow a low number of calls to be made to the API for free and then any additional calls to the API are charged.
Developer gets paid:
In this model the developer receives payments for extending the business model of others. There are two major categories for this model:
- Revenue sharing: Developers receive small percentage of total revenue based on a business agreement with the provider. For example, a mobile application store could charge developers a yearly subscription while the developer receives a percentage of sales revenue for their applications.
- Affiliate: Developers receive scaling revenue (either percentage based, fixed price or tiered scale) based on extending partner platforms. For example, a shopping price comparison service could pay developers a small portion of revenue based on the volume of revenue their API generates.
To learn more please read the Redbook here.