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.