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CloudThoughtLeadershipWhitePaperAPIMonetization–UnderstandingyourBusinessModelOptions2Contents2ExecutiveSummary3IntroductiontoAPIMonetization5APIMonetizationOptions5Free6DeveloperPays8DeveloperGetsPaid9Indirect10ClosingThoughtsandRecommendationsHighlightsAPIsaren'tnew,buttheirusesarerapidlydrivingnewopportu-nitiesforbusinesses,developersandcustomers.
DiveintohowavarietyofbusinessmodelscanbeimplementedtodriveAPImonetization.
ExecutivesummaryEnlightenedbusinessesarerecognizinganewchanneltomarketthroughAPIs.
Justastheinternetexpandedthereachofbusi-nessesthroughanewchannelthatallowedbusinessestoexpandbeyondtheirphysicallocation,APIsareallowingbusinessestoexpandbeyondtheirenterpriseboundariestodriverevenuethroughnewbusinessmodelspotentiallyusingotherenterprise'sresourcesasadditionalchannelstomarket.
TheAPIEconomyallowsaccesstobusinessassetsthroughasimpletouseAPI(ApplicationProgrammingInterface).
Technically,thisisaccomplishedbyexposingtheAPItoanaudience,securingit,andcontrollingtheconsumptionoftheasset.
Fromabusinessperspective,itenablesextendingthereachofourbusinesscapabilitiesthroughrapidconsumptionofourexistingbusinessassets.
AccesstotheassetsisprovidedviaAPIsenablingnewandinnovativeusageoftheassetstodriveadditionalrevenue.
ThisisreferredtoasAPIMonetization.
InthispaperwefocusonthebusinessmodelsforAPIMonetization.
Wedescribe4groupsofAPImodels:Free,DeveloperPays,DeveloperGetsPaidandIndirect,withmanysub-modelsdescribedforeach.
Foreachmodelweexplainthemodelandprovideexistingexamplesofcompaniesthatareexecutingthatmodel.
Thepaperalsoprovidesinitiativeguidance/considerationsandarecommendedprojectapproachtoimplementingAPIMonetizationinyourenterprise.
3APIMonetizationOptionsAPIsFreeDeveloperPaysPayasyougoDeveloperGetsPaidIndirectFreemiumTieredPointsBasedTransactionFeeRevenueShareAfliateReferralContentAcquisitionContentSyndicationInternal-ConsumerInternal-non-consumerB2B-CustomerB2B-PartnerBusinessExpansionFigure1.
APImonetizationmodelsandvariationsIntroductiontoAPIMonetizationSimply,APIMonetizationisusingAPIstomakemoney.
Tosome,thismeansthatAPIusageispricedsothatthereisadirectcorrespondencebetweentheuseofanAPIandsomeonepayingforthatuse.
Thiscertainlyisamodethatfitsthedefini-tion.
However,itisnottheonlyone.
Insomebusinessmodels(e.
g.
Insuranceagents,Autosales)anagentisusedtosellyourproductandtheagentispaidtodothis.
APIscanalsobeusedinthismannerandpayingsomeonetousetheAPItoselltheproductisanotherpatternthatusesAPIstomakemoney.
However,inthismodelinsteadofsomeonepayingyoufortheuseoftheAPI,youpaythemtouseit.
(SeeFigure1)Anotherbusinessmodelthatisoftenusedtodriverevenueisadvertising/marketing.
Inthismodelthereisnotadirectpay-ment,buttheadvertisingmaybringapotentialcustomertoyouwhereyoucanestablishabusinessrelationshipandfrequentinteractionsthatarefarmorevaluablethanasingleinteraction.
APIscanalsobeusedinthisindirectmonetizationmodel.
OurdiscussionofAPIMonetizationincludesbothDirectpaymentmodelsandIndirectmodelsthatdriverevenue.
4TheAPIEconomyvaluechainhasthreeparticipants:APIProvider—theAPIproviderchooseswhichbusinessassetstomakeavailableasanAPI,underwhattermsandconditions(theAPIMonetizationapproach),andisresponsiblefordrivingthesuccessoftheAPI.
APIConsumer(Developer)—theAPIConsumerisadevel-operwhousestheAPIunderthedesignatedtermsandconditionstosupplysomething(e.
g.
anApp)totheEndUser.
EndUser/Customer—theEnduserdoesnotdirectlyseetheAPI,butbenefitsfromitsuseintheAppthatisprovided.
IfAPImonetizationistobesuccessful,thenallthreepartiesmustbenefitfromtheuseoftheAPI.
AnexampleofapoorAPIMonetizationstrategymightbewheretheAPIProviderwouldliketochargefortheuseoftheAPI(theyobtainvalue),butthereisnoclearlydefinedneedonthepartoftheAPIConsumertopayforthisusage.
ApositiveexamplewouldbeanAPIthatperformsacustomercreditcheck,beingusedbyaBanktoinitiateamortgageforaCustomer.
Inthiscase,theAPIisvaluabletotheconsumer(thebank)andtheywouldbewillingtopaytouseit,whiletheenduserisalsoobtainingvalueastheyareabletoobtainamortgageloantopurchaseahouse.
InconsideringAPImonetization,thereareasetofquestionsthatshouldbeconsidered:IstheassetvaluableorisexposingtheassetacostofdoingbusinessWhoisitvaluableto—theAPIConsumerorEndUserDoyouown(orwanttoown)thecustomerrelationshipordoestheAPIConsumerowntherelationshipWillpricingtheassetcausetheAPIConsumertobereluctanttouseyourservicesandwillthisdecreaseyouraccesstocustomersIstheAPIConsumerworkingonyourbehalf(i.
e.
shouldyoupaythem)Isthereatieredstructurethatmakessensebasedonusage(e.
g.
lowerutilizationfreetoobtainmarketpresence)Answeringthesequestionscanhelpleadyoutotheappropriatemethodofmonetizationtobeused.
BusinessAssetsExposableservicesWebAPIsDevelopersAppsEndUsersProvideaccesstobusinessassetsUseAPIstocreateappsConnecttothebackendviaAPIsProvidenewvalueanddriverevenueAPIsappsAPIProviderAPIConsumerEndUser/CustomerFigure2.
TheAPIeconomyvaluechainFormonetizationtobesuccessful,valuemustbeobtainedbyallparticipantsintheAPIvaluechain(SeeFigure2):5Itispossiblethatallthreeparticipantsinthevaluechaincouldbeinthesamecompany.
Inthiscase,monetizationmightbeintheformofinternalchargebacksor"showbacks"toaccountfortheusage.
Perhapsonelineofbusinessusingassetsprovidedbyadifferentlineofbusinessinthesamecompany.
AnotherpossibilityisthatthedeveloperisinthesamecompanyaseithertheAPIProviderortheEnduser.
IfthedeveloperisinthesamecompanyastheAPIprovider,thenthisisaninternalconsumptionusecasewherethatdevelopermightbecreatinganApp(e.
g.
mobileapp)forthecompanywhichismadeavailabletocustomers(endusers)whomighttransactbusinesswiththecompany.
So,monetizationthroughtheAppisapossibility,buttherewillnotbeadirectchargetothedeveloperfortheAPIuse,sinceagainthisisinternal.
Ifthedeveloperisinthesamecompanyastheenduser(butnottheAPIprovider),thenthisisabusinesstobusiness(B2B)typescenariowhereonebusinessisaccessingresourcesfromanotherbusinessandpotentiallyusingitinsidetheircompanytoauto-matebusinessprocesses.
Anexampleofthismightbesupplychainautomation.
Again,monetizationispossibleinthissce-nariowithonecompanypayingfortheassetsenabledbytheAPIfromtheAPIProvider.
Itisalsopossiblethatallthreeparticipantsmightbeinseparatecompanies.
TheAPIMonetizationoptionsdescribedbelowcoverallthesescenarios.
IwouldliketoacknowledgeworkdonebyJohnMusser,FounderandCEOatAPIScienceonAPIMonetizationmodels(http://www.
slideshare.
net/jmusser/j-musser-apibizmodels2013).
ThispaperbuildsonhispriorworkAPIMonetizationOptionsTheAPIMonetizationOptionsaredividedinto4categories:Free,DeveloperPays,DeveloperGetsPaid,andIndirect.
FreeObviously,giventhetitleofthisoption,thereisnodirectexchangeofmoneyinthisscenario.
So,whyareyoumakingtheAPIavailableunderthisoptionPossiblereasonscouldbe:DrivesAdoptionofAPIsTypicallylowvaluedassetsDrivesbrandloyaltyEnternewchannelsWhilenomoneyisexchangedclearlytheremustbeabusinesspurpose.
Itcouldbeacostofdoingbusinesssuchassupplyingproductinformation,advertising,etc.
AnexampleofafreeAPIistheFacebooklogin.
FacebooksuppliesthisAPIandmanyothercompaniesusethistoidentifyendusers.
FacebookdoesnotreceivedirectrevenuefortheseAPIcalls,howeverthisisabenefittoFacebookasacompany.
Consumersmaychooseto6signupforFacebookfortheconvenienceofusingthislogonelsewhere.
Facebookcanalsounderstandusagepatternswhichcanprovideadditionalvalue.
DeveloperPaysIntheDeveloperPaysscenario,thebusinessassetbeingexposedthroughtheAPImustbeofvaluetotheDeveloper.
TheDevelopermayobtaindownstreamrevenuethroughitsuse.
AnexampleinthiscategoryisacreditcheckAPIwhichmightbeusedbydevelopersinmanybusinessestoensurethattheircustomeriscreditworthyforthescenariotheyarepursuing(e.
g.
carpurchase,realestatepurchase,personalorbusinessloans,etc.
).
TheDeveloperPaysscenariohasseveralsub-models:PayAsYouGo,Freemium,Tiered,PointsBased,andTransactionFee.
PayAsYouGo—thisisaverysimplemodel.
Developerpaysforwhathasbeenused—nominimums,notiers.
Itisusuallybilledperiodically(e.
g.
monthly).
ItmaybenecessarybasedonthescenariotoprovidesomecapabilityforthedevelopertotrytheAPIbeforebuying(perhapsinasandboxenvironment).
ExamplesofthisstyleofmonetizationareIBMSoftlayerorAmazonWebServices.
Freemium—Basicfeaturesarefree,withhighervaluefeaturespriced(withoneoftheotherpricingmodels).
Examplesinclude:CompeteandDropbox.
(SeeFigure3)Figure3.
Dropboxpricingisanexampleofafreemiummodel7Figure4.
ConstantContactisanexampleofatieredmodelTiered—Multipletieredoptionsprovidehigherlevelsofresourceaccess.
Adeveloperchoosesthetiertheybelievetheyneedandpaysforthatlevelofaccess.
Thisissimilartotheoldmobilephoneplanswhereyoupurchasedacertainnumberofminutespermonth.
TypicallytiersarebasedonthenumberofAPIcalls,butotherfactorscouldalsobeused.
ThelowesttierisoftenfreetoallowadevelopertotrytheAPI.
TheDeveloperisbilledfortheirselectedtierlevelwhethertheyusetheentireamountornot.
Usuallytierlimitsareenforcedtodrivepurchaseofahigherleveltierifadditionalaccessisrequired.
Itisalsopossibletoofferahigherfeeiftheselectedtierlevelisexceededbutthisincreasescomplexity.
Examplesinclude:VerticalResponse,andConstantContact.
(SeeFigure4)Operation:getCount:53adgroupsService:AdgroupAdServiceAPIrequestOperationscountedtowardsDailyLimit11102Operation:mutate(ADD)Count:2adgroupsService:AdgroupAdServiceOperation:mutate(ADD)Count:10campaignsService:MutateJobServiceOperation:getCount:100targetingideasService:TargetingIdeaServiceFigure5.
GoogleAdwordsisanexampleofapointsbasedmodelPointsBased—DifferentAPIfeaturesorAPIshavedifferentvalueandareassignedanumberofpoints.
Thedevelopereitherpre-buysanumberofpoints(liketiers)orisbilledbynumberofpointsused(likepayasyougo).
ExampleofthisstyleisGoogleAdwords.
(SeeFigure5)TransactionFee—AfixedorpercentageofatransactionispaidtotheAPIProvider.
Examplesinclude:StripeandPayPal.
8Figure6.
ExpediaisanexampleofarevenuesharemodelDeveloperGetsPaidIntheDeveloperGetsPaidscenarios,itisinyourbestinterestastheAPIProviderifsomeoneusestheAPI.
Thatis,thevalueistoyouifthisisused,soyouprovideamonetaryincentiveforadevelopertoleverageyourwebAPI.
Typicalscenariosincludeyousellinganassetthroughanagent,forexampleinsurancethroughaninsuranceagent,anautomobilethroughabroker,etc.
TheDeveloperGetsPaidscenarioalsohasseveralsub-models:RevenueShare,Affiliate,andReferral.
RevenueShare–Inthismodelthedeveloper(APIConsumer)isactingasanagenttohelpsellaproviderproduct/asset.
AfixedorpercentageofatransactionispaidtotheAPIConsumer(i.
e.
commission).
ExamplesinthismodelincludeCarcomparisonsales(e.
g.
Cars.
com)andTravelcomparisonsales(e.
g.
Expedia)asAPIconsumerswithcardealers,hotels,airlines,etc.
supplyingtheAPIstoaccesstheiravailableofferingoptionsviathischannel.
(SeeFigure6)Affiliate–Inthismodelapartnerincludesyourcontent/advertisementstodrivepotentialcustomertraffictoyou.
Thistypeofrelationshiphasseveralpossiblesub-models:impressions,clicks,engagement,oraction/acquisition.
So,basedonhowengagedtheenduserbecomeswithyouradvertisementdifferentpaymentscouldbemade(wasitjustplacedonthepageordidtheuserclickonit).
Examplesinclude:GoogleAdsense,Amazon.
com,HSN,andExpedia.
Referral–ReferralissimilartoAffiliatebutpaidonlywhenthecustomerpurchasestheitem.
Paymentscanbeone-timeorrecurring.
Examplesinclude:Insurancecompaniesandagents,streamingmusicservices,orjobplacement(e.
g.
Monster.
com)9IndirectIntheIndirectmodels,useofanAPIachievessomegoalthatdrivesthebusinessmodel.
Reasonsinclude:increasedawarenessofspecificcontentorofferings,internalusecasestospeedtimetomarket,regulatoryrequirements,customerretention,andothers.
ThereareseveralIndirectsub-models:ContentAcquisition,ContentSyndication,Internal—Consumer,Internal—Non-consumer,B2BCustomer,B2BPartner,andBusinessExpansion.
ContentAcquisition—APIsallowforcontentsubmissionby3rdpartieswhichattractscustomerstoyou.
TheIndirectrevenueopportunityisthroughadvertisingormonetizationofyourassets.
Examplesinclude:YouTube,EBay,andTwitter.
ContentSyndication—APIsallowthirdpartiestodistributeyourcontent.
Multiplefinancialmodelsmaysurroundthis.
Youmightcreateacontractbetweenparties—outsidetheAPIintegrationusingoneofthefollowingmodels:Subscription,Freemium,Marketing(free),andothers.
Examplesinclude:Yelp,NYTimes,HuffingtonPost,andTwitter.
Internal—Consumer—APIsareusedbyyouremployeestobuildcustomerfacingcapabilityforyourcompany.
TypicalscenariosincludecreatingMobileAppsandWebCommercesites.
Youmightalsousethistointegratetodevices(e.
g.
Cablebox,securitysystemforhome,intelligenthomecontrols).
Sincethisisinternalusage,typicallytherearenotdirectcharges.
Theremaybechargebackbillingoraccounting(showback)transactions.
ExamplesincludeTwitter,Netflix,Citibank,andmanyothers.
Note:astheseareinternal,linksarenotprovided.
Internal—Non-consumer—APIsareusedinternallytoassistinproductivity,timetomarket,meetingregulatoryrequire-ments,strategy/architecturerequirements,ormanagingdomains(cross-geographyorcross-LinesofBusiness).
Typicalscenariosincludeprovidingsimplifiedsecureaccesstosystemsofrecord,managingassetusagethroughsecureaccessandratelimits.
Monetizationmayincludechargebackbilling/account-ingforcross-LoBusage,orusagetrackingandaccountingforactualusageofinternalassets.
ThemostcommonusecaseisCross-LoBassetsharing.
Additionally,insomeindustriesthereareregulatoryrequirementstorestrictassetvisibilitywhichcanbeachievedinthismanneraswell.
B2BCustomer—APIsareusedbyyourcustomerstointegratetoyourenterprise.
CustomervalueisprovidedthroughtheuseoftheAPIsotheyareincentedtousetheAPI.
Foryou,thisfacilitatescustomerretention,sincetheyareprogram-maticallyconnectingtoyourenterprisecapabilities.
CustomersusingyourAPIsconsideringchangingtoalternateproviderscouldbecostlyasyoursystemsareintegrated.
TypicalscenariosincludeB2Bordering,commercialfinancialinteractions,checkinventory,shipmentstatus.
ExamplesincludeWalmart,CommercialBanks,andmanyothers.
B2BPartner—APIsareusedbyyourpartnerstointegratetoyourenterprise.
Thisisusedtoincreaseexistingpartnerrelationshipsorexpandtonewpartnersandgeographiesthroughrapidpartneron-boarding.
Themodelcanalsobeusedafteramerger/acquisition.
APIscanbeusedtoaccessSystemsofRecordfrombothcompaniesandprovideacommonUserinteractionlayeracrossthecompaniesquickly.
Deeperintegrationmayfollow,butthecustomerexperienceofthemerger/acquisitioncantakeplacefaster.
ExamplesincludeGovernmentagenciessharinginformationandRetail/Shippingpartnerships.
BusinessExpansion—APIsareusedto:expandintonewgeographiesornewdemographics,offernewproductsorupsellnewcapabilitiestoexistingclients,orpromoteaware-nessofbusinesscapabilitiestopotentialclients.
ExamplesincludeFacebookadsandYESBank(India).
10ClosingThoughtsandRecommendationsWe'vecoveredquiteafewmethodsormonetization.
So,isthatallthatthereistoconsiderNo,ofcoursenot.
Inadditiontothestyle(s)ofmonetization,thereareseveralotherissues/factorstobeaddressedorconsidered:On-boarding/set-upchargesAdditionalbillingfactors:payloadsize,value,responsecodesCredit/DebitInternationalCurrencyTaxesPCIComplianceInvoicing/BillingRefundsAuditAPIConsumerProfileManagementMonetizationisveryattractivetothebusinessandmanyAPIinitiativesarestartedorfundedbasedontheabilitytomonetizeassets.
Ifyouhaveavaluableassetandyouhaveworkedthroughthevaluechainandfoundthatallpartiesbenefitthenyoushoulddefinitelymonetizeit!
Butdon'tbepennywiseandpoundfool-ish.
IfyouwillearnmorethroughcustomeracquisitionthanchargingforanAPIcall,thenIndirectmonetizationisthebetteroption.
ConsiderbothdirectmonetizationstylesandindirectstylesinyourportfolioofAPIs.
NoteveryAPIshouldbepriced.
Bewarecomplexpricing—ifyouaredifficulttounderstand/dealwith,APIconsumerswillgoelsewhere.
Youshoulddefinitelystartsimple.
But,differentAPIsmayneeddifferentpricingorpricingmightvarybyaudience.
So,addvariationasneeded,butcarefully.
RememberdevelopersalwaysneedsomewaytotryyourAPIandtesttheircodebeforepaying.
So,setupfreeusagelevelsorSandboxmethodstoallowdeveloperstotesttheircodewithyourAPI.
TogetstartedwithmonetizationforyourAPIinitiative—Plan,Execute,Analyze,andIterate.
Firstunderstandwhatyourbusi-nessgoalsarefortheinitiativeandthemonetizationoptionsyoumightuse.
EvaluatethevaluechainfortheAPI(s).
DoallpartiesbenefitWhatisthemonetizationopportunity,andwhatisthebestapproachSecond,executetheinitiative.
Setuptheinfrastructureformon-etizationandtestit.
PromotetheAPI!
"Ifyoubuildit—theywillcome.
"—doesnotwork.
YouneedtomarkettheAPItothetargetaudienceandcontinuetointeractandsupporttheAPIconsumers.
Third,analyzehowtheinitiativeisworking.
Understandwhatisworkingwellandwhatcanbedonebetter.
Takefeedbackfromtheconsumersandtheassetowners.
Andfinally,iterateandmakethenecessaryadjustments.
APIMonetizationisanimportantfocusformanybusinessesstartingAPIinitiatives.
IBMcanhelpyouachievesuccesswithyourAPIinitiativeincludingmonetizationprovidingendtoendknowledgeandskillsfromstrategythroughimplementation.
ContactyourlocalIBMrepresentativeformoreinformation.
FormoreinformationTolearnmoreabouttheAPIeconomy,pleasecontactyourIBMrepresentativeorIBMBusinessPartner,orvisitthefollowingwebsite:ibm.
com/middleware/integration/en-us/api-economy.
htmlAdditionally,IBMGlobalFinancingprovidesnumerouspay-mentoptionstohelpyouacquirethetechnologyyouneedtogrowyourbusiness.
WeprovidefulllifecyclemanagementofITproductsandservices,fromacquisitiontodisposition.
Formoreinformation,visit:ibm.
com/financing11AbouttheauthorsAlanGlickenhouse–APIConnectBusinessStrategistglick@us.
ibm.
com@ARGlickLarryEngland–DistinguishedEngineer–ClientTechnicalLeaderforAnthemenglandl@us.
ibm.
com@englandlAlanGlickenhouseisaBusinessStrategistontheAPIConnectofferingmanagementteam.
HejoinedIBMin1981andhasheldnumerouspositionsincludingSales,TechnicalSales,Marketing,Development,andTechnicalSupport.
OntheAPIConnectteamAlanassistsclientswiththeirbusinessstrategyforAPIs,understandingtheirbusinessdirection,existingenvironment(bothbusinessandtechnical)andhelpsbusinessessuccessfullyadoptanAPIstrategythatfitstheirenvironment.
Alanmeetswithmanyclientsinallindustries,allgeographies,andofallsizes.
HebringsacapabilitytocommunicateatboththebusinessandITlevelwithhisclientsandisabletoexplainbothhowandwhyabusinesswillbenefitfromIBMsolutions.
AlanhasanA.
B.
fromVassarCollegeinComputerMathematicsandhasseveralSOAcertifications.
LarryEnglandisanIBMDistinguishedEngineeratIBM'sSiliconValleyLabinSanJose,California.
HeiscurrentlytheClientTechnicalArchitectforAnthem(alargeUSHealthCarePayer).
PriortotheCTAposition,hehadarchitecturalresponsibilitiesforapplicationdevelopmenttoolsonSystemz.
EnglandhasworkedinanumberofareasduringhisIBMcareerincluding,VM/370,MVS,LanguageEnvironment,Multi-Media,Textsearchandretrieval,DatabaseManagementsystems,andPL/IandC/370RuntimeandTest.
HeisalsoanIBMMasterInventoratthe7thplateau.
EnglandhasaBSinMathematicsandComputerSciencefromUniversityofIllinois,MSinComputerSciencefromOregonStateUniversity,andpost-graduateworkatUniversityofCaliforniaSantaCruz.
WhennotworkingatIBM,hecanbefoundrunningatrailintheCaliforniahills.
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