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On average, it costs $20,000 USD to build an application programming interface (API), and this doesn’t even include maintenance costs. But there’s hope — those that expose their APIs as products and develop a partnership ecosystem around that initial financial investment will be more likely to maximize returns.
By viewing APIs as assets, more IT decision-makers are seeing the value of API management as a pathway to API monetization. These resilient and secure digital architectures will be vital to powering API-led connectivity, which is one of the reasons why the API management market size is expected to grow to $5.1 billion by 2023.
As both internal and external APIs become a major factor in driving companies’ economic growth, how can CIOs and CTOs use collaborations to build an effective API monetization strategy?
Identify your assets
Exposing everything as an API is hard, so look closely at what you’re already consuming internally that could be useful to the outside. Worldwide IT spending is set to grow yearly by 5%, and companies delivering software-as-a service (SaaS) by externalizing APIs will be a large part of this expansion. You might have the resources to monetize without knowing.
Google Maps and Uber are excellent examples of the effectiveness of collaboration at scale and how to leverage APIs externally. Google was able to take its existing map feature and expose it to multiple providers, including Uber. Although Uber experimented with other map providers, it always chose to return to Google’s API, and then subsequently launched its own Uber API for adoption.
Many other companies have learned the cost and time-saving advantages of partnering with third-party APIs instead of building their own. In fact, according to the Q3 2021 Developer Nation global survey, 68% of developers are already using third-party APIs.
This top-down strategy for API monetization looks at what is already in use and then identifies microservices that can be repackaged for external partners. This starts by having an API management platform with a clear cross-organizational overview of who is using which APIs and how.
Every industry is prone to disruption, especially when tech gets involved. The relationship between banks and fintech are a great example of how technology can innovate, but traditional institutions still retain a large portion of consumer trust.
While fintech companies can lower fees and reduce the bureaucracy associated with brick-and-mortar banks, they can lack the government-backed regulations and certifications of established financial institutions. The question is: How can you take the capabilities of a bank and have fintects use APIs to build in a way that meets customers’ demand for speed, improves efficiency, and creates a better user experience?
Banking is a rigid industry that has been disrupted with new players such as neobanks and fintechs using Open Banking and PSD2 directives that require Open APIs. Traditional banks can leverage those API-backed partnerships to be more competitive and provide faster services to customers. Leading with an API-first design approach enables them to break away from older architecture and form a monetization strategy that is more agile in response to customer needs.
In today’s competitive global market, cross-collaboration is necessary for business survival as there’s no winner-takes-all scenario.
Prepare your product
Any API monetization strategy needs to be centered around design-first thinking. Deciding what your API will be for and for whom will help determine the specifics of how you will document and eventually expose your API. Getting your design right at the beginning means you’ll have a stronger product, be more resilient to industry challenges and have a better chance at successful API monetization.
Typically, behavior-driven development is the best way to kick this off so that you’re modeling the technology after the user experience. For example, imagine a typical ecommerce workflow:
- Browse categories or perform a search
- Add to basket
- Login or register for the first time
- Add shipping information
- Receive a trackable order ID
Each of these steps involves an API. Therefore, employing external API partnerships — like with Shopify, Stripe or PayPal for the payment side and Google Maps for tracking — helps to dramatically reduce costs compared to producing each one internally.
Since API monetization is inherently financing data, decisions need to be made early on to determine risks from what data you could be potentially exposing and to whom. The distributed nature of APIs inherently widens your attack surface. There was a 681% increase in API attacks in 2021, with 95% of survey respondents saying they had been subject to an API attack in the last 12 months. For those wanting to enter the API economy, rigorous testing is imperative to ensure safe and secure APIs consumers can trust.
Testing is also a way to ensure the API backbone of your technology meets industry standards and stays compliant. An API management platform means developers can easily automate testing. Low-code platforms also allow developers to simulate and mock APIs without the need to write new code, making it easier to get feedback early on, before they release APIs to market.
Standardized documentation with API design templates via a platform allows you to set benchmarks across the company for levels of quality, security, and compliance. Design templates for documentation further enable a ‘self-service’ approach to API adoption, making it simpler to scale your product services and reduces the need for customer support.
Choose your API monetization model
Finding ways to monetize APIs is still relatively new and there’s no right way to do it. If you feel your API and data are ready to be exposed, the next stage is to choose a Public or Partnership model. Whereas Public APIs are available to everyone that commits to your terms and can mean a higher number of adoptions, Partnership APIs are exposed only to strategic business partners with whom you can build trusted relationships.
How you choose to enter the API economy will depend entirely on the product on offer and the model you decide for scaling and selling that product. Most organizations will kick off their API monetization strategy with just a few partners to test out the process and see if there is demand for the data they are exposing.
In the instance of ride-sharing apps, for example, insurance could benefit both drivers and passengers, but there are multiple ways it could be sold. Perhaps an insurance provider would charge per ride/driver/vehicle or pass the cost on as an optional extra for the customer. How you decide to charge for your API usage needs to be well accounted for to ensure monetization is worthwhile and there are no overheads to partnerships.
Staying open and remembering there’s no one-size-fits-all business model to join the API economy will put businesses in the best position. Monetization strategies with cross-collaboration at their center will see the best returns as they start with the API as the product and develop a partnership ecosystem around that initial investment.
Darshan Shivashankar is the cofounder of Apiwiz.