In today’s digital age, API products have become critical components for businesses that want to create new revenue streams, enhance customer experiences, and gain competitive advantages. Understanding API business models and their strategies has become essential for product managers, and picking the right one is one of their biggest challenges. So it’s a good job you’re reading this guide to help navigate you in the selection process! The ability to identify opportunities for API monetisation and effectively leverage APIs can make or break a company’s growth. There are three classes of business models based on the financial relationship between API providers and consumers:
External API business model
1
Direct monetisation In this case, API products are free-standing and valuable on their own. API Consumers directly pay API providers for using their API using one of the direct monetisation models.
Devs pay Developers pay for API calls.
2
Revenue sharing As it comes from the name, this model is about sharing revenue between an API provider and developers. This model could be a variation of the affiliate marketing business model, generally offered by companies that already have mature affiliate marketing programs (e.g. Amazon or other big e-commerce companies), affiliate networks (e.g. Admitad), or ad-tech companies that work in affiliate-related areas of business (e.g. Affluent). Alternatively, software vendors with a significant market share (such as Shopify or Zapier) who already have an established developer ecosystem around their APIs may charge a commission from their developers’ revenue from services related to the platform.
Dev gets paid API providers pay devs for making target actions such as bringing affiliated buyers and similar.
3
Indirect monetisation As it comes from the name, this model is about sharing revenue between an API provider and developers. This model could be a variation of the affiliate marketing business model, generally offered by companies that already have mature affiliate marketing programs (e.g. Amazon or other big e-commerce companies), affiliate networks (e.g. Admitad), or ad-tech companies that work in affiliate-related areas of business (e.g. Affluent). Alternatively, software vendors with a significant market share (such as Shopify or Zapier) who already have an established developer ecosystem around their APIs may charge a commission from their developers’ revenue from services related to the platform.
No payment for using APIs API consumption drives the core business model: better retention, more content, higher average revenue per customer.