The indirect monetisation model aims to improve the metrics of the core product, for example, Gross Merchandise Volume (GMV) on a marketplace, by offering APIs to partners and customers. Because of that, indirect monetisation models can be categorised similarly to any other product features. In this case, there are four ways to increase product metrics:
Important to note: Each use case requires respective marketing and operational support as the APIs won’t increase metrics alone.
1
Increase retention of customer Fewer customers churn → more paying customers → more revenue.
Customer-facing APIs
In a B2B scenario, an API provider may offer APIs to their B2B customers to increase their retention. These APIs enable the B2B customers to build automation and integrate the product into their internal IT systems. This integration has two benefits for an API provider:
- Customers that integrate their system with the API provider work more efficiently (less operational expenses, better quality of the process related to the product) and therefore receive more value.
- Customers who invest in integration with the API provider will need to build integration with other vendors in case they want to switch. That means they have implicit switch barriers.
These two factors make APIs a good instrument for retaining customers.
Example Indeed provides APIs to integrate with ATS (applicant tracking system) for employers. It’s essential for companies that mass hire linear personnel (for instance, retail and construction companies that may employ thousands of employees simultaneously), where manual processes could be more practical. Companies that built direct integration with Indeed operate more efficiently: job descriptions are updated automatically with fewer errors, and applications are sent directly to the ATS so HR managers reach candidates quicker. This results in lesser cost-to-hire for Indeed’s customers and, therefore, better retention for Indeed.
Partner-facing APIs
An API provider may expose APIs to their partner (i.e. 3rd-party developers) to build additional services on top of the product or service. Those services will extend the value proposition of the API provider, making their product stickier. It works incredibly well in B2B scenarios when partners can provide out-of-the-box integration with their services. In this case, customers can implement a seamless business within multiple services without any investments. These integrations form a hype term ‘ecosystem’ of connected services around the company product or services. This model works equally well in B2B and B2C scenarios. This makes the product convenient and increases customer retention.
Example A great example of a partner-facing API is Slack. Slack allows partners - other software vendors in this case - to build Slack apps using APIs and SDKs provided by Slack. This capability makes Slack extremely sticky.
2
Increase ARPPU One customer paying more → more revenue;
Customer-facing APIs
Often, SaaS vendors offer APIs as one of the drivers to upgrade consumption tiers. Heavy users seek the ability to integrate SaaS solutions into their business processes, so, commonly, API access is included in higher pricing tiers.
Partner-facing APIs
Providing a standard methodology to help API providers increase their clients’ average spending is challenging. However, in ad tech and the retail industry, there’s an agency business model where a marketing agency (a partner) provides consultancy services to their clients (which are, at the same time, customers of the API provider). The API provider might offer APIs recommending agencies change their customers’ marketing campaigns to maximise output according to their goals (ROI, Revenue, etc.).
Example This is an industry-specific use case in ad-tech and retail industries. Facebook provides these APIs for agencies within their Graph API for Facebook Business, and Google also offers recommendation functionality within their Google Ads API.
3
Get new customers from the current market or segment More customers → more revenue;
Partner-facing APIs
APIs can become an inbound channel with the creation of third-party apps. These apps are integrated with your API and expose some or all of its features. This attracts more users to your app, which will eventually convert into new customers. If you already use your API, the associated cost will be lower than SEO or CPC. You can also monetise your API, making this channel profitable by itself.
Example It’s common for Ad-tech companies such as Google Ads to create partnerships with marketing agencies. APIs can improve their operational processes, allowing them to serve more clients with the same resources. In this case, it’s crucial to emphasise that APIs are just a tiny portion of the overall business model. They work more like an enabler required to make the whole business model operational.
4
Expand offering to a new segment or market More customers → more revenue;
Customer-facing APIs
When companies enter the enterprise market, they need to introduce a programmatic way of managing the assets of enterprise clients: ads, products and campaigns (ad-tech, e-commerce), devices (IoT, manufacturing) and infrastructure (cloud providers). With thousands and thousands of different assets to look after, it’s not feasible to manage them manually via UI - they need APIs.
Example Some Amazon sellers list tens of thousands of their products and their variations, which would require an army of people to manage this manually. They must be properly managed with regular price updates, stock availability and marketing descriptions. Moreover, merchants might simultaneously list their products in multiple marketplaces, making managing them even more complicated. So instead of doing this manually, merchants integrate Amazon APIs (as well as the APIs of other marketplaces) with theirCMS and ERP systems.
Partner-facing APIs
Partners have to manage the assets of a vast and increasing number of customers and campaigns (hundreds or even thousands of customers in advanced cases), and they will need APIs to handle this load. It’s the same issue as above - managing this manually causes errors, cuts through resources and business margins, and will take too long. This can turn from days to seconds using APIs.
Example Marketing agencies that help advertisers manage their campaigns may work with hundreds of clients while handling thousands of ads and campaigns.
Industry-specific examples of value extraction
Here are some industry-specific examples of value extraction using partner or consumer-facing APIs:
Open banking
While open banking also falls into other categories (increase retention, for instance), in the UK and EU, banks must implement open APIs by the market regulators. LendingClub uses open banking data to inform their credit decisions and reduce risk. They collect customer data from multiple bank accounts, including transaction history, account balances, and payment history, and use that information to build a comprehensive view of a customer’s financial behaviour. As a result of these efforts, LendingClub has improved its credit decision process and reduced its default rate. According to a case study by the Open Banking Project, LendingClub’s default rate has decreased from 9.4% in 2016 to 4.4% in 2019, and their return on investment has increased from 4.9% to 7.1% over the same period. By using open banking data to inform their credit decisions and reduce risk, LendingClub has built a more sustainable lending business and increased revenue over time. This has helped to position them as a leader in the peer-to-peer lending industry and attract more customers to their platform.
Retail
Zara, the leading fashion retailer, collects customer data from their website, mobile app, and in-store purchases, including browsing and purchase history, product reviews, and demographic information. They use this data to improve their supply chain efficiency and reduce waste. For example, they use data to track which items are selling well and which are not and adjust their production and inventory levels accordingly. This helps to reduce overstocking and understocking, which can lead to waste and lost sales. As a result of these efforts, Zara has reduced waste and improved their supply chain efficiency. According to a case study by the Harvard Business Review, Zara’s inventory turnover is 2.5 times faster than the industry average. They can get new products to market in just two weeks, compared to the industry average of six months.
Possible indirect monetisation models
Acquiring and distributing content
In addition, for content-oriented companies such as classifieds, blogging platforms, and marketplaces, it’s common to use APIs to acquire or distribute content. For instance, Zillow enables their B2B customers (real-estate agencies) to publish ads directly from their CRM systems. That helps Zillow to acquire more content quicker and with better quality. For this kind of company, it’s common to use XML feeds to post content and REST APIs to make real-time changes to it.
1
Content acquisition For ad-tech companies, classifieds (jobs, real estate, automotive industry and others), blogging platforms (Reddit) and e-commerce platforms, offering APIs for content acquisition are standard. This enables B2B customers to create or manage their resources on a platform by integrating with their CMS, ERP or CRM systems. For example:
Reddit API for content acquisition
Indeed XML feed APIs
Zillow XML feed
Some software vendors (especially in e-commerce and HR tech) offer out-of-the-box integration with the most notable platforms. For example, Shopify offers an out-of-the-box plugin that creates Google ad feeds from their products. Usually, content is acquired using XML feeds (not REST APIs). A customer or partner generates the feed, either publishes it somewhere and specifies a link to it on the platform or uploads the file directly.
2
Content syndication Often, customers of SaaS platforms (for instance, Salesforce or Hubspot) need to distribute the content created centrally to multiple places. This use case is particular to products enabling customers to develop scale content: CRM, CMS and similar solutions.
E-commerce and classifieds
For e-commerce and classified platforms (HR tech, real estate, wholesale and automotive industries), the interaction between a seller and a platform is implemented from both sides. There are several steps involved in this interaction:
1
First, a seller needs to send their content to the platform. In the vast majority of cases, it’s an XML feed. More modern platforms also offer APIs for sellers to send and update their content on the platform.
2
Once the content is on the platform, sellers need to manage it. Again, the legacy and most common method for it is XML feed. However, for e-commerce, updates to sensitive data (price, stock availability) must happen in real-time.
For real-time data (price, stock, job availability), integration is usually made via REST APIs or GQL. For example, Amazon SP API.
For non-real-time data (description, images and similar), integration is usually made via XML feed or APIs for non-real-time data (description, images and similar). For example, Amazon product data feed.
In some cases, sellers will also apply VAS (value-added services such as sponsored ads, views boosting, ads highlighting and so on) to the published content. This can be done using an XML feed, REST APIs, or GQL—for example, Amazon Ads API.
3
Once the content is posted, customers will start interacting with it. Depending on the nature of the platform, they can make a new order and ask a seller to deliver their order using the FBS schema, or they can book an appointment with a real estate agent. In turn, sellers will react to this action, so there’s an opposite flow of data to update the status of a job application, order, appointment, etc.
Sellers will be notified about specific events happening in the marketplace. Usually, webhooks are used for that. During the integration setup, sellers register their webhooks so the platform will call them once a particular event happens. For example, Indeed webhooks.
Sellers need to update the status of an order, job application, etc. Usually, classifieds provide GQL or REST APIs for that - for example, Indeed Interview API.
4
Finally, some sellers would like to optimise the performance of their ads. Some platforms provide advanced integration methods: receive analytics data and recommendations. This is done either by REST APIs or GQL - for example, Amazon Sale analytics API.
This is a simplistic overview of this kind of complex integration. Most of the platforms provide self-service tools for sellers to debug their integrations. Usually, these are:
Some form of XML feed validator (Amazon XML feed validator).
Webhooks debugger (Indeed).
Sandbox environment (Lever.co sandbox).
The flow is demonstrated in the diagram below:
