The Dos and Don‘ts of API Monetization
So you have an API, and you want to generate revenue with it. To do so, you need to solve two sets of challenges.
The first involves business questions, such as how much to charge for API access or whether to use a multitiered pricing model. Those are challenges for product managers to address.
The second, more complex set of steps toward API monetization centers on technical challenges. How do you measure API usage and bill customers for it? How do you throttle API traffic such that customers with different plans receive different levels of service? How do you ensure your APIs can meet SLA guarantees? These are the sorts of technical quandaries that developers must resolve to ensure that APIs can actually generate money for the business.
If you’re a developer tasked with this mission, keep reading for tips on how to address API monetization requirements in the most efficient and effective way. This article explains best practices for monetizing APIs from a technical sense, along with pointers on the antipatterns to avoid.
API Monetization Requirements
Before diving into best practices and antipatterns, let’s go over the core technical requirements for enabling API monetization:
- Advanced metering: Because different customers may have different levels of access to APIs under varying pricing plans, it’s critical to be able to manage access to API requests in a highly granular way, based on factors like total allowed requests per minute, the time of day at which requests can be made and the geographic location where requests originate.
- Usage tracking: Developers must ensure that API requests can be measured on a customer-by-customer basis. In addition to basic metrics like total numbers of requests, more complex metrics, like request response time, might also be necessary for enforcing payment terms.
- Invoicing: Ideally, invoicing systems will be tightly integrated with APIs so that customers can be billed automatically. The alternative is to prepare invoices manually based on API usage or request logs, which is not a scalable or efficient approach.
- Financial analytics: The ability to track and assess the revenue generated by APIs in real time is essential to many businesses that sell APIs. It allows them to identify financial opportunities or shortcomings and adjust their API pricing plans accordingly.
Some businesses may need to meet additional technical requirements to monetize their APIs, but the considerations described above represent the most common requirements for API monetization.
How to — and How Not to — Monetize APIs
There are multiple possible approaches to meeting these requirements, but some are better than others. Here’s what developers should and shouldn’t do as in the context of API monetization.
Don’t Embed Monetization Logic into APIs
Probably the biggest mistake developers make when asked to monetize an API is attempting to write logic for functions like advanced metering or usage tracking directly into the code that powers APIs.
Doing so not only requires tremendous effort, but also makes it difficult to change policies on the fly. For instance, if your API licensing plans change and you want to change usage policies accordingly, you don’t want to have to deploy a new version of your API to do so.
On top of this, the more logic you try to embed into APIs, the higher the risk that you’ll make a mistake that could lead to security breaches.
Do Rely on API Management Tools to Enforce Monetization
A healthier approach is to rely on your layer of API management tools — such as gateways — to enforce monetization requirements.
Within the management layer, you can easily establish granular policies to meter API requests. You can also collect API usage and financial analytics data efficiently, and you can push that data to invoicing and finance tools. And you avoid the security risks of embedding monetization logic into APIs directly.
Don’t Compromise on Pricing Flexibility
Partly because of the technical challenges of implementing highly granular monetization policies within APIs, some businesses settle for API pricing models or licensing terms that are relatively basic. They might grant the same level of access to all users, for instance, or charge a flat fee for API access that is not linked to usage metrics.
This approach simplifies matters from a technical perspective. But from a business perspective, it could mean missing out on opportunities to optimize API monetization plans. Technical challenges shouldn’t become an excuse for less sophisticated API monetization strategies.
Do Centralize API Monetization Management
Sometimes, a business licenses not just one API, but many. In this case, being able to enforce monetization policies across all APIs in a central way makes it much easier and more efficient to ensure that APIs deliver their intended revenue.
When monetization controls are implemented at the API management layer, a centralized approach to monetization management becomes possible. That’s another reason why developers should avoid baking monetization logic into the APIs themselves. Even if your business only has one API to monetize today, it might launch others in the future, and managing monetization on an API-by-API basis just doesn’t scale.
Conclusion: A Healthy Perspective on API Monetization
The bottom line: From a technical perspective, API monetization is quite complicated, and although there are multiple ways to meet the challenges, some are more efficient and scalable than others.
As a best practice, developers should strive to decouple monetization management from APIs themselves. Instead, they should rely on their API management tools to enforce monetization requirements. Doing so ensures that the policies and data necessary to monetize APIs can be easily implemented in a consistent way across all APIs, with minimal effort on the part of developers.