API monetization is often a goal of many enterprise organizations. It helps offset API development costs while opening up new revenue-generation opportunities. However, this may require addressing some of the challenges and shortcomings of your API program.

Let's explore the options available for API monetization, examples of how some enterprises have monetized their APIs, and how to overcome some of the challenges you may face on the journey to API monetization.

What is API Monetization?

API monetization is the process of generating revenue from one or more APIs. Over the last decade, API as a product offering such as Twilio and Stripe have directly targeted developers with their products. Software as a Service (SaaS) companies such as Salesforce, Yelp, and Airbnb have added an API offering to their products to extend their reach to developers seeking to incorporate their products into new applications. In the case of an enterprise, this may include bundling a specific set of internal APIs into one or more API products that address the needs of partners, customers, and third-party applications. 

Monetizing an API involves charging developers or companies for access to the API or for using the data or functionality provided by the API. John Musser, the founder of ProgrammableWeb, described several revenue models for APIs. Three of the most common models include:

Developer pays: Developers pay for access to the API. This may be a monthly subscription, per-call, or per-transaction fee. A freemium model may also be offered, allowing developers to get started for free and convert into paid customers. Developers use the API directly.

Developer gets paid: Developers use the API to create applications or services that generate revenue, and the API provider takes a percentage of that revenue. This is often through an affiliate program that encourages developers to utilize the API to help generate sales for the API provider. 

Indirect monetization: In this model, the revenue is not realized directly but rather through creating new business opportunities and reduced customer churn due to deeper integration between the parties.

Note that these revenue models are not mutually exclusive, as some API providers may combine them to generate revenue.

Why Monetize Your Enterprise APIs?

As alluded to above, there are several motivations for an enterprise to monetize its API. It is essential to gain alignment across the organization to select suitable revenue models and API offerings. 

A primary reason for API monetization is to generate revenue. Monetizing an API can generate revenue directly from developers who pay for access or indirectly through revenue generated by developers who use the API to build applications or services. It may also be used to upsell existing customers into a new subscription tier or partnership agreement to gain access to automation APIs and unlock new business workflows.

Another reason is to reach new customers and markets. By making it easier for developers to build applications that integrate with their products or services, they can engage in new marketplaces without developing their own sales and marketing pipelines. This also helps the organization to remain competitive in their existing markets by encouraging customers to integrate with their APIs, reducing the opportunities for customer churn due to the higher cost of change. 

Organizations may use APIs to build brand recognition to attract developers and thought leaders into the organization as full-time employees by demonstrating their digital strategy. 

APIs can encourage innovation by providing developers with access to data and functionality that they can use to create new applications or services. This can lead to new use cases and business models that the API provider may have yet to consider.

Enterprises that fail to define a clear set of goals when monetizing their APIs will likely struggle to gain traction and may ultimately shut down their productized API offerings.

Examples of Enterprises that Have Monetized Their APIs

Below are some examples of enterprises that have monetized their APIs in different ways:

Capital One: Capital One is a North American banking institution with a digital-first strategy. They offer several API product offerings that help their partners offer pre-qualification of credit cards, account management, bank-grade authentication, and opening a new savings account. They have also repurposed internal APIs to create ENO, their chatbot that offers chat-based management of a customer's accounts via SMS, web, and mobile.

Walgreens: Walgreens is a US-based pharmacy and corner store that has used its APIs to extend the reach of its local store's inventory, photo processing, and prescription fulfillment capabilities. By offering APIs to developers, they have wrapped every brick-and-mortar store with digital capabilities that can be integrated into their own mobile apps and third-party applications. 

Visa: Visa offers APIs to several personas, including banking institutions, storefronts, and app developers. They offer many APIs, some tailored to a specific use case and some useful for various use cases.

None of these organizations immediately monetized their APIs. They identified the goals and appropriate revenue model(s), target markets, and digital capabilities they needed to deliver. They also had to overcome several challenges related to monetizing APIs. Let's explore some of those challenges now.

Overcoming Top Challenges in Monetizing Enterprise APIs

Like these and other organizations, your enterprise may not be ready for API monetization due to technical, cultural, and regulatory challenges. Let's look at each one and gain some insights into how you can overcome them. 

Limited API Capabilities

Some enterprises may not have developed sophisticated APIs to be monetized. For example, many enterprises focus on building APIs built around existing data sources, lacking the robustness needed to address real-world problems. In addition, they may lack robust security, scalability, or integration capabilities, making it difficult to charge for access. 

In these cases, enterprises may need to invest in additional market research, design, development, and infrastructure to build their API capabilities and make them more attractive to potential customers.

Lack of API Governance

Effective API governance is essential for successful API monetization. Enterprises may struggle to manage and monetize their APIs without proper governance. They may also deliver a poor developer experience through inconsistent and poorly documented APIs.

Additionally, APIs may suffer outages without the enterprise's knowledge, losing their customers' trust. Policies and procedures are also needed to ensure that their APIs are properly secured, managed, and monetized. This may include defining pricing models, establishing billing processes, and providing customer support.

Enterprises seeking to monetize some or all of their APIs must invest in proper API governance and management practices. This includes establishing a style guide, automating the API design compliance checks against the style guide, monitoring and reporting API usage, and notification of API outages. 

Lack of API Adoption

One of the main reasons enterprises may not be ready for API monetization is the lack of API adoption. If APIs are not widely adopted within the enterprise or by external stakeholders, there may not be a large enough market to monetize them effectively. In such cases, enterprises may need to focus on increasing API usage and adoption by creating developer communities, providing easy-to-use developer tools, and demonstrating the value of their APIs through successful use cases and case studies.

Regulatory and Compliance Challenges

Some industries, such as healthcare or finance, are subject to complex regulatory frameworks governing sensitive information use and disclosure. This can severely limit the monetization options or place specific restrictions on what the APIs can offer. In such cases, enterprises may need to work with legal and compliance teams to navigate the regulatory landscape and ensure their APIs comply with relevant laws and regulations.

Cultural Resistance

Finally, some enterprises may resist monetizing their APIs because they view them as a technical tools rather than a revenue-generating asset. They may need to shift their mindset and culture to embrace API monetization's potential fully. This may require executive buy-in, training programs, and incentives to encourage employees to consider APIs a valuable business asset.

To overcome these challenges, enterprises may need to assess the current state of their API program, invest in a formalized API program, and shift their cultural mindset to embrace API monetization's potential fully. This often starts with delivering a smaller API product, establishing missing standards and practices, demonstrating success, then repeating the process to gain buy-in across the enterprise.

Now is the Time to Get Your Enterprise Ready

API monetization has become an important consideration for many enterprise organizations as it presents a means of generating revenue and offsetting the costs associated with API development. However, monetizing an API is not a decision that can be taken lightly, as it requires careful planning, execution, and consideration of potential challenges. 

Your enterprise should evaluate the options available for API monetization, explore examples of successful API monetization strategies other enterprises adopt, and seek to address gaps along the API monetization journey. By understanding the options and challenges of API monetization, organizations can make informed decisions that align with their goals and enable them to succeed in the competitive API economy.

[ITORIX TODO: Once monetization support has been added fully to the product, you may want to drop in some screenshots that show reports and features to help address some of these challenges. Otherwise, this may just be an informational article to draw awareness to the need]