The API Economy represents an attractive potential source of new revenue for companies. The speed with which this new paradigm grows, should not divert attention from the choice of the best API strategy for our company to define how to use its potential.
In developing a winning API strategy that can unlock API potential, executives must determine the type of access, the payment model to generate revenue, and API standards to interoperate in the market. In these areas, the intersection of business strategy and market factors are fundamental.
Capturing value through access
The uniqueness of company data and its business strategy largely determines whether to follow an open or closed API strategy or model from the start. If a company is looking to boost sales of products or basic services, it may provide third-party developers access to open APIs to increase traffic. Open APIs are often used as catalysts of growth during their initial business creation stages. For example, Twitter API approach allowed the company to build a presence on each mobile platform before hiring an internal mobile development team.
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Selecting the correct payment model
Companies can offer their API for free or choose from several revenue models. To determine the monetization model, executives must first assess the intrinsic value of the data or services that provides an API, then determine the payment options that are more applicable to your target audience. Examples might be, follow some payment scheme in the form of volume pricing, commissions or subscription based on usage. Most of these approaches are maturing into a model based on volume tiers, allowing developers to experiment with the API for free to a minimum number of API calls and then start paying based on usage volumes. Other models generate API revenue based on the use of resources as part of a package that consumers can buy, or through revenue-sharing agreements. In our experience, the most successful approach combines pilot projects to test the limits of payment for your customers, then expanding when the organization has identified levels that provide the greatest value.
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Interoperability standards on the market
Based on the level of competition, executives have to select API interoperability standards that directly enable the most advantageous associations for their goods and services with their market.
There are two options, and each reflects a different market reality:
- If the market is a monopoly or duopoly, business leaders should encourage the adoption of a closed system to capture the maximum value.
- Conversely, in markets with a large number of players, achieve global or national level can be challenging without standardization of APIs that come into play.