APIs can have a huge impact on your business, creating value and delivering new income streams. But they don’t always do so in the way you might have had envisioned at the outset. Which means, when it comes to API monetization, it can pay to be prepared for the unexpected.
Laying the Foundations for API Monetization
If you’re just starting out dabbling in APIs, or you have an existing product whose revenue has plateaued, it’s time to kick off a program to get things moving again. Analytics sits at the start of this process. You can use analytics to drill down into how people are using your APIs, and armed with that knowledge, pull out popular features, endpoints in API parlance, and monetize them. Generating revenue growth as an API provider starts with understanding API usage.
Using analytics in this way can enable you to generate another business revenue line from your APIs by spinning out endpoints from your existing product. It’s a way to monetize individual elements of your product, rather than focusing solely on the product as a whole.
Monetization in Action
It’s always helpful to see theory put into practice, so let’s take a quick look at NexHealth’s API monetization example. NexHealth started out as a SaaS platform delivering online patient scheduling and two-way communication for doctor and dentist offices. To do this, the company interfaced with many different databases.
When NexHealth’s clients saw the potential that those connected databases offered – that is, the ability to interface easily with any database that contains medical records – they were pretty excited about the possibilities. So NexHealth launched an API that it spun out from its existing product. The new API enabled clients to interface with all of those databases, with Moesif on board to help NexHealth’s developers monetize the API interface.
NexHealth’s success resulted from its willingness to spin out a single feature of its original product, flexing and scaling in response to market demand and thus maximizing and accelerating the monetization of its APIs. By April 2022, NexHealth’s series C funding round saw the company bank $125 million. Its valuation, at the time of writing, is $1 billion.
“The API will be a bigger driver of revenue long-term because we have a bigger market to sell to. It’s not just going to be doctors, it’s going to be patients as well. It’s going to be consumers, it’s going to be people in labs and pharmacies… anyone that needs access to healthcare data. That’s going to be our market; that’s going to be huge.” Waleed Asif, CTO NexHealth
Focusing on API Monetization
There are different ways in which you can monetize your app. Freemium models, subscriptions, pay-as-you-go and revenue share models can all bolster your bottom line. Using your API to drive traffic to your website or inspire third-party providers or a new partner to adopt your product can also help to fill your coffers, albeit less directly. Driving customer loyalty and customer retention requires treating your API platform as a product.
Key to all of this is a monetization mindset. After all, what use is it to build a product if you can’t sell it? Focusing on a solution is all about offering APIs as products to drive income – about optimizing your business so that your APIs deliver the maximum possible impact. After that, it’s a question of drilling down into how people are using those APIs, and how best you might be able to profit from that. Collecting payment is part of the user experience for a monetized API, so ensuring that your banking process is smooth and easy is critical.
This focus on APIs and what they can deliver – known as the API economy – is nothing new. Established global behemoths have been taking his approach for years. Jeff Bezos, for example, issued an API mandate at Amazon way back in 2002, requiring that all capabilities must be designed and exposed as APIs. It’s worked out pretty well for Amazon since.
APIs can enable a vast array of business models and digital experiences. But it’s not just Meta, Google and the like who are able to achieve mighty things by putting APIs at the heart of their strategy. Any company with an API, anywhere in the world, has the potential to maximize the value of its API program by spinning out individual features.
Maximizing API Value
According to McKinsey’s analysis, there are three primary sources of value in API programs:
- Simplifying the back end
- Personalizing offers
- An ecosystem of innovation and engagement
Simplifying the back end allows for easy API integration, task automation and enhanced speed to market. Personalizing offers, meanwhile, can drive up customer engagement through well-considered data aggregation and reporting. And an ecosystem of innovation and engagement can support an improved customer experience and the creation of new products and services.
Taking this approach means you are in the best possible position to spin out new features and accelerate the revenue of your new API product. Embracing the API-first mindset is central to this. Jeannie Hawrysz, Lead API Architect at business analytics company SAS, explains:
“All APIs should be designed with the intent that one day they’ll be externalized, so the product manager’s business rationale has to answer the question: ‘Is this API appropriate for the audience that I’m looking to target?’”
Putting APIs first in this way, in order to accelerate revenue from them, is possible for companies of all shapes and sizes. Older, more established enterprises may have to deal with competing priorities, but this isn’t something that will necessarily impede API revenue acceleration, so long as the mindset in the company is focused firmly on APIs. Hawrysz continues:
“Focusing on something that’s brand new… that has potential and that hasn’t been proven yet, especially in a 40+ year old company, that’s naturally going to compete with other business priorities. Many of those other priorities that we’ve had over time, those were already making real money. And, until it’s real, we’re theorizing that the APIs are going to make money. The tide is definitely turning though. We’ve gotten a lot of use cases from our field. We’ve been connecting with leaders in the field. They’ve been asking for high-value, easy-to-use APIs.”
Finding the Right Partners
As NexHealth has so ably demonstrated, working with the right partners is essential when it comes to monetizing APIs and spinning out features to accelerate revenue. NexHealth was originally getting less than 10% of its recurring revenue from its API customers. Moving forward, the majority of revenue is expected to result from its new API product, with analytics playing a key role in driving that growth. CTO Waleed Asif succinctly sums up the importance of working with the right partners in reaching that outcome:
“Before Moesif, we had no idea who was using our platform and who wasn’t. We couldn’t even bill our customers until we got Moesif in place.”
Nor is it just external partners who can help. SAS’s Jeannie Hawrysz emphasizes the importance of finding allies within the business:
“On the business side, especially if you’re at the beginning of forming a program, find allies… It’s one thing to have the API cult, which is what we kind of call ourselves internally, ‘APIs are important rah, rah, rah’, but when other teams, especially customer-facing teams, started supporting us, that’s when things really started to accelerate.”
Another great example of API revenue acceleration is Okra. The African enterprise is scaling rapidly thanks to its Open Finance API, which is enabling financial service apps in thousands of businesses across the continent. The company is on its way to connecting a billion Africans to the global economy, using an API to help businesses speed onboarding, assess risk, verify transactions, examine spending patterns, and build personalized financial service solutions for their customers.
Moesif’s API analytics are supporting Okra to visualize what’s going on, at scale, across its client base. By partnering with Moesif, Okra has been able to lighten its support tickets by more than 80% and reduce customers’ time from sign up to production rollout by over 2x. The result? Faster API revenue generation.
Across the globe, the digital economy is moving fast. Companies that are ready to take a fresh look at their existing product, and be ready to spin out some of its features in new ways, could just be the ones to push their enterprises from plateaus into unicorn territory.