APIs from a Business Point of View
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APIs are more than technical tools—they’re strategic assets for business growth. They can drive revenue (directly through monetization models like subscriptions, and indirectly by boosting traffic), increase brand reach (by integration into third-party services), and enable innovation. APIs support efficient operations by streamlining internal and external data exchange. Leveraging APIs can also open up partnerships, providing mutual benefits, and helping companies to scale by enhancing product offerings and customer experience.n text goes here
This is an improved version of my original Medium article APIs from a Business Point of View from January 2023.
APIs are building blocks of modern digital infrastructure - Photo by La-Rel Easter on Unsplash
Application Programming Interfaces (APIs) can play a central role in a company’s success beyond its technological benefits. Terms like API Economy and the API-First approaches are widely known and used in the tech space. However, many medium-sized businesses are still unaware of the potential. For this reason, we put together this guide on what to know about APIs. It starts off with a brief introduction on what APIs are. Afterwards, we guide you through the topics how APIs…
… can increase revenue (direct and indirect)
… help you to promote your brand
… boost innovation
… improve efficiency
“The world today demands something different from us. Composing — flexible, fluid, continuous, even improvisational — is how we will move forward. That is why composable business is more important than ever, (…)”
After being a developer for some time, I mostly used APIs from a tech perspective. They allowed me to easily access third-party services, to build reusable interfaces of my services, and much more. However, I didn’t recognize how valuable they are for businesses. Some time ago, Matthias Biel and Kay Lummitsch, both known figures in the API-Universe, held a presentation about API Economy at my university, where they emphasized the importance of APIs in business context. This gave me the motivation to write a post about it myself.
The content of this blog post was heavily inspired by the presentation of Matthias and the Programmable Web’s 2020 Guide to API Business Models, from ProgrammableWeb. A site with many valuable resources about the API Economy. Unfortunately, they shut down their operations in October 2022 and the side has been retired by now and is no more accessible.
What is an API?
If you’re familiar with APIs, feel free to skip to the next chapter.
An API, or Application Programming Interface, is a set of rules that allows one software program to interact with another. I like the following analogy of Martin Gontovnikas in “The Business Value of API-First Design”:
An API is often compared to a waiter at a restaurant, communicating orders between the diner (which might be an internet browser) and the kitchen (the back-end services the diner is trying to access). The API takes this order to the kitchen and brings the requested dish back on a neatly organized plate. This system is good for the diner (who doesn’t need to walk to the kitchen/load a new webpage), and it’s good for the restaurant (which doesn’t want customers looking at its secret recipes/proprietary code).
Graphic by Martin Gontovnikas on auth0 blog
This is a rather high-level explanation of APIs. For me, APIs are interfaces for a structured data exchange. You send in the required data for a given service. The service processes your data and once finished, you receive a response in structured data. Simple as that.
The web lives from APIs. Most of the today’s webpages are communicating between the frontend in the browser and the backend in the server via APIs. This helps, for example, to improve the speed of web pages. With the initial page loading, your PC doesn’t have to load all the contents of the webpage (think images, videos, …) at once. These content pieces are loaded, once you open a certain page or part of a page where they are used.
For a more tech explanation, read the article by AWS:
Revenue models for APIs
When your organization has an API in place that provides some kind of value for customers, there are multiple ways to increase your revenue. We will look at direct monetization with models like as-a-Product, freemium, and subscription. And, I will also show you how indirect monetization could work by generating more traffic through APIs, and receiving a commission fee for integrated solutions.
I can’t provide you with a guide on what method suits best to your business. As the type of monetization is highly dependent on your business, your strategy, and your customers. See this as an inspiration to get an idea of what models others are using.
Direct monetization
As-a-Product: One approach is to treat the API as a product and directly monetize it. This can be achieved by putting the API behind a paywall, like the GPT-API from OpenAI. To be successful, those services often require a high-quality user experience, a complete and comprehensive documentation, and other traits of online SaaS products.
Freemium: A freemium plan with limited functionality can be used to attract users. This is a typical characteristic of SaaS models as well. Freemium models are often used in combination with as-a-Product models, to hook users and later convert them into paying users. An example of combination is the DeepL-API.
Example of freemium and paid API plans by DeepL
Partner program: If your company is hesitant to open the API for the masses, one solution could be to establish a partner program. This strategy allows selected business partners to integrate and utilize your API in their own application. In exchange, partners pay a certain commission fee for every sale generated through the API. Not only can this partnership generate revenue, it can also be used to enhance the user experience in your business ecosystem.
Example of API partnership: Uber — Spotify from ViWizard
An example is the partnership between Uber and Spotify in 2014. Uber's users could play their favourite music during their ride directly from their phone. According to Business Insider, Uber’s goal with this partnership was to provide a personalized ride experience for its customers. As the service was only available with Spotify premium, it also encouraged Uber users to upgrade their Spotify plans. Win-Win-Situation for both. As of today, the partnership has been dissolved and the integration is no longer part of the Uber service.
Indirect monetization
Besides direct monetization, there are also indirect methods to increase revenue. In this case, APIs help to make the main product more appealing, through simple integration into your existing software, extended functionality or by providing more insights.
Generating more traffic: On way is to use the API to generate more traffic to your platform. Take eBay as an example: They provide free APIs for sellers and buyers. eBay has been able to increase the overall revenue of goods sold on their platform by making it as convenient as possible to list items on their platform, or let you bit from your service on desired products outside eBay, all through APIs.
Upselling: Another way of indirect monetization is to include the API access in a higher subscription plan. Upselling is the intention. Existing or potential customers should have an incentive to upgrade their subscription. An example is Salesforce, where the access to the API is only allowed with the Enterprise, Unlimited, Developer and Performance Edition.
Consulting services: If the API is more complex to integrate, you could offer a consulting service and provide customers with assistance during the onboarding process and later with paid support during operations. This business model is often applied with ERPs (for example SAP).
APIs fuelling growth
APIs are more than just revenue-generating tools; they can be powerful drivers of business growth. In this chapter, I’ll share insights on how APIs can unlock new business opportunities and support sustainable expansion.
APIs promote your brand
APIs are great tools to promote customer engagement, expand your audience, network, and community: By allowing third-party services to incorporate your API, you can expose your brand to their customer, and thereby extending your reach. An example of this strategy is reCAPTCHA, a service offered by Google that helps to protect websites from bots and automated scripts.
Brand recognition through APIs - reCAPTCHA by Google
Developers can use the reCAPTCHA service for free, but have to make it visible for their website visitors. This exposes the reCAPTCHA brand will be exposed even to people on pages Google don’t own (among other advantages like getting more user data and being able to provide learning material for their AI services).
A public and freely accessible API can be used to build a community around an organization, to increase the engagement, interest, and marketability of a brand. This can expand the potential user base and increase the visibility of the service or product. Reddit has an open content API, which you can try out for yourself with the following link:
https://www.reddit.com/r/Wallstreetbets/top.json?limit=10&t=year
It lets you easily access the content on the webpage in a machine-readable way, without registration. Additionally, offering an API can also attract developers and companies to partner with or integrate your service:
The open-source content management platform Drupal.org is built, maintained and documented by the community.
APIs boost innovation
By providing third-party developers access to a company’s resources and data, new products and services can be built on top of those.
With the wide adoption of open banking and by this making the banking service more accessible to developers, entirely new and innovative products occurred on top of it. Plum, for example, uses open banking to link your bank account to an AI. By understanding your income and spending patterns, they calculate a saving amount automatically. Additionally, the AI can find better deals on your purchases and can help you reduce your spendings.
Convenient APIs make it easy to integrate one or even multiple dedicated third-party services, specialized on one use-case, into your application. With this possibility, it can suddenly be worthwhile to build applications for a very specific user group, while still being profitable. You can start focusing on the long tail and not only on the hit products.
Niche products are part of the long tail - Image from codetiburon
APIs improve efficiency
By using APIs, applications within your company can share data and functionality. This can reduce expenses as functionality only needs to be built once, while reducing the cognitive load within teams, which in turn increases their performance. Additionally, it improves the time-to-market by not spending time on building every application from scratch. By treating every API like they could potentially be externalized, and documenting them accordingly, you ensure that your business knowledge stays in the company and is accessible to all potential consumers.
Amazon recognized these advantages early on. Following the mandatory quote from Jeff Bezos used in every post about APIs:
API mandate in Amazon - Nai Grando’s Image on Pinterest
If your organization has large legacy systems in place, modern APIs could be set in place as a gateway. This way, those systems don’t become an even bigger bottleneck on your digitalization journey. At one of my previous jobs, we used this approach to connect a modern Manufacturing Execution System (MES) to our existing ERP.
The ERP provided an interface to exchange data only through shared database tables. We build a Gateway-Application with a Rest-API Interface set up on those tables, so all other applications can easily share data over a modern API.
By this, we could test and debug more easily. The integration with the ERP could be simplified. We only had to develop the complex interaction with the exchange database once. After, we could use a convenient REST API.
System Setup ERP Gateway with API
Summary
In conclusion, APIs can be more than a tool for developers. They can be a valuable product, to increase revenue, expand reach, boost innovation and improve efficiency in your organization. By monetizing the API directly through paywalls, upselling, or indirectly, you can generate additional revenue. Additionally, by allowing third-party services to incorporate your API, you can expand your audience and build a community around your brand. Furthermore, by providing access to your resources and data, you open the door for new products and services to be built on top of your API, leading to innovation and growth. Overall, APIs are a powerful tool for driving success in today’s digital landscape.
If you would like to learn more about APIs in a business context, check out the further readings section. Also, stay tuned, as we will write more articles about APIs in the future.
Further Readings
APIs Aren’t Just for Tech Companies by Tiffany Xingyu Wang Matt McLarty in the Harvard Business Review
API economy by George Collins and David Sisk from Deloitte
Business Value of API-First Design by Martin Gontovnikas
