APIs are a foundational technology that enables companies to participate in the digital economy. APIs have the potential for value creation such as the establishment of new channels for products and services and the enablement of entirely new digital businesses models. The ecosystem created by connected enterprises, customers and suppliers via APIs has an economic effect – The API Economy. In this post we will look at the steps to tap into the API Economy and Monetize Your APIs.
APIs provide programmable access to systems and data that have strategic and economic value. For example, the APIs provided by Amazon and eBay are the primary means for paying customers to access their platforms. Like these born-on-the-web companies many traditional companies are looking to provide systems as platforms and offer information and services via APIs. These platforms require a modern architecture as well as a business strategy to monetize APIs. Also, new software development approaches are often needed to treat software as products and manage a rapid product release cycle.
The five steps to monetize your APIs we will examine includes:
1. Establish your business case and roadmap
2. Ensure you have the right funding and organizational model
3. Treat APIs as a products with an Agile API product lifecycle and governance
4. Ensure you have the right technology platform to build and manage your APIs
5. Measure and monitor API KPIs such as run-time performance, financials and developer feedback
The API Product Business Case
An API is not a product if it’s not designed and managed like one. APIs should be treated as products from the beginning including how they are funded and supported by the organization. An API business case should be created to ensure proper business alignment, funding and organizational support.
The API monetization business case and strategy should address the following key questions:
• What are potential API and data driven value added services and revenue opportunities?
• What is the required level of investment and what are the supporting business cases?
• What’s the process to develop and support new data and digital services revenue streams?
• What commitments does the organization need to make?
When developing your API monetization strategy, consider the following topics:
• Digital products and data monetization offerings including: potential customers, sales channels, and service offerings
• Customer needs assessment
• Competitive assessment
• Funding and staffing models
• Business case(s) for APIs and data as a service
• Implementation roadmap
• Pricing model for API usage/data consumption
• Marketing communications plan
API Organization and Funding
Whether your API is a product or a project starts with how your API is funded. Are you treating the API as a funded product or as an approved IT project? Building products within traditional IT projects will be challenged from the start.
A typical IT project is funded based on an allocation of an annual IT budget and approved based on projected benefits. Then project scope is tracked (hopefully) and benefits are assumed but often not validated. It is rare to see an IT project’s financial returns calculated with rigor post implementation. So if your API is a project, it is viewed by the business in the context of a budget in the IT cost center.
A product however is positioned as an investment, not a budget carve out of a cost center. A product might come from an R&D budget or might be funded as a business startup. Additional funding past a product launch is funded as a product enhancement. Benefits must be validated for continued product development – for example with sales for market-facing products and with usage for internal products.
Agile API Product Lifecycle and Governance
APIs should be developed using techniques such as Scrum with product ownership, Agile portfolio management and API product ownership to manage your APIs as products. For example, funding could be based on the desired portfolio of API products and the set of Sprints needed to create the products as minimum viable products (MVP). Then, enhancement Sprints could be funded based on product revenue and anticipated additional revenue from enhancements. The API development team would not be staffed as a transitional IT project but as a more formal product team based on the life of the product.
An API product lifecycle has many of the following attributes:
• Published to and consumed from an API developer portal / data marketplace
• API product ownership – roadmap, MVPs, product offerings, pricing models
• API lifecycle management – API-first design, API standards, metadata capture, test driven development, CI/CD, version control, run-time KPIs and SLAs
• Customer feedback and enhancement loop
• Product marketing and market research
API Product Platform
APIs are the digital conduit to underlying information and services and presents the programmable interface to the consumer. However, there is most often a great deal of complexity underlying the API. APIs can be exposed via green-field microservices on the latest Platform-as-a-Service or via integrations to legacy monolithic applications. The underling architecture components might include e-commerce, digital assets/rights management, security, integration, data management and many enterprise information systems. APIs are, from an availability and performance perspective, the sum of its parts and must have a solid component architecture.
Consider the following steps to get your API platform architecture ready for commercialization:
• Review API requirements and candidate component architecture
• Diagram the current-state platform architecture
• Assess architecture gaps based on requirements/capabilities, industry analysis and trends
• Diagram future state architecture
• Build vs. buy decisions and software selection as needed
• Legacy modernization – monolith to microservices migration, Agile development, DevOps
API management software is a critical component to API monetization architecture. API management software provides the following features:
• Developer portal / marketplace
• Lifecycle management
• Throttling and security
• Analytics, KPIs, and developer feedback
• Monetization features – metering, billing models, payments and reports
Run-time Management and KPIs
The API management software provides many of the metrics you will need to manage your APIs as products. API management has API portal metrics, such as API keys issued, active developers; and run-time metrics such as API call counts and response times; as well as developer feedback such as forums and API rankings.
To create an environment of continuous improvement, establish as set of KPIs for APIs to monitor and track within the categories of operations, development, portal metrics and financial. It is best to establish KPIs early and instrument your APIs and API platform to gather the telemetry data needed to report the KPIs.
It is also critical to monitor the underlying components, like microservices and legacy integrations, using application performance monitoring tools as these distributed environments are typically complex.
API Quick Start
Perficient has an API Quick Start offering that addresses the topics introduced here should you need any help. We bring a lot of intellectual property and experience to the problems associated with building world-class API products.