API monetization is currently a trending topic for many organizations looking to beef up their revenue. Of course, monetizing APIs isn't the easiest of tasks and requires quite a few moving parts.
When it comes to monetization, you're going to need an entire technology stack to handle the heavy lifting. Creating a stack that allows you to build a product and get to market rapidly is great. However, what's not so great is if that same choice limits the scalability and features of a product in the future. Over-provisioning your selected components can also be a hindrance to a future use case that may or may not come to fruition, adding complexity and cost. A balance has to be found.
What this means is that you'll need to choose the components within your stack to ensure that your current needs are met easily and quickly while still having the option to expand and scale when you're ready. Optimally, this stack would contain components that fit between your current needs and the needs of your product and customers in the future.
When it comes to making money from your APIs, picking the right stack can help you get up and running quickly and allow for flexibility for your business and its customers. Let's look at a few ways to assess which stack best fits your API monetization needs.
What is API monetization?
As the API economy continues to grow, so does the potential to generate revenue from APIs. If you have APIs that other companies or individuals could be using, usage-based billing, metering, and API monetization are something you've likely thought about.
When we speak of API monetization, we're looking at generating revenue from our APIs. Whether through charging per user, per API call, or another metric, API monetization covers a whole gamut of possibilities when it comes to deciding how to charge for usage. If your business model doesn’t include using your API resources to drive additional revenue, you could be missing out on a potential revenue driver. If these APIs already exist, API revenue could be a quick win.
API monetization billing models
API revenue can be generated through an array of different billing models. You may charge an API consumer after they have used your API, this is a post-paid billing model. You may also decide to charge an API consumer up-front for usage in a pre-paid or pay-as-you-go type billing model. There are various pros and cons to each approach, the exact use case and customer base generally tend to drive businesses to adopt one method or another, sometimes even both.
Once you've decided that you want to use your APIs to generate further revenue, you are then tasked with building out the system and infrastructure to do so. The solution will likely have a few moving parts, and each of these parts will play a crucial role in your API monetization stack.
What does an API monetization stack look like?
A more practical approach to the architecture of an API billing solution is to break the solution into three parts: your API(s), API analytics to track usage, and a billing provider. Let's look at these components in a bit more depth.
Here, when we talk about the API, we're referring to everything to do with the API, including securing the API, rate-limiting, transformations, and so on.
Usually, part of the API setup includes some type of API management layer — like an API proxy or an API gateway. Most modern businesses are using API gateways, such as Kong Gateway, that provide all of these capabilities and more.
As the API is being used, you'll want to gather metrics about that usage.
Since the analytics platform is seeing API consumption metrics around every API call, it makes sense for this to be the system of record for tracking usage and sending it to the billing provider. Moesif, for instance, offers functionality that allows API usage to be aggregated and used for billing purposes by sending the usage reports to a billing provider.
The billing provider will receive usage amounts for each customer, tally up the amounts over the billing period, issue an invoice, and collect the amount owing. Billing providers such as Stripe, Recurly, and Chargebee are common tools for this purpose. Subscription and billing management are also available on most of these platforms as well.
Choosing a gateway or proxy for your API
One thing is for sure, using an API gateway will make securing and managing your APIs much easier than doing it without. Most gateways support a wide variety of authorization and authentication protocols to control API access, tools for generating and managing an API key, great support for rate limiting and quotas, and other features such as the ability to apply transformations to requests and responses.
An API management platform may also provide a developer portal so that API users can easily see which APIs are available and get access to them.
Although APIs can be managed without an API gateway or proxy, having one means that you can establish a more uniform way to secure and manage the APIs. Essentially allowing you to manage all of your API-related concerns under a single pane of glass. From a scalability and security perspective, there's no better solution.
Choosing a billing provider
When choosing a billing provider, you should have a good idea of current and future needs in regard to what a billing provider can provide.
You'll want to be aware of what it takes to integrate the billing provider with your current solution as well. Different providers have different ways to integrate which can make them more or less suitable for your project. You'll also need to ensure that the billing provider can support your API monetization model, whether it be pre-paid or post-paid, and the variations of each.
On top of the technical requirements in integration, there are a few operational factors that should also go into choosing your billing provider. These factors are likely the most important since technological barriers likely have a workaround. The operational factors mentioned below tend to be more static and could have bigger impacts on the actual revenue driven from the APIs.
For most companies, this will be the main factor outside of comparing the capabilities of the technologies. If the billing platforms you're considering will work for your project, the next focus will be on the cost of actually using the platforms.
Billing providers charge for the use of their platforms in different ways. Generally, there are different tiers and service plans. There may even be add-ons to consider in the mix. You may see usage charges either as a flat rate, percentage, or a mixture of both. You'll also need to factor in the volume that you'll be passing through the system since that can also lead to discounts which may make a certain provider more attractive.
The reporting tools built into the platform can help the business side of an organization easily see the results of API monetization. Most platforms have a minimal amount of reporting while others have extremely detailed reports available. Finance and ops teams can use the reports in the billing providers to understand revenue while contrasting them with internal dashboards create with engineering and other business reporting methods already in place.
If an issue does occur, it's great to know that the provider can provide quick support to remedy the problem. You'll want to make sure that you look at different support packages the provider offers, what the SLA is for turnaround on minor and major issues, and also look at some customer reviews to see if existing users are happy with the support. Customer support SLAs, as well as guaranteed uptime, can be a big factor in handling issues when things go wrong.
Using Kong and Moesif for monetization
Bridging the gap between your APIs and the chosen billing provider is where Moesif and Kong come in.
Kong is a fully featured API management platform with amazing security and customer management tools built right in — exactly what's needed for proper monetization. Moesif easily integrates with Kong and allows for tracking of usage and aggregation for your monetized APIs. Then, Moesif can send the usage records to the billing provider to charge and invoice customers for their exact usage. This is all available in Moesif and Kong, right out of the box.
Moesif allows for full-service API monetization. Support for full-service monetization means that Moesif can cover all of the gaps that are crucial to creating a strong API monetization stack. This includes stuff like tracking usage, blocking usage on accounts with overdue invoices, building customer dashboards, and alerting internal teams about any concerning behaviors or possible upsell opportunities. These functionalities come through billing meters, governance rules, behavioral emails, and alerts that are all available within the Moesif platform.
Monetizing your APIs is a complex project to undertake, but it doesn't have to be hard. Along with a great API strategy and robust API design, by using reputable and proven technologies like Moesif and Kong you can get to market quickly while keeping quality high.
With the right technology and monetization stack, you can quickly drive revenue from your APIs. Choosing the right stack for your monetized API is crucial for the needs of today but also for making sure that you have what it takes to expand into tomorrow, confidently.
No matter what you choose, using Moesif as the hub for your API monetization strategy saves time and effort while delivering scalability and stability for your newest revenue stream. Start your API monetization journey today. Visit www.moesif.com to learn more.
About the Author
Matt is a developer at heart with a passion for APIs, data, software architecture, and writing technical content. In the past, Matt worked at some of the largest finance and insurance companies in Canada before pivoting to help build fast-growing startups, like Moesif.