One of the most common questions we're asked by prospective customers is "what's the right way to get started with API monetization?" In this article, we'll do our best to lay out what we've seen work most frequently — and call out a few common pitfalls as well.
What we can say with certainty is that, "Build it and they will come," doesn't work as an API monetization strategy. That may sound obvious, but we've seen it attempted enough that we want to specifically point out how to avoid this common temptation in API monetization.
API Monetization Strategies
1. The right team matters
After participating in a number of strategy workshops with clients, the number one predictor of success for building a revenue-generating API-based product offering is the structure of the team running the project.
Quite often, we're initially contacted by forward-thinking technology leaders who have realized that the investment they've made to modernize their internal systems opens new possibilities to automate and monetize these services directly to customers.
However, as we help to peel the onion on what is ultimately required to launch the services envisioned by these leaders, they quickly realize that a successful offering will require marketing to find customers, support teams to assist customers, business teams to price and sell the offering . . . you get the idea.
Overall, the key point to remember when building your plan is that this isn't just a technology initiative but the creation of a completely new product and service. Again, this may sound obvious, but this point frequently gets lost in the excitement of implementing the right technology to support monetizing APIs (which is undoubtedly important, but at best half of the required ingredients).
Bottom line, the most successful monetization initiatives are co-sponsored by senior leaders in product management and technology (IT/engineering).
If you're a technology leader who sees the opportunity to build a paid service on top of the automated infrastructure and API ecosystem you've built internally, our first recommendation is to reach out to your counterpart within the business and let them know the work you've done can help them build a new revenue stream. (They don't receive many calls like this, trust us!)
2. Identify latent demand
If you're a product leader who receives this call (first, say "thank you") and if you're not already aware of demand for API-driven services from your customers, your next call should be to your favorite sales / customer success reps and your partner/alliance teams.
Ask each of them if they've had a customer or partner ask them about extending your existing offerings with APIs. (We've seen latent demand identified often enough in this way that this is a must-do before proceeding further. If you identify interested partners or customers this way, you've found a massive shortcut to the finish line.)
3. Avoid flame-out and get to MVP quickly
Unfortunately, we've seen more than a few initiatives stall after acknowledging that monetizing APIs essentially requires building an entirely new business.
This is understandable, as the prospect of asking every business function whose support you require (marketing, sales, operations, finance, etc.) to fit you into their schedule for an unplanned project is undoubtedly daunting — especially without executive support.
This is how we recommend shrinking the problem into a manageable MVP-sized initiative.
4. Put product management to work
The first step in the process is product management bread and butter. They'll need to come up with a shortlist of ideas for API-backed services and reach out to the sales team, partners and customers and explore the demand.
Time-box this exercise into ~30-days. If you can't find demand within that time period, this isn't likely to be an initiative worth pursuing in the short-term. (But this allows you to make that decision quickly.) The key product-management questions are no different here than for any other product:
What problems are we solving?
Are the problems painful enough that customers will pay to solve them?
Who is the target customer? Who has this problem?
What are the alternatives (either other services we offer or those of our competitors)?
And so on…
At this point — assuming you've discovered a few ideas through this process — prioritization is the next hurdle to leap. While this can be (and should be) a detailed review and a potentially complex decision-making process, for the sake of brevity in this article, we'll boil our recommendations down to two:
Committed customers first. If your background work identified a partner or customer who was willing to pay for one of the offers you're considering, it goes to the top of the list. They'll help you build your offering in a way that virtually guarantees a paying customer at the end of the process, and there can be no greater justification for an MVP than this.
Simplicity trumps all. If debating between potential MVP offerings, choose the one with the least compliance hurdles, the least time to develop, the least complex pricing model, the least amount of change for your back office functions to support, etc. Remember, the main goal of an MVP is to minimize the investment to test your idea, mature your process, and expose gaps you did not anticipate. The simpler you make your MVP, the less resistance you'll face internally and the less you'll invest before you uncover these gaps. You'll then set yourself up to better deal with all of these types of issues on more complex initiatives that will follow the success of your MVP.
Following the steps above will allow you to build a solid foundation for your API monetization initiative and minimize the risk and investment required to build your first API-backed product.
However, successful API initiatives require a successful collaboration of business and technology. In our next article in this series, we'll turn our attention to best practices for API monetization from a technology perspective.
About the Author
Jason Cumberland (LinkedIn) is CPO and co-founder of HyperCurrent, an API and data monetization platform. In his role, Jason has helped executives from dozens of companies develop and mature their API monetization strategies.