An application programming interface (API) is a set of software code that provides an interface for software to share data, responses, and instructions. Many business software integration platforms interact with software APIs to provide a primary interface for users to process and view data in real-time. With the growth of cloud-based computing, companies are joining the “API economy” as a means of driving partnerships, enhancing current processes, and driving overall digital transformation. Although monetization is one option, companies that select an API business model seek to connect business metrics to technical metrics.
Executive leadership often seeks options for integrating multiple software solutions to streamline operations and foster business growth. Different business software packages may not share interoperability, adversely impacting an organization’s efforts towards business software integration. Selecting an appropriate API business model not only enhances software interoperability and compatibility but ensures access and refinement of data.
Advantages of An API Business Model
Choosing the appropriate API business model can have an immediate positive impact on an organization of any size and structure. According to a recent McKinsey article, businesses that use APIs in their business software integration efforts can more effectively monetize their data, forge profitable partnerships, and develop new products. According to Forbes, organizations that adopt an appropriate model also enhance the consumer experience, drive internal organization and collaboration, and reach new markets. Mulesoft’s recent white paper reported that 80% of large organizations (with 10,000 employees) generated over $5 million a year through choosing an appropriate API business model and expanding their digital ecosystems.
Steps Toward Choosing The Right Model
Businesses that adopt an API business model develop a perspective on how an API fits into an organization’s digital ecosystem. Crafting an API strategy and cultivating a thriving API ecosystem are factors for laying the groundwork for selecting an appropriate business model. Defining the customer experience, embracing ecosystem rules, and defining an appropriate model is critical in shaping how a business adopts an API-friendly approach to its operations.
Once an organization has formalized a strategy and cultivated a thriving ecosystem, adopting an API business model consists of three critical steps:
Step One: Identify Your Intended Audience – Businesses integrating APIs into their current business model are looking for mutual benefit within three key groups:
API Provider – Businesses that provide an API for stakeholders and customers gain an obvious benefit in engaging more customers. Enabling direct interaction with customers via API provides data, behavioral, and other insights that drive overall customer experience and new product development.
API Consumers – An ideal model fosters both external and internal collaboration and cooperation. As an organization engages internal and external stakeholders in developing their approach to development, keeping their needs top of mind can shape how API development is shaped and geared for that audience.
End Customers – Potential users and customers’ experience with the API will impact your organization’s efforts. A business model that provides simplicity and efficiency can strengthen your current customer base and fosters new customer acquisition.
Step Two: Identify the Potential Purpose and Benefits – Although the ultimate goal is monetization and revenue acquisition, businesses that adopt an API business model often focus on secondary issues. Understanding how an API can potentially benefit users and customers through saving time, ease of access, and better overall experience can influence API strategy.
Step Three: Select A Suitable API Business Model – After determining the ideal audience, purpose, and benefits of adopting an API-centric model, the next step for any business is to determine whether an Internal or External API is required. Internal APIs connect systems within an organization’s corporate firewall, while external APIs connect an existing application/platform for an externally hosted/third-party application or service. APIs are used to coordinate several software functions and allow limited access to an organization’s digital ecosystem. Adopting an API business model streamlines business processes and delivers optimal results.
Examples of Internal API models include:
Legacy Modernization, which utilizes APIs to restructure bulky software code into easily serviced prices, allowing organizations to modernize their IT infrastructure;
Digital Transformation, focusing on updating and modernizing current infrastructure to improve overall customer experience;
Digital Native, allowing companies to modify their APIs for consistent user experiences across devices and platforms; and
Chargeback, providing insight and accountability into IT resources throughout an organization.
Examples of External API models include
Partnership, allowing organizations to find potential partners and assess their potential value;
Standardization, allowing for compliance to regulatory or industry standards;
Productization, or monetizing data or other underlying capabilities, and
Marketing, allowing an organization to increase brand awareness, grow and develop its network, and maintain transparency.
Choosing an ideal business model for API integration involves coordination, planning, and strategic thinking around business goals. With the emergence of the “API economy,” forward-thinking organizations are taking advantage and integrating this tool within their business operations.