What Makes a Startup Idea 'VC Backable'?
What exactly makes a startup idea attractive to venture capitalists? Understanding this can be the key to unlocking the doors to VC funding.
There are several API monetization strategies you can use:
BUT BEFORE YOU MONETIZE…
You have to know what your API service will be about, and naturally, you have to have an API. If you haven't figured out what to offer your customers, read the API business ideas article. You might find it very helpful.
Regarding API itself, low-code technology is the most cost-effective way to build APIs today because it increases development effectiveness by 3-5X.
Once you have the API, you can consider the monetization strategies described in the rest of this article.
Pay by API call is a monetization model where you charge for each request made toward your API. This can be done by charging each call or packaging it in bundles. For example, $10 for 100 API calls.
Pay for data consumed is a simple monetization model where the customer pays for downloaded data. This can also be set up, so the payment is based on every single bit used. And it also can be done in bulk, where the customer pays for every MB or GB used (depending on the specific use case).
When we talk about "consumed" data, it's usually interpreted as data sent to the user. However, this can also refer to data received. For example, if you're storing the data through your API (similar to Google Drive or Dropbox). Another example is image processing. Here it also matters if the API is processing an image 100kB in size to 10MB.
The flat subscription model allows users to access the whole API for a flat fee without any usage limits (within reason). This can be used for data types that don't change too often, so frequently calling the API doesn't make sense. One such example is the weather forecast, which doesn't change throughout the day.
Paying for available endpoints is a similar subscription model to a flat one. The only difference is you're getting access to only a specific subset of data for a flat fee. You must pay separately to access other parts of the data (other API endpoints).
Pay by the number of apps using the API is a flat-based monetization model where a single app has full access to the API for a fixed fee. But a developer or a company pays for every app/project that uses this API.
Commission based payment model is perfect for situations where the benefit is very clear in monetary terms. For example, if you have a payment processor API where you take a 1% commission on every transaction. This is a transparent and predictable payment model with a clear return on investment (ROI) for the end user.
NOTE: these monetization models are not mutually exclusive and you can combine several into a unique offer.
Companies and individuals can use API monetization for several reasons:
Direct monetary gain is the simplest form of API monetization. Every company wants more revenue. However, this is not the only way. There are other non-direct ways that either increase revenue or reduce costs.
Getting new customers is somewhat unexpected but a brilliant thing to do. You can even make the API free to use. Most companies probably have a lot of data that their clients might find useful. And exposing this data through an API for free puts you (as a company) in front of potential customers.
This is basically free advertising and allows your users to start working with you before officially hiring you. This builds trust, and when the time comes to do some actual business, you already have a good standing with your potential client.
Easier talent hiring follows a similar logic as getting new customers. But now, you are targeting software developers. Let's say developers see that you are developing cool technology. In that case, they are more likely to be drawn to your company. And more likely to want to work with you. This is, again, free advertising.
Long-term company stability is often overlooked, but there is something to be said about infrastructure dependency. For example, there are plenty of instances where software written half a century ago runs to this day. In fact, in many cases, this software is crucial. It's currently used all the way from banking to the airline industry.
When it comes to API, think about services like PayPal or Stripe. How can they ever fail when they're integrated into so many businesses? And similar logic can apply to your API business.
You are hard to replace if you get integrated into many different businesses as a key component. And your API becomes part of the infrastructure backbone of the entire economy. When that happens, it's really hard to fail.
When it comes to building APIs, nothing compares to the capabilities of low-code technology.
And all the while, you retain the ability to fully customize your app. So it's definitely worth trying it out for free.
After you have your core API with the functionality you want to offer to your customers, how do you monetize?
You have two options here:
Both approaches have their upsides and downsides. If you go with an in-house solution, the upside is you don't have to pay a commission to any external platform. However, you have to pay for additional development to set up:
And all of these things take time. Basically, it's almost like building a separate product. The alternative is to use an API marketplace. Currently, one of the biggest is RapidAPI. You just connect your API to this platform, and all the API monetization part is handled for you. Your only task is to provide valuable API and find new customers.
API monetization provides many benefits. Aside from direct revenue, it can also increase the visibility of your business and attract more customers and future employees.
Low-code technology is the most cost-effective way to build and scale APIs. This alone gives you an advantage over competitors who only use traditional programming. Its intuitive nature and usage of widely-known technologies make the learning curve really easy.