As folks who power realtime APIs, we’re always interested in broader trends in what is referred to as the “API Economy.” In the last couple of years, we (and everyone else) have seen the proliferation of APIs skyrocket. ProgrammableWeb indexes over 18,412 APIs. Even Walgreens has an API.
This has generally been a good thing for developers who want to build new technology. Instead of having to build your app from scratch, you can assemble distributed processes for everything from payments to messaging that are built and scaled by specialists, leaving you with more time to focus on your unique functionality. There are APIs and “as-a-services” (we’re one of them), for almost everything you can imagine – and this means developers are implementing more APIs in a single project than ever before.
Dominant API monetization models aren’t aligned with developer use cases
The vast majority of current APIs use subscription-based pricing models, based on a maximum number of API calls per month. You might be making a variety of API calls for different use cases, but most subscription plans don’t charge you based on the business value of a call – they roll all calls up into a single number. If you need more calls, you need to go up to the next subscription plan. If you don’t use all your calls, you’re still paying for them.
Developers who implement functionality via APIs to save time and deliver the best user experience now run into an issue where they are are paying an ever-increasing number of monthly subscriptions for access. A minimum subscription plan is required to maintain the functionality, and switching plans to react to changes in usage is cumbersome and time consuming. This is not sustainable.
The future means only paying for what you use
Kin Lane posits the majority of API startups use subscription pricing because it produces the smooth, regular recurring revenue so beloved by investors. This certainly plays into pricing decisions – but the subscription model doesn’t provide the smoothest experience for developers building products and businesses on top of APIs.
As the number of APIs continues to rise, we think there will be more pressure on API creators to change their business models – and in this case, competition will be a good thing for developers. API creators will search for alternate ways to measure and monetize the value they provide beyond the direct subscription route. This could mean only charging for the calls the developer uses in a given month, or even pricing based on the business value of specific calls.