Gartner Application Strategies & Solutions Summit

Summit 2017
4 – 6 December 2017 / Las Vegas, NV

To the Point: Beyond API Management —

Marketplaces, Monetization and Ecosystems
Mark O'Neill

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Key Issues

1. How can you engage with the API economy?

2. How can APIs be monetized?
3. What are API marketplaces and are they right for your organization?

1 © 2017 Gartner, Inc. and/or its affiliates. All rights reserved.

Key Issues

1. How can you engage with the API economy?

2. How can APIs be monetized?
3. What are API marketplaces and are they right for your organization?

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APIs Underpin the Digital Business Platform

Web Mobile Partners

Logical API
Mediation
Layer

*
Devices

Inner APIs Outer APIs

* IoT communication may be based on web APIs or through other protocols such as ZigBee, RFID and Bluetooth
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APIs in the Multisided Platform
One-Sided Three-Sided
(Traditional Commerce)
Advertisers

Digital APIs
Buyer APIs Seller Buyers APIs

Platform
Sellers

Transaction Service
Services Provider

Two-Sided n-Sided
(Brokered Interaction)
Supplier's
Advertisers
Supplier

Digital Digital
Buyers APIs APIs Sellers Buyers APIs APIs Sellers
Platform Platform
Transaction Service
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Services Provider
Defining the API Economy: A (Long) Working Definition

 A set of new and innovative business models

and channels
 Based on secure access to functionality and exchange
of data
 To an ecosystem of developers and the users of the
app constructs they build
 Through an application programming interface (API):
– Within a company
Definition of "economy":
– Or on the internet with business partners and customers The process or system by which
goods and services are produced,
sold and bought in a country or region

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API Management

 Self-service API portal for developers

 API gateway for security, management, monitoring

APIs
 But what comes beyond API management?

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 Are hackathons
the answer for
gaining value
from the API
economy?

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Be Realistic About Hackathon Benefits

 Hackathons can help to:

– Generate publicity

– Change culture and encourage innovation

– Attract and retain talent

– Encourage new partners and ecosystems

 But you must define objectives:

– Reduce time to market of new apps/services

– Gather feedback about your APIs

See: "Hackathon Handbook for Banking CIOs" (G00301792)

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Key Issues

1. How can you engage with the API economy?

2. How can APIs be monetized?
3. What are API marketplaces and are they right for your organization?

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API monetization
doesn't just
mean charging
for API calls.

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Identify Your API Monetization Strategies

Subscription Upgrade

Faster Time
Revenue Sharing
to Revenue

Platform as
API Calls
a Channel

Monetization
Revenue per … X Opportunity New Products
(Next Three Years)

Lower Higher

See: "Digital Business Models for the Economics of Connection" (G00278352)

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API Pricing Models

FREE  Free to use, but may include traffic throttling to ensure that the service is not misused.

FREMIUM  Free to a certain usage level, or during testing (sandbox mode), with tiered pricing for production mode.

SUBSCRIPTION  Subscribing to a tranche of APIs monthly, with overage charges if the subscription limit is exceeded.

PAY-PER-USE  Pay per API call, or per MB of data consumed.

PAY PER TRANSACTION  One transaction may call a certain number of APIs.

 A portion of the revenue from the API is provided back to the API consumer, based on predefined business outcomes.
REVENUE SHARE
 Business outcomes may include the end user signing up for new services, or making purchases via the API.

 Application developer does not pay to access APIs.

END-USER PAYS
 End user of mobile apps, web applications or other applications written by the developer to consume the API pays.

PAY FOR AD-FREE ACCESS  API is supported by advertisements. If the API consumer pays, then the advertisements are not served.

PAY FOR ENHANCED

SERVICE  Basic API is free, but enhanced service is available if the API consumer pays.

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Pricing Model: Subscription

Advantages Disadvantages
Simple to understand. Potential for clients to place themselves in the wrong subscription tier,
The fact that clients pay in advance for API usage is beneficial for the API resulting in dissatisfaction due to either (a) paying a large fee for low usage or
provider, in terms of revenue recognition and working capital. (b) hitting their limit early.
Predictable pricing, once clients establish a usage pattern. Cost may not "fit on a credit card" for developers.
Subscription may be based on data volume (MBs per month, for example) or Not suitable for initial evaluation of an API.
based on API call volume (thousands of API calls per month, for example). Too many subscription tiers may be confusing to developers.
Ability to leverage out-of-the-box API management features. Some API
management products provide the ability to set "soft limits" (client can exceed
subscription) or "hard limits" (client is cut off when exceeds subscription).

Multipartner High Medium Low No fit

ecosystem This providing model is typically expected by partners.

pricing model fit

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Pricing Model: Pay-per-Use

Advantages Disadvantages
Simple to understand. Clients typically do not know their API usage in advance, and can be shocked
Typically implemented by API management products. at bills for high usage. It is therefore important to include the ability to send
notifications when high usage levels are reached.
Use may be defined as number of end users (e.g., through authentication),
number of API calls, data volume (MBs) or other factors. Some APIs may not be suitable for metered/pay-for-use. An example is an
autocomplete/spelling API, which is in the service of other APIs. High usage of
this API should not
be penalized.
"Chatty" API design may be penalized in this model, driving clients to attempt
to circumvent the pricing system by using techniques such as client-side API
response caching.
Payment is not received upfront, but is billed retrospectively.

Multipartner High Medium Low No fit

ecosystem Suitable for some APIs in a partner ecosystem, but the requirement for retrospective billing (compared to upfront billing for
subscription based APIs) may be seen as a negative.
pricing model fit

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Pricing Model: Freemium

Advantages Disadvantages
Familiar to many developers. Clients typically find it difficult to predict their API usage
API management products typically provide the ability to configure a in advance.
freemium tier. Clients may adjust their usage to stay at the free level.
Free tier provides clients with a means to start using the API, for example, Developers typically must still register for the API, even for the free tier. If they
when performing initial integration. do not plan to go beyond free tier usage, this can seem to the developer like
unnecessary overhead.

Multipartner High Medium Low No fit

ecosystem Already familiar to developers.

API providers may be given the tools to change parameters. But note that this requires usage of an API management
pricing model fit solution which provides the capability of delegating API administration to API owners.

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Pricing Model: Revenue Share

Advantages Disadvantages
Provides an incentive for the developer to develop applications or service Potential for fraud (e.g., fake user accounts being created). Therefore it is
using the API. important to police this model.
Simple to justify at a business level, compared to more technical pricing API management products typically will not support this type of pricing plan
models which depend on API usage. out-of-the-box. A custom solution is therefore typically needed.
May be tied to end-user payments, so that the developer using the API does
not pay out of pocket themselves.

Multipartner High Medium Low No fit

ecosystem Suitable for more sophisticated API clients who are themselves creating an ecosystem.
pricing model fit

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Assign an API Product Manager

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API Product Manager Role

Developers API Product Manager Developers

API consumers Obtain visibility into API usage API producers

Manage the API roadmap Create APIs
Create solutions Prepare for API monetization Create services
using APIs
Optimize developer experience (DX) behind APIs

See: "Create the Role of API Product Manager as Part of Treating APIs as Products" (G00320767)
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Know Your API Market

Developers Enterprises Partners

Consider freemium Consider subscription: Consider revenue share:
or pay-per-use:  Predictable spend, no  Incentive to engage with APIs
 Starts low surprises (for provider or  Drives end-user usage
 "Fits on a credit card"
consumer)
 Increases "stickiness"
 No need to limit access
 Monitored via developer portal

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Other Enterprise Features Required From API Providers

 Departmental billing and usage reports:

– Allow usage and billing data to be structured in a way
that maps to a business' organizational makeup
– Simplify monitoring by separating logs and help
finance teams accurately attribute expenses on a
business unit level
 Support enterprise identity stores:
– Active directory, other LDAP

– Synchronize roles and privileges

 Auditing:
– Record security-sensitive actions, like user activation

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Focus on Your APIs

Ziggeo moved to
However … So …
pure API model so it
Ziggeo began
The video-editing could sell to video-
with both a
service competed editing software
video-editing
with potential users providers without
service and
of its API competing based
an API
on the
end-user service

Lesson: APIs allow you to "get out of the user interface business" and
focus on your core business capability.

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Key Issues

1. How can you engage with the API economy?

2. How can APIs be monetized?
3. What are API marketplaces and are they right for your organization?

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API Marketplaces — Engaging Ecosystems

Including Third-Party APIs

Allows partners to provide APIs, with billing through the marketplace provider

Solution Showcases
A marketplace of solutions built by partners on the provider's APIs

API Catalogs
Categorized lists of APIs, with a search capability, but without billing

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Targeting the Citizen Integrator

 iSaaS enables citizen integrators to undertake "do it yourself" integration:

– Consider making your APIs available through iSaaS services also

IFTTT Zapier Microsoft Flow

See: "Market Guide for Integration Software as a Service" (G00292656)

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Recommendations

 Treat APIs as products and API consumers as customers

 Choose your API monetization model but be prepared to change it
 Develop your API marketplace strategy: Registering your API in
third-party marketplaces, and/or building your own API marketplace

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Recommended Gartner Research

 Create the Role of API Product Manager as Part of Treating APIs

as Products
Mark O'Neill, Paolo Malinverno and Others (G00320767)
 Top 10 Things CIOs Need to Know About APIs and the
API Economy
Paolo Malinverno, Kristin R. Moyer and Others (G00318859)
 The API Economy: Turning Your Business Into a Platform (or
Your Platform Into a Business)
Paolo Malinverno (G00280448)

For more information, stop by Gartner Research Zone.

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