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Monetizing an API

Matthew B
Matthew B asked
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Last Modified: 2019-10-11
Hi all,

We have been asked by a client to open private access to our API. This will be monetized, and they would like us to provide a pricing model.

I have no idea where to start, i know the types of ways we can charge them (per user, usage, requests, etc), but i have no idea which is best for our use case, and how do we even go about building a mechanism to monitor usage for billing.

Our API is REST based (currently for internal use of a webapp and mobile app) and sends data to the cloud to be run against ML models which then spit back confidence scores to the applications.

My next question is regarding architecture, would we implement a layer between our ML Service and our clients that would implement oauth2/monitoring of API usage?
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KimputerIT Manager
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Commented:
Depends on so many factors. Easiest, set a FUP with a fixed monthly fee.
Otherwise, you have to indeed setup a charge table (0-100 = xx, 101 - 1000 = yy etc). You have to think about how much time and money you spent on making this API what it is, how much time you need to maintain it monthly, and how much you will spend to perfect it in the future.
Divide that by the average usage per month.
Use this model on your last month usage, and do some calculation if you get anything out of it.

Since you don't have exact details how valuable the returned data is, try to step into their shoes, and see what's reasonable.
Reasonable enough you can make a living, and reasonable enough they won't walk away to another party.
Fractional CTO
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Distinguished Expert 2019
Commented:
I suggest you study how MailGun monetizes there services.

They use several approaches.

1) Mail Sent - Per mail sent, which triggers a charge. This results in many Webhooks (API) calls back to another site, so charge for Email sent + no charge for Webhooks called.

2) Address Validation - Per API call charge.

3) Bulk Rates - On #1 + #2, so maybe $1000/1M email sent per month + some number of validations/month, then a overage charge.

4) Study Other APIs - Pick one of 1000s of APIs to study. For example, Google maps comes to mind. Every mail relay service. Every CRM (behind the scenes API charges).

You're imagination dictates how you will charge.

Note - Biggest challenge is API throughput, as calls/second increase.

Tip - Hire an expert API developer to tool your API to handle high throughput. Hire several people, for an hour each, to ask how they might monetize your API.
Dr. KlahnPrincipal Software Engineer
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Commented:
First, find out what they are willing to pay.  Then you know whether it's worth your time to follow up.

This doesn't have to be a hard and fast figure, but you need to know the ballpark.  If they are willing to pay x, and doing the work will cost you 3x, plus the maintenance and docs (and don't forget insurance because if it's used in a business eventually you will be sued), then you'll need to either recruit more customers or decide whether the long-term payback is sufficient to do the work.
David FavorFractional CTO
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Distinguished Expert 2019

Commented:
You might also consider reading Dan Kennedy's "Price Strategy" book.

1) You can find out what people are willing to pay, as Dr. Klahn suggested... or...

2) You can determine payment level you require, then adjust your marketing to attract people who are excited to pay what you're charging.

Usually #2 will produce far fewer clients (less hassle) paying far more (higher profit).

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