The evolution of the Internet has seen digital services morph in form, function, and complexity. As more users get connected and exposed to digital lifestyles, businesses have realized that it is no longer sufficient to transact in operational silos.
How businesses are able to open up and allow third parties to add or extract value is through the almighty API.
An acronym for Application Programming Interface, APIs empower businesses with the ability to expose parts of their internal systems to developer partners who are then able to build hooks into other systems or create entirely new service lines. It is much easier and scalable for a thousand partners to build one service each than it is for one company to build a thousand services, thus opening new revenue streams or customer access channels for the business.
API driven business models
That benefit aside, it is important to know what business model to run with as this can make or break the return on investment on this digital transformation.
The subscription model, gives fire-hose access to a host of APIs based on a fixed monthly or annual fee. This means that once a partner moves out of the sandbox they give a predictable minimum recurring revenue to the business.
In the gambling industry, subscriptions are popular for a broad range of services from odds to live data.
On-demand business models, such as the one adopted by Kenya's Equity Bank’s FinTech subsidiary, Finserve, sees a charge levied for every call made. In the case of their Jenga API the cost is tiered based on calls made, with 0 to a 100,000 being free and anything above that billed at a flat Ksh 1.
Most businesses who adopt this model, will levy a charge only on successful transactions with those that return nothing being free. Another example is in identity lookup as consumed by many digital lenders from credit reference bureaus who interact with the Integrated Population Registration System.
Transaction models are common where the business has an immediate and direct benefit embedded. This sees the API offered for free, with fair use policies often in place. Safaricom’s Daraja API and others offered by payment or messaging gateways earn either through transaction value commissions or margin on direct sales facilitated.
Different API-driven business models can be mashed up to create unique propositions that include additions such as freemium where fees are charged for extra features, data enrichment or revenue sharing.