The State of API Monetization
Many digital organizations are looking specifically at their API products as new sources of revenue and avenues to engage with their developer communities.
October 4, 2022
Digital transformation has become commonplace. Many organizations are looking specifically at their API products as new sources of revenue and avenues to engage with their developer communities. The goal is to increase their product reach and acquire new customers at lower costs.
Three main processes arise as later-stage organizations evaluate their API goals:
- Turning internally facing APIs external to drive new revenue channels
- Launching monetization for developer-facing APIs
- Launching a self-serve option for their existing API products
For all three processes above, launching an effective billing infrastructure and pricing strategy around external facing APIs for sales-led and self-serve channels creates a significant engineering lift around cost and time to build.
Usage tracking is the first step to understanding how your outside developers and customers are consuming your API products. Then comes the problem of launching a variety of pricing plans across usage-based billing, graduated pricing, volume contracts, endpoint permissioning, and more, while layering in free trial periods, discounts, coupons, etc. The billing infrastructure and payments workflows must be built smoothly or the organization will face pain on their finance and accounting teams during revenue recognition, billing, and invoice cycles.
The complexity of these systems involve collaboration across engineering, design, sales, and finance. This time to market to build a in-house system that can handle this lift can easily surpass 12 months, with costs running into the mid-6 figures to many millions of dollars depending on the engineering timeline and complexity.
Many companies typically use monetization systems built by gateway systems like Apigee, Kong, and Mulesoft or build systems in-house. From our experience, these solutions still require significant engineering lift and are rather inflexible. Issues still remain around usage reporting, salesperson ease of use and many manual processes on the finance and accounting side.
Issues with Current Solutions
Tracking usage is a uniquely hard problem to solve as companies need a performant, scalable, idempotent, and reliable event-driven architecture. This includes infra that can support usage by any billable metric, such as API calls, call participant minutes, GB stored, and more. There’s also the element of aggregating usage to create invoices and charges. Some metrics require aggregations by sum, last, max, or other custom values which create different architectures for ETL systems.
We have spoken with a PM at a legacy enterprise using Apigee who told us it takes them 8 hours to pull usage reports across only 17 APIs every 30 days (1/20th of the monthly work week), and will only get worse as more APIs are launched and consumption grows.
Poor usage tracking also creates difficulties as organizations look to run price experiments and optimize their overall performance. Without easy-to-use infrastructure, running experiments or modifying prices on the fly can be a very manual process and forces a huge slowdown in iterating catalogs and flexibility of pricing.
Organizations also need to consider their own security risks around PII, PCI compliance, and entitlements with safeguards to ensure only permissioned data can be accessed.
Self-serve APIs are also critical to companies looking to launch products downmarket with the ability to upsell with dedicated AEs. This ends up being a completely involved system that requires engineering, product, and finance teams to work together to build seamless onboarding, checkout, and dashboard experiences.
These self-serve systems can create additional headaches for finance and accounting teams during revenue recognition periods. Reconciling subscription data, prices, discounts, price experiments, usage data, and more, while feeding this into invoicing and billing systems can be quite painful.
With this in mind, we have seen that engineering teams and PMs tasked with building API billing infra have typically never done a full-scale system before. This tends to distract engineering teams, slow the process to launch, and cause cost concerns for the organization.
Half-baked solutions are common, where manual tasks and a lack of transparency into API usage and billing are passed along to finance and accounting teams. We have seen Series B companies and beyond spending months to years building some of these systems only to end up processing their usage tracking and billing on a mix of Google Sheets and SQL queries.
An API-first company we spoke with recently said their Director of Finance spends over 20 hours per month manually calculating usage reports in Google Sheets and invoicing their 100-plus customers. This is not scalable.
Archetype aims to be the end-to-end infrastructure billing solution for APIs. Archetype supports integrations into backend systems or paired with API management systems like Kong, where usage tracking is automatically sent. Organizations can leverage our pricing engine or sync directly to Salesforce CPQ to utilize Archetype as a central source of truth for API billing.
With Archetype, teams can turn on monetization for the APIs in a matter of days to weeks, rather than months of in-house development. Archetype supports any billable metric while teams can leverage our frontend portal tech to embed pricing, checkout, and customer-facing portals to easily launch self-serve.
In the case of turning a collection of developer APIs into a monetized product, we support a public catalog of plans that are instantly deployed in real-time for self-serve customers to instantly onboard.
This includes an embedded checkout system to accept payments from customers inside of your workflow and an account dashboard generated by Archetype for customers to easily manage their subscriptions, view usage in real-time, view and pay invoices, update API keys, set budget alerts, refill credits, and more. No sales or customer success person engagement is needed, thus saving significantly on operational costs.
What Does the Future Look Like?
Our vision is to build a platform that enables companies to launch and iterate their API products quickly and effectively without ever having to go through the pain of manually embedding payment processors throughout their entire stack.
Building API billing infrastructure is complex and resource intensive. We want to support companies of any scale, from startups to enterprise organizations to focus on core products and launch faster while using Archetype to drive revenues for their APIs.
As more payment processors emerge, the problems around implementation remain the same. We’ll be there to support new workflows and we’re excited about what’s to come!