API Business Models: To Pay or To Charge Developers, That Is the Question

Andres Ferrate
Oct. 26 2009, 03:05AM EDT

Lately we're seeing a lot more talk about API monetization. Last week we covered TweetPhoto's efforts at encouraging developers to use the TweetPhoto API through a transactional payment model (one penny or so for each photo uploaded via the API). Last month we covered Bandsintown, which provides affiliate earnings via use of its Bandsintown API. And more recently Touchnote announced an affiliate payment model (with a whopping 30% royalty) for developers working with its image API.

It seems that companies are starting to incentivize developers with more concrete rewards in order to expand the reach of their services and products. And it seems that this is a worthwhile endeavor for companies that opt to do so, as it can motivate developers to take action to build mashups and apps with APIs that may not necessarily yield revenue through some of the more traditional means of monetization, such as banner ads and generic affiliate links.

Indeed, incentivized developers can greatly influence the success of a company's bottom line, as highlighted in Fred Wilson's recent post: Business Model Jujutsu. In his post, the New York City VC relates the story of TACODA, a company that shifted gears an realized increased revenues when it began to pay its initial customers via royalties on sales of the customers' inventory. Wilson relates the shift to Indeed's shift with its API, as summarized by this recent tweet for a comment made by Indeed's CEO:

We tried charging for our API without much success. Then we paid developers to use it and it took off.

As Wilson notes, this is a jujutsu move on the market that can yield great rewards:

In the case of Indeed, they initially offered online publishers the ability to pay for a real time search API of online jobs. Not many took them up on that offer. But when they injected their sponsored jobs into the API and offered to share the revenue with publishers, the demand was huge.

Wilson's short and sweet post is a reminder of the power and value of a developer community willing to create viable apps and mashups in return for a small slice of the pie. The comments on the post are worth reading as well, as they shed light on some additional factors and other examples of revenue-sharing APIs that have not been that successful.

Although the value of an API to developers depends on the nature and context of its use, it would appear that companies that go this route gain more via this type of mutually beneficial approach. That's not to say that all APIs should pay or share revenue with developers, but it's food for thought about the nature of paying or charging developers to work with an API.

Andres Ferrate

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