If you're not familiar with Marco Arment's Instapaper, here's a quick break down. Instapaper is a great little service that allows you to store articles for later on your iPhone or iPad (as of this writing). Instapaper filled a huge gap. Not as high maintenance as an RSS reader, and 100% articles I saw somewhere but didn't have the time to read.
With Instapaper's growing popularity, many services began integrating with Instapaper to store articles for later reading. Originally, Arment offered a simple API to allow apps to quickly send apps to a user's Instapaper account. As more and more apps began "integrating" with Instapaper, it became obvious that Arment needed an official API that would allow developers to bring the service to more platforms and more users.
Of course, the downside of an ever-expanding app is how to handle the influx in usage that may bypass existing revenue streams like app sales or ad revenue.
It would have been an easy decision to make the API a pay-for-use service, similar to Amazon's AWS services. But who wins in a situation like that? A developer could build a killer app that could potentially send Instapaper's overhead through the rough while Instapaper doesn't see a dime, beyond his initial developer fees. Not terrible, but not ideal.
Services with venture-capital backing can keep their APIs free in order to get more users, delaying theoretical profitability to an unspecified future date. For a lot of reasons beyond the scope of this post, that’s not the path I’ve chosen for Instapaper. Since it’s a “normal” business that needs to remain profitable to keep operating, it can’t lose money on a very large number of users indefinitely. — Marco Arment, via the Instapaper blog
Instead, Arment has implemented a somewhat new and interesting method. The full Instapaper API is available, for free, to all developers that want to build on the Instapaper platform. The caveat is that your app's users must be paid Instapaper users. The paid subscription is only $1 a month.
This is potentially win-win for all parties involved. Instapaper users can either grab the $5 iOS app (it's universal, to boot), or grab use a 3rd party app on different platform for $1/month. As a developer, you can play with the API, test, and build your app, for free while you get your app to market. And Instapaper? Instapaper covers their operating costs, staying afloat longer, allowing everyone to benefit from the tremendous service.