API Monetization Model #1: Revenue Sharing
Today’s world is becoming rabidly digitized, precipitating a digital gold rush for businesses. Enterprises are drawing on the tools of digital trade, APIs, data, and apps, in their pursuit of treasure. Discovering gold requires a map of how these tools can be used to transform digital assets into revenue streams. In this blog series, we'll explore the different models for monetizing products of digitization.
Businesses in retail, travel/hospitality, media and advertising commonly utilize the revenue sharing model. In a standard rev share scenario, an API provider exposes a digital asset, such as a product catalog, to developers and digital partners. These third parties can then consume the asset and sell it on their web and app properties, collecting a percentage of the returns.
Some key benefits to the API provider:
- Extend reach by expanding your business across other various digital channels
- Increase top-line growth via affiliate sales
- Decrease overhead costs with a reduction in physical branches and sales force required
The benefit to consumers is simple – they get a slice of the pie.
Revenue sharing sub-models
Fixed revenue share: The API provider shares with the developer/partner a fixed percentage of the net or gross revenue generated in each sale made via the API.
Flexible revenue share: The API provider shares with the developer/partner a variable percentage of the net or gross revenue generated in each sale. The percentage is a function of total revenue generated across API transactions over a specific period of time.
Revenue share and rate card: The API provider shares a fixed or variable revenue share percentage of the net or gross revenue generated in each sale, but also charges a fee per API transaction. This model is used in cases where the provider wants to do a rev share split but also make a minimum amount per transaction (irrespective of transaction amount).
Product-specific or generic plan: Often there’s also the need to differentiate these models as generic (one revenue share plan to cover all products in an API product package) or product-specific (a different revenue share plan for each of the API products in the package).
There are other important variables when considering the revenue sharing options.
Billing documents: For all of the above models, periodic billing documents will need to be generated.
Tax models: If billing documents will be generated, commonly used tax models must be applied to the statements.
Group or local company plan: Where an API provider has local subsidiaries, you need the flexibility to set up plans at a group level (the same revenue share is given irrespective of the subsidiary) or at a local level (where you can have a different revenue share and tax model depending on the subsidiary).
Digital Monetization and Apigee
Apigee delivers Monetization Services as part of its Digital Business Platform. It is a critical part of Developer Services offered to API providers to partner with their developers. Monetization enables definition and management of the commercial relationship between the API provider and API consumers, by setting in place the business model for the digital value chain. Monetization Services offers the flexibility to create customized plans or use out-of-the-box plans that cover all revenue share models and options described above.
Check back soon for our next blog post in this series, where we talk about fee-based revenue models.