Should Your API Be Free or Pay-to-Play?

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In our ongoing series on APIs, we’ve covered whether to offer an API and how to get people using it. Now, we’re delving into one of the most important questions an API-offering company can ask: free or paid?

Paid Is the New Trend

Augusto Marietti founded Mashape, a marketplace for building, distributing and hacking with APIs. He says that while the majority of APIs are now free, that trend is changing.

“I think that the monetization of APIs in 2011 is like the monetization of search back in 1999. … For example, Twitter started to charge [for use] of its data via APIs using Gnip as a reseller. Newer startups for which the API is the product, like Twilio or SimpleGeo, are coming out regularly. These startups are making money out of their APIs — a lot.

“The best bet is to keep a freemium model, so that all of your developers can try your API and use it for a while before opening up their pockets. You will see more and more startups having an API not only as a distribution mode but as an additional revenue stream, too.”

Cover Your Costs

Guillaume Balas is an executive at 3scale, which offers full-featured API management and monetization tools. He says, “At 3scale we believe this very much depends on what companies want to achieve with their API and who is going to be their users/customers. Not charging for your API access has definite advantages, such as improving branding and online presence and accelerating developers’ adoption … But don’t neglect the economics of your API business and the costs (infrastructure, management, maintenance, support, communication and promotion) associated with it.”

He adds, “Brand equity is great, innovation is key. But cash is king — and companies must at least cover their costs.”

Dimitri Sirota, an executive for Layer 7 Technologies, which offers its own suite of API management tools for the enterprise, says you should do both. “Have your API be free to start with and ask people to pay for higher grades of SLA, premium functionality, enhanced support, etc. Maybe offer a revenue share,” he says.

Consider a Hybrid Model

Shanley Kane works on the product team at Apigee, a company that offers a range of API tools for developers and software companies. She says, “The choice to charge for an API or offer it for free needs to be connected to your business goals and objectives. For many companies, charging for data and services exposed through an API makes sense. APIs provide a better way for customers to integrate and innovate and are an important monetization channel.”

However, for companies that open an API to expand into new platforms like connected and mobile devices, or to encourage third-party innovation, she doesn’t recommend a paid model. “For these companies, charging for access just adds a barrier to entry,” Kane says.

Kane also suggests a free-paid hybrid model, wherein independent devs get free access to build apps and larger partners pay for higher rate limits and additional support.

Make the API Part of Your Business Plan

Oren Michels is Mashery‘s CEO. His company does API management and strategy for more than 100 brands and 25,000 applications. He says the API should be an extension of the company’s overall business model.

“If your business model is to sell TVs, you want it to help you sell more TVs. If you are traffic/ad based, you want to generate more traffic looking at your ads. If you happen to be in the business of selling data — a big ‘if,’ since few companies are — then by all means charge for your API. More accurately, charge for access to your data, which may include either charging more for it by API or including API access as part of the overall subscription.”

Do you have other tips for pricing an API? Let us know in the comments.

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