5 reasons why your business API can increase your income

What is most important for business? Money! And how to get them? From customers! No customers - no income, and the ability to attract customers - this is what distinguishes a successful business from a failure.

In this article, I will show you five ways to increase revenue by offering third-party APIs to your business so that they can write mobile apps and consume your data. And these are not typical API business models. Let's start with an example of how you can increase revenue using the API as a visitor generator.

1. Attract more users

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The API is not considered as a channel for attracting users, because there are few statistics collected on such methods. This will change in the future. Until then, we can draw the following parallels. Just as websites attract users through referral links and affiliate programs, API requires applications that attract visitors. The more developers use your API, the more applications will be written and downloaded. Even if these applications use the only function of your API, it will ultimately attract more visitors. Comparing this method with regular channels and the referral links market, we can assume that the API can provide a 26% higher CLV compared to regular channels (Customer Life Value is the estimated profit from a single user during the whole period of cooperation with him).

To prove this assumption, let us turn to Spotify . They managed to create a strong ecosystem that meets the needs of the user. Their API attracts new customers in two ways. At first they offered it to create third-party widgets in their own desktop application. This has led to the emergence of an application market. In July of this year, they restarted the API, and now they are pushing developers to create separate applications using it.

From this example, you can learn two ways to use the API:

1. Ability to create extensions of your application
2. A platform for creating many separate applications

The first item requires that people are already your customers, and does not use the maximum potential of cross-marketing. The second is using. As a music publisher, you can encourage third-party developers to create new applications that use your API in completely new ways. The first method improves the user experience, while the second has the greatest impact on the influx of new customers. Applying the second tactic, Spotify clearly wants to become an API platform . If you have the same goal, make sure that developers have the opportunity to use your API in new, creative ways that do not depend on your own applications.

Using these methods, you need to create a growing ecosystem from third-party developers and push them towards innovation using your API. Thus, you increase the flow of visitors and reduce the risks. The more your API is used, the more referral traffic you will receive, and thus the CLV will also increase. Thus, you will receive profits from the actions of other people.

That sounds great, right? And this is only the first example of how the API increases business profits. Let's look at the second way.

2. Stronger hold users

User retention is the primary way to increase CLV. According to Professor Ellie Ofek of Harvard Business School, the CLV can be calculated using the following formula:


where APRU is the average income per user, r is the retention rate, d is the discount rate (it is also interest income).


The graph shows that, other things being equal, a linear increase in the retention rate leads to an exponential increase in CLV. An increase in average income only leads to a linear increase in CLV.

The more people use applications based on your API, the greater your market share among these types of APIs. When it reaches a critical mass, it will be difficult for your competitors to press you, and for third-party developers to switch to another API. As a result, the retention rate will increase.

Evernote successfully implements such a strategy. By advertising third-party applications on their website, they encourage users to try their product. This increases user engagement. Another API platform with a similar strategy is Podio, a Danish cloud services company that Citrix now owns. They advertise how third-party developers improve user experience on using their platform. In this way, they get new users, keeping a balance between user experience and developer experience.

The increase in average income also increases CLV. To increase revenue without increasing prices, you need to sell more products / services to existing users. As we will see later, the API can also help with this.

3. API as an Apsail Engine

The API provides interesting opportunities to increase the value of your product. For example, you can make certain API functions available only to paid users. A classic example is single sign-on , SSO. For users who want to have easy access to the authorization server of your API, you can offer a paid SSO feature. So does, for example, Salesforce . Their lower level Enterprise users do not have access to the API at all.
Or, for example, you can ask for payment from those who exceed the predetermined limit of calls per unit of time.

For such a strategic step, your business should have a large user base and it should be a well-known player in the market. If this is not the case, you can use this strategy for the most valuable API functions. The danger is that the user can go to competitors who provide this feature for free. New players in the market in general can offer free features to move existing competitors.

4. API as an affiliate program

To encourage third-party developers, they can offer income through the affiliate program. This can increase the user base and increase company revenue. As can be seen from the table, such a program can increase the CLV by almost 8% compared with conventional sales methods.

You can also turn this strategy upside down and make an intermediary API platform for affiliate programs. Provide API to third-party developers, advertise their applications and redirect traffic to their partners, receiving a partner percentage. Examples of such successful projects: Basecamp, Freshbooks.

5. API as a distribution channel

If your business depends on the number of people your content is available to, the API will help you maximize sales. Successful companies like Expedia and Booking use this method. When you search for a hotel on your favorite site, you often get the results obtained through the Booking API. Such large companies take advantage of the fact that small companies lack the resources to receive and process large amounts of data, and give them access to the API, sharing profits.

Another good example of such a company is Fyndiq, an online store from Sweden. After creating their API in 2011, they received a serious increase in sales. A big role was played by their integration with a third-party platform, which helps to display their products on sites.

Conclusion

As you can see, the API can raise your profits. All mentioned models can be used without an API, but with its help it is more efficient to do it.