June 19, 2013

API Pricing – Tiered & Flexible

 

We have been talking about API’s as products, and for many companies, APIs are as important as their tangible products. Many tech start-ups have only one product – their API.  And for those companies that focus heavily on data, APIs are becoming THE product the company relies on. 

Alot goes into treating your API like a product: marketing, tech support (aka interactive/accessible documentation, forums, etc.), and pricing, among other things.  All of these elements are crucial to a successful API program.  It seems to me, however, that pricing often gets overlooked.

 Pricing an API can be difficult – it is not a tangible product, and for companies that are not used to pricing software, pricing APIs is that much harder.  In general, products are priced so that a profit could be made – you cover the cost of the parts and the labor and the distribution and set a profit margin and, viola, there is your price (or so I’ve been told). 

APIs are bit trickier than that to price.  Once the API is completed, there isn’t that much labor that goes into providing it to a new customer (hopefully).  APIs are also often providing access to data or services that already existed. 

So how do you price your API?  You definitely want to take into account the cost of delivery, even if it is hard to gauge, but you want to mostly focus on how much and what type of data/services you are delivering and create pricing tiers.  If you think about it, most products have “tiered” pricing: when you buy a car, there is the standard package and the luxury add-on packages; when you sign up for cable, there is the basic package and then all the additional levels.   Even the iPhone has tiered pricing (how much memory do you want?). 

So why should APIs be any different?  You want to provide your customers with options.  Not everyone is in the market to buy ALL the data that you have available through your API.  Some customers only need a little bit of access and a little bit of data.  You are likely to have data that is general knowledge, which you don’t need to charge for or can charge very little for.  But the more intricate the data, and the more central to your business, the more you should charge.   

Depth and quality of data is one coordinate of your API pricing.  The other main coordinate is how much data you are giving to your customers.  The frequency with which customers have access to your data often dictates what they can do with it.  Many will be willing to pay more to be able to access your API more frequently.

An example of this two-pronged tiered API pricing strategy is Pipl.  They clearly lay out their pricing in a table that takes into account the depth of data you want and how much of it you will want.  Pipl’s API pricing gives customers flexibility – and since one of the main perks of having an API program is that you can provide your customers with data when and where they want it, flexibility in pricing your API just makes sense. 

Of course, all API programs are different.  This approach of tiered pricing based on depth and amount of data may not work for your API, but it is likely to work for many.  And it allows you to give customers some flexibility when signing up for your program, just like they would when purchasing any other product.  Flexible, tiered pricing should increase your customer numbers, their satisfaction and your revenue, thus making your API program even more successful.  Contact us today for more information.