A Deep Dive into API Business Models at APIStrat Austin

29 Oct 2015

At APIStrat Austin, we have a whole session track dedicated to exploring API business models. At previous events, we have had main stage panels, individual presentations and fireside chats that outlined the value of defining a business model for an API, but this time we take a deep dive into how startups, growing businesses, and established enterprises are all documenting and defining the business model around their APIs.

API providers are finding that as their customer relationships grow, and their API products evolve beyond an initial lean startup approach of figuring out what works, they now need clearer models that can scale with their overall business.

Clearbit is a good example of how an API provider has had to look at its business model and reorient it towards its market as its API product range grows. Last month, they released their Discovery API, which lets users search for companies by filtering up to fifty specific criteria, including location, size, market category, employee head count, etc. One of the most fascinating filter categories they now offer is the ability to search companies by what technology stack is used. for example, their new API allows users to search all companies that use Stripe, or that run their web applications in Amazon EC2, for example.

“The vast majority of our users use us for lead scoring,” explains Cofounder Alex MacCaw. With thousands of customers on board, Clearbit are growing beyond a startup phase and into a growth hacking stage. Their Discovery API represents a turning point where the leadership team had to go back to their business model and look at how it matched their growth.

“We did have a group plan (with starter, medium and large plans), but we knew ultimately, that that wouldn’t scale.

As we added more APIs, it made sense to charge for the individual API so people are only paying for what they are using. We also wanted to separate out volume and features. We have a lot of add-ons, so now users can get all those extra features, even with very low volume,” MacCaw explains.

So with the introduction of their Discovery API, Clearbit felt the time was right to update their business model with a new pricing strategy. “We wanted to align our pricing structures with customer value,” says MacCaw. In the end, the team came up with a slider model that allows users to set the volume and features they want independently of each other, rather than tying access to features to any particular volume level of usage. “We spent a lot of time figuring out how to do this. Asana gave us this idea: if you link pricing and volume together you will have customers who want lots of volume or lots of features but don’t want both, so they end up feeling like they are paying for stuff they are not using.”

When Clearbit made the change, they also had a unique strategy to bring their current customers with them: a generous grandparent strategy that allowed existing customers to lock in their initial pricing level for a lifetime: this single strategy saw some of the largest revenue uptake in Clearbit’s history and shows the confidence that existing customers have with the product offerings.

Overall, the process Clearbit has had to go through is a common challenge that many API providers must traverse, whether they are startups on a growth trajectory like Clearbit, or established businesses and enterprises opening up their services and data assets via APIs.

“The number one question from companies thinking about opening APIs isn’t a technical question,” says John Musser, a key influencer around API business models who will be moderating the API Strategy and Practice session track on business models. “The key question is around the business model. In our track, we will look at the fundamental questions businesses are asking releasing their APIs and the business models they are developing to support their strategies.”

Some of the speakers in API Strat’s Business Models track include:

We are also sure business models will be touched on in a range of our keynotes. Teresa Tung, from Accenture, will be talking about her Industrial API Maturity Model and will show how enterprise are now aligning their IoT Strategy and API business models. Dion Hinchcliffe will be talking about a new programmable business model built on a citizen developer culture in which APIs are made accessible to non-technical end users via tools like Google Sheets and Slackbots.

Following lean management principles, early entrants into the API space would often test their API in the real world and start documenting potential business models based on usage, or regularly rehash their pricing strategies to see at what point customers would be willing to onboard. Following the seminal work of thought leaders like John Musser and Teresa Tung, businesses now have a set of tools they can use to assess the strength of their business models in helping them achieve their goals for growth and adoption. We’re looking forward to advancing the thinking in this area at API Strategy and Practice in Austin this November.