API Monetization Framework As Introduced By AWS Marketplace

23 Oct 2017

I am learning about the AWS Marketplace through the lens of selling your API there, adding a new dimension to my API monetization and API plan research. I’ve invested a significant amount of energy to try and standardize what I learn from studying the pricing and plans for the API operations of the leading API providers. As I do this work I regularly hear from folks who like to tell me how I’ll never be able to standardize and normalize this, and that it is too big of a challenge to distill down. I agree that things seem too big to tame at the current moment, but with API pioneers like AWS, who have been doing this stuff for a while, you can begin to see the future of how this stuff will play itself out.

Amazon set into motion a significant portion of how we think about monetizing our API resources. The pay for what you use model has been popularized by Amazon, and continue to dominate conversations around how we generate revenue around our valuable digital assets. AWS has some of the most sophisticated pricing structure around their API services, as well as very mature pricing calculators, and have created markets around their resources (ie. spot instances for compute). You can see these concepts playing out in the guidance they offer software developers in their AWS Marketplace Seller Guide, which helps sellers modify their SaaS products to sell them through AWS Marketplace using two models: 1) metering, or 2) contract. When you list or application in the AWS Marketplace you must choose between one of these models, but both involve thinking critically about your monetization strategy, which includes your hard costs, as well as where the value will lie with your customers–striking the balance necessary to operate a viable API business.

According to the AWS Marketplace Seller Guide, each SaaS application owner listing through AWS Marketplace has two options for listing and billing your software:

  • You can use the AWS Marketplace Metering Service to bill customers for SaaS application use. AWS Marketplace Metering Service provides a consumption monetization model in which customers are charged only for the number of resources they use in your application. The consumption model is similar to that for most AWS services. Customers pay as they go.
  • You can use the AWS Contract Service to bill customers in advance for the use of your software. AWS Marketplace Contract Service provides an entitlement monetization model in which customers pay in advance for a certain amount of usage of your software. For example, you might sell your customer a certain amount of storage per month for a year, or a certain amount of end-user licenses for some amount of time.

No matter which plan you choose to deliver your API resources within, you will have to have the nuts and bolts of your API operations defined as part of your overall API monetization strategy. Each plan you offer needs to be derived from the hard costs involved with operations, but reflect the needs of your consumers. AWS gives you a handful of common dimensions for thinking through which type of plan you go with, and quantifying how you will be monetizing your API solution, in these nine areas:

  • Users – One AWS customer can represent an organization with many internal users. Your SaaS application can meter for the number of users signed in or provisioned at a given hour. This category is appropriate for software in which a customer’s users connect to the software directly (for example, with customer-relationship management or business intelligence reporting).
  • Hosts – Any server, node, instance, endpoint, or other part of a computing system. This category is appropriate for software that monitors or scans many customer-owned instances (for example, with performance or security monitoring). Your application can meter for the number of hosts scanned or provisioned in a given hour.
  • Data – Storage or information, measured in MB, GB, or TB. This category is appropriate for software that manages stored data or processes data in batches. Your application can meter for the amount of data processed in a given hour or how much data is stored in a given hour.
  • Bandwidth – Your application can bill customers for an allocation of bandwidth that your application provides, measured in Mbps or Gbps. This category is appropriate for content distribution or network interfaces. Your application can meter for the amount of bandwidth provisioned for a given hour or the highest amount of bandwidth consumed in a given hour.
  • Request – Your application can bill customers for the number of requests they make. This category is appropriate for query-based or API-based solutions. Your application can meter for the number of requests made in a given hour.
  • Tiers – Your application can bill customers for a bundle of features or for providing a suite of dimensions below a certain threshold. This is sometimes referred to as a feature pack. For example, you can bundle multiple features into a single tier of service, such as up to 30 days of data retention, 100 GB of storage, and 50 users. Any usage below this threshold is assigned a lower price as the standard tier. Any usage above this threshold is charged a higher price as the professional tier. Tier is always represented as an amount of time within the tier. This category is appropriate for products with multiple dimensions or support components. Your application should meter for the current quantity of usage in the given tier. This could be a single metering record (1) for the currently selected tier or feature pack.
  • Units – Whereas each of the above is designed to be specific, the dimension of Unit is intended to be generic to permit greater flexibility in how you price your software. For example, an IoT product which integrates with device sensors can interpret dimension “Units” as “sensors”. Your application can also use units to make multiple dimensions available in a single product. For example, you could price by data and by hosts using Units as your dimension. With dimensions, any software product priced through the use of the Metering Service must specify either a single dimension or define up to eight dimensions, each with their own price.

These dimensions reflect the majority of software services being sold out there today. Make sure you not get stuck thinking about one way of thinking, like just paying per API call. Think about how your different API plans might have one or more dimensions, beyond any single use case.

  • Single Dimension - This is the simplest pricing option. Customers pay a single price per resource unit per hour, regardless of size or volume (for example, $0.014 per user per hour, or $0.070 per host per hour).
  • Multiple Dimensions – Use this pricing option for resources that vary by size or capacity. For example, for host monitoring, a different price could be set depending on the size of the host. Or, for user-based pricing, a different price could be set based on the type of user (admin, power user, and read-only user). Your service can be priced on up to eight dimensions. If you are using tier-based pricing, you should use one dimension for each tier.

Alll of these dimensions reflect the common building blocks of API plans and pricing which I’ve been tracking on for a number of years. It’s based upon Amazon selling their own APIs, as well as watching their customers price and sell their resources. Their pricing guide goes well beyond just APIs, and consider how you can generate revenue from any type of SaaS, but the dimensions they provide a place to start for ALL API providers, whether you are looking to sell them in the AWS Marketplace or not. You can find even more dimensions on my API plan research, but what Amazon provides will work for about 75% of the use cases out there today, and I’m looking to get you thinking critically your API monetization and plans, not provide you with too many options.

There just aren’t too many examples like this available, when it comes to thinking through how to price your APIs. My friends over at Algorithmia have pushed the conversation forward some with their algorithmic API marketplace, but you just don’t see this level of maturity with the pricing of resources over at Azure, Google, or others yet. Amazon is the furthest along in this journey. They have the most experience, and the most data regarding what digital resources are worth, and how you can measure and meter access. I think it will take a number of years to mature, but I think by 2020 we will see more standardization in how we structure the pricing for the most common digital resources available online–even if it is just the APIs we are selling on Amazon.

There will always be an infinite number of ways to charge for your APIs, but for many of the digital commodities that have become staples, we’ll see one or two common approaches stick. We’ll see less innovation in how we price the most used APIs, because those with market share will dictate the model that gets adopted, and others will emulate just so they can get a piece of the pie. As other API resources continue to mature, becoming digital commodities, we’ll see their pricing structure stabilize, and standardize to fit into market frameworks like we see emerging on the AWS platform. It will take time, but we’ll begin to see machine readable templates governing API pricing and plans, allowing cross platform markets to flourish, as API consumers figure out they can make API usage more predictable, budget-able, and orchestrate-able. We aren’t there yet, but you can see hints of this API economy over at AWS within their marketplace approach.