×

What's In Your Treasure Chest: Valuing Your API

by David Burkett, Jul 08, 2016

So you’ve just built and populated an API (application programming interface) and you’re thinking, that was a lot of fun, what now? Well it’s usually good to determine exactly how valuable your API is. This valuation should be made irrespective of whether you’ve developed your API for internal use or external use. Developing an API for external use generally, means you’ve intended for the API to be used by others as a third party API. Third party API’s are highly sought after, especially if it’s relevant to the other party.
How does API integration work for First and Third Party APIs
The laws of valuation dictate how an API is valued. Essentially this means your API is worth what people are willing to pay for it. Consider a house you’ve built from scratch. Clearly you’re thrilled because you’ve put together this terrific house which you consider the best thing ever built. But if no-one is willing to buy it, it’s not worth much. So your API will need to appeal to users looking to implement a third party API. This raises the question, what do these users find appealing?
Generally external users will weigh up the cost of the third party API with the value it will provide, similar to conducting a cost-benefit analysis. The cost of the API is not confined to the price paid for the third party API – it also includes the cost of implementation and the cost of addressing any security concerns. CIO have proposed one algorithm to valuing your API. Consider the cost your users would incur if they each had to develop the API themselves, divided by the number of competing API’s. Ensure you divide the number of users by 10,000.
Based on this formula, you should consider a few elements when developing an API. How long would it take others to develop this API? How many people are likely to use my API? Who is my API competing with? What is the API functionality? The answers to these questions will determine how valuable your third party APIs are.
As a result, it’s important to understand your market. No one will be willing to purchase third party applications that aren't relevant to them. Additionally, keep your documentation clean and simple. The more complex it is, the more it will cost the user to implement the API. It may also be helpful to think of your API as a universal offering – you’re better off trying to serve the masses than you are trying to serve a few individuals.