When digitalisation meets revenue: a guide to monetising APIs
APIs aren’t new. In fact, they’ve been around for quite a while, embraced fully by industries from all new digital platforms (e.g. Amazon, Facebook), via banking to telecoms as a cornerstone of digital transformation. Yet within the energy sector they are still largely restricted to specific internal projects lying strictly within the IT domain.
Over the last decade, APIs have evolved and scaled in volume, and their worth as a technological interface to facilitate agile internal processes and improve operational efficiency is well recognised. The challenge for the energy industry now, or rather the opportunity, is not in proving the value of APIs as an internal IT tool – that much is clear to see; it lies now in proving their commercial value as a revenue source in their own right, an integral part of a digital strategy, and a new external channel for monetising existing digital assets and data.
Before we look at how data, products and services can be productised via an API or web service, let’s remind ourselves of the basics.
An API is a tool that allows third-party applications to communicate with one another, making them vital to build application driven services. Further, information can be found in our helpful video.
For energy, the services available through APIs tend to focus on real-time data – tariff data and other information related to the price of electricity, data from smart meters or home energy management systems, RES production data and sensor information, weather forecasting, market data and e-mobility data. The information provides valuable market intelligence and insight for players across the value chain, from traders and utilities to customers, connecting data on energy consumption with HEM and battery systems. As the energy industry becomes increasingly complex and digitally integrated, the ability to share this data through APIs is vital.
What makes an API monetizable?
If APIs are to be considered a digital product in their own right, they need features such as a product description, a usage licence(s) and pricing model just as any other product brought to market as part of an overall business strategy. It certainly isn’t the case that all digital assets available through a company’s existing API are naturally of monetary value to a broad external audience. As with any product, you need to look at the target audience and their specific needs – to whom would this data be of interest, for what pain point does it provide a solution and what value does it offer? Exclusivity in data and functionality is always a good place to start, but it is not essential if the offering still delivers a particular value to a particular audience.
As an example, an API providing a forecast of day-ahead electricity prices is obviously only relevant to industry players with short-term operations that enable or rely on them reacting quickly, not to largescale industrial consumers on 3-year fixed price contracts. Similarly, wind power forecast data has enormous value for an energy trader on an aggregated level as it influences the supply/demand balance but has little relevance to retailers, generators and the like. The key is to know and understand your audience.
Benefits of monetization
At the most basic level, by making your own internal digital products and services available externally to third parties via an API on a pricing model (more on this below), you are generating a new source of revenue. But the benefits of productising an API are far broader and the potential rewards far greater. The use of your API by a partner or developer expands your reach and potential revenue by exposing your assets to a wider audience, increasing your visibility both within your existing market as well as to an entirely new one if your offering has cross-sector value.
By productising data via an API, you have the opportunity to participate in and build an ecosystem – think how many home automation products such as lights, multimedia and security all integrate with products like Alexa. This compatibility creates an ecosystem which accelerates increased adoption and the potential to increase demand for your own product, acting as an entirely new channel for customer engagement. A great example is Philips Hue smart lighting, whose product sales only took off once it was integrated via API with Alexa, enabling basic light control as a built-in smart home hub.
Let’s also consider this from the other side of the equation – the benefits to the API consumer, the business or developer which subscribes to your API and now has the ability to access data which may well have been previously siloed or fragmented. For them, the API is now also a source of revenue in the form of a fast-track cost-effective path to innovation by speeding up product development or a tool to rapid diversification.
So, having evaluated your existing API and decided that it does indeed have commercial value outside of your own organisation, it’s important to consider the right monetisation model.
Many APIs are free, known as Open APIs, and there are attractive commercial benefits to adopting this approach. Whilst not generating revenue directly from subscriptions in the short-term, by making an API openly available, you will be well positioned to build developer and partner communities around it at scale in potentially profitable partnerships. This collaborative approach offers advantages around developer advocacy and the options to up-sell other digital products down the line and is perhaps well matched to a business strategy which focusses on longer-term innovation and expansion.
On the other hand, there are a range of pricing models, from pay-as-you-go to tiered subscriptions. Models tend to broadly fall into one or more of these following categories based on factors such as API maturity and market competition, although there can be a huge spectrum of options and combinations depending on your overall strategy:
- Subscription: Usually on a recurring basis, such as a monthly or annual fee
- Fixed, such as a one-time access fee
- Freemium, or ‘free/select/premium’ offering, allowing developers to test features before committing to a subscription
- Usage-based (e.g. per request, per consent, per parameter)
- Tiered: this can be a combination of recurring subscription with usage caps.
It is here with monetisation models, legal considerations and API standardisation that the value of a dedicated platform for energy APIs such as re.alto comes into its own. It removes the complexity from the so-called API economy and provides the management needed to maximise the revenue opportunities for both energy API consumers and providers.
If this sounds like something you’d like to explore but you don’t yet have an API, please contact us. And don’t forget to follow us on LinkedIn, Facebook and Twitter.
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