As direct API monetization is still a newer concept in some industries, we often consult with customers releasing an API-based product with no direct competition. This can make it extremely difficult to set an initial price.
On the one hand, companies fear pricing too high and risking customer adoption by pricing themselves out of the market or risking cannibalization of existing revenue by creating an incentive for existing customers to migrate away from legacy products. Conversely, the risk of pricing the new offering too low and leaving money on the table for a high-value product is genuine.
But you already knew all that, right? So… how can companies balance the risk and opportunity in pricing a new offering?
One solution is a concept borrowed from selling advertisements in the media industry: value-testing.
In media, before the value of air-time in specific slots and with particular audiences was well known, media broadcasters and advertisers would partner together to establish the value of advertising at a given time.
As it turns out, this method translates nearly directly to most new API productization initiatives where the value of an API-based product can be estimated but not proven. However, if you choose to launch your product with a partner (a process we highly recommend) who is willing to share the value of their integration. In that case, you gain first-hand knowledge of the value delivered, which you can use to establish your pricing model and your marketing message.
To ensure you build a strong value proposition for your first customer and partner, these are the key areas we recommend you consider offering in exchange for providing transparency into the value your solution delivers:
We’ve seen this method successfully employed by several enterprises launching their first offering and hope it helps establish your pricing as well.