API Licensing Business Model: What It Is and How It Works
“APIs are the foundation of the digital economy,” says John Musser, CEO of Programmable Web. They empower businesses of all sizes to connect, collaborate, and innovate while enabling companies to monetize their data, resources, and features through the API licensing business model.
What is an API?
An API (Application Programming Interface) is a set of rules and specifications that allow software components to communicate. APIs define how data moves between two or more systems, making integration seamless.
From mobile apps and websites to enterprise platforms and IoT devices, APIs underpin nearly all modern software. They allow developers to connect systems, enhance functionality, and build new solutions without reinventing the wheel.
What is API Licensing?
API licensing is a business model where companies provide developers with access to their APIs in exchange for payment. By granting structured access to proprietary systems, services, or datasets, organizations create new revenue streams while empowering developers to innovate on top of their platforms.
According to Research and Markets, the API licensing segment is projected to grow at a 24.2% CAGR, the fastest within the broader API economy.
This model enables developers to build more powerful applications while giving companies an avenue to monetize their assets and extend their ecosystem reach.
Common API Licensing Models
1. Pay-Per-Use (PPU)
Developers are billed based on how often they call an API or consume its resources. This model is popular for APIs that provide transactional services or data such as Interswitch Payment Gateway (IPG).
How it works:
Developers create an account and link a payment method.
Usage is tracked by metrics like:
Number of API requests
Data volume transferred
Type of request (e.g., read vs. write)
Billing reflects actual consumption.
2. Subscription Model
Here, developers pay a recurring fee monthly or annually for access to the API. This is common for APIs offering ongoing functionality, such as Google Maps APIs.
How it works:
Developers choose a subscription tier.
Each tier specifies limits (requests, data transfer, features).
A fixed recurring fee ensures predictable billing for developers and stable revenue for providers.
3. Tiered Pricing
In a tiered model, access and functionality scale with cost. Providers typically offer Basic, Professional, and Enterprise tiers.
How it works:
Each tier unlocks progressively advanced features, higher limits, or premium support.
Developers select plans based on their technical and business needs.
Most Popular Models: Pay-per-use (56%) and Subscription (35%)
(Source: Programmable Web)
Why Companies Use API Licensing
Monetization – Convert existing assets (data, services, infrastructure) into new revenue streams.
Expanded Reach – APIs open access to a wider ecosystem of developers and businesses, driving adoption in new markets.
Community Building – A developer community fosters innovation, engagement, and loyalty around a company’s platform.
Top Industries Leveraging API Licensing:
Technology (35%)
Financial Services (17%)
Healthcare (15%)
(Source: Programmable Web)
Well-Known Examples
Google Maps APIs
Amazon Web Services (AWS)
Facebook
X (formerly Twitter)
LinkedIn
SendGrid
Twilio
Closing Thoughts
API licensing is more than a revenue model; it’s a strategic lever for growth, innovation, and ecosystem expansion. Companies that embrace it can unlock new business opportunities, while enabling developers to build richer, more impactful applications.
At Interswitch, we operate six distinct business units, each with its own unique products and systems.
Explore them [here] or feel free to reach out to us at innovation@interswitchgroup.com.
We hope you found this article insightful. Until next time,
The Interswitch Innovation Team