Monetizing mobile apps: Striking the right balance

By Neha Ajmera, Livia Sato, and Brian Stafford

More companies are discovering that an application programming interface can turn their data into new revenue streams.

Mobile apps are becoming big business. Analysts estimate that app-related revenues reached $25 billion last year, on the way to more than $70 billion by 2017. App developers and the Apple and Google app stores aren’t the only ones profiting from this boom. A small but growing portion of app revenues comes from organizations making their data available through application programming interfaces1 (APIs)—gateways that, among other things, enable third-party app developers to leverage a company’s aggregated data or selected services.

There are reasons not to pursue APIs, of course, starting with the desire of many companies to have more direct control over their data. But our analysis indicates that APIs are generating revenues in one of three ways for the companies that choose to contribute their data (exhibit). Under the pay-per-use model, a company makes its transactional data available to third party apps that, for example, compare prices or analyze customer behavior. Subscription models are similar, but fees accrue during a subscription period rather than per use. Resource-usage and revenue-sharing models typically generate sales of a company’s own products (for example, on an online storefront), from which the app developer too gets a cut.

As revenue opportunities and the potential for deep engagement with more customers grow, the role of APIs in broader business-planning discussions is expanding. In those conversations, it is essential for organizations to ensure that their desire to make money from their data does not interfere with their responsibilities as stewards of the customer’s private data.

About the author(s)

Neha Ajmera is a consultant in McKinsey’s Silicon Valley office, Livia Sato is a consultant in the San Francisco office, and Brian Stafford is a principal in the New York office.

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