How does Apigee make money?

Steven Loeb · March 19, 2016 · Short URL:

Apigee provides an API platform for companies to make their services available on mobile devices

While 2015 saw the lowest number of IPOs in year, that doesn't mean there weren't companies that tried their luck with the market, to varying degress of success.

One of those was API platform provider Apigee, which went public in April.

Apigee essentially provides an API platform that can be used by companies to make their services available on multiple mobile devices. On top of the platform, Apigee also provides its customers analytics to measure the activity coming from the apps.

To make it clear what Apigee actually does, let's take the example of what it did for one of its biggest customers, Walgreens.

Walgreens offers a photo-printing service that it wanted to add to make accessible through a mobile device. So the company used Apigee to build an app that runs on the iPhone that allows consumers to upload their photo directly to Walgreens from their phones without having to go onto the Walgreens website first.

Apigee did not build the app but it did provide a layer on top of the Walgreen's infrastructure that enabled Walgreen's engineers to make the website photo-sharing available on mobile devices. For this service, Walgreens then pays an annual subscription, based on a number of metrics, including traffic.

The company offers Apigee Edge, an API-management solution, where its makes the majority of it revenue through three different streams.

First is license revenue, which is from sales of on-premises software licenses. A majority of its  license revenue consists of revenue from perpetual licenses, though customers can also purchase time-based licenses.

In the most recent quarter, Apigee made $8.8 million from licensing revenue.

Second are its professional services, which are fees from consulting services. It offers fixed-fee professional service arrangements. The company made $3.1 million from this stream in Q1. 

The biggest revenue drivers are from Apigee's subscription fees from the customer accessing its cloud software. The company offer multiple pricing tiers.

For example, Edge Sample costs $300 a month, and includes five million API calls per quarter, one support account, one product portal, five APIs and API products and 5,000 developer accounts. Edge SMB costs $2,250 a month and includes 25 million API calls per quarter, unlimited APIs and API products and unlimited developer accounts. 

This stream also includes maintenance and support agreements with customers for on-premises licenses.

Revenue from subscription and support made up $11 million of Apigee's revenue last quarter. 

In addition to Edge, it also offers Apigee Insights, a big data analytics platform that helps organizations gain new business insights in the app economy; Apigee Link, which turns devices business into digital IoT platforms; and Apigee Sense, its security service. 

Founded in 2005, the Palo Alto, Calif.-based company raised $171 million from investors that included Pine River Capital Management, Wellington Management Company, Norwest Venture Partners, Bay Partners, Third Point LLC, SAP Ventures, funds managed by BlackRock, Focus Ventures, and Accenture.

Apigee was valued at $671 million when it raised $60 million in April of 2014, but it went public at a valuation of $494 million, a decrease of 26 percent. 

The company is currently trading at $8.08 a share, up 0.62 percent year-to-date, but down 52.5 percent from its $17 IPO price.

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Apigee helps businesses develop, deliver and manage APIs and the applications or "apps" built on them. Apigee's flagship product is Apigee Enterprise, a robust API platform that helps businesses create and manage APIs for the new "app-centric" digital world. Businesses across virtually all industries use Apigee, and the market is accelerating as companies increasingly adopt an API strategy to foster an app ecosystem across millions of mobile, tablet and set-top platforms and devices. Today, hundreds of companies including Walgreens, AT&T, Best Buy, eBay, World Bank, and H & R Block -- as well as tens of thousands of developers -- use Apigee.