On Monday, at long last, Spotify announced how it will blast its way into profitability: ads. The company is launching a multi-pronged advertising suite including an in-house studio and marketplace. Acquiring podcast hosting platform Megaphone was apparently the final Infinity Stone Spotify needed to snap its competitors into oblivion.
Time to turn on the money spout — About a year ago, Spotify announced its Streaming Ad Insertion (SAI) tool to bring targeted ads to its podcasts. For the past couple of years, the company has gone on a shopping spree, gobbling up podcast production and hosting companies, with its Megaphone acquisition notably bolstering its SAI feature.
Now, the company is launching three new products to bring advertisers to the table. The audio advertising marketplace, Spotify Audience Network, will connect advertisers to listeners through Spotify’s Originals & Exclusives, Megaphone and Anchor podcasts, and ad-supported music. The company is now testing ad-buying through its in-house ad studio and will expand its improved SAI beyond U.S., Canada, Germany, and the U.K. this year.
The news also comes on the heels of an approved patent that can codify users’ personalities and rumors of a podcast-specific subscription plan. The patented tool applies the Big Five (OCEAN) personality test often used by employers during hiring processes to assess how users interact with content which can now be leveraged to fuel its SAI. Spotify is also looking to break into the film industry, based on its podcast content, and it already has a strong relationship with HBO Max.
This doesn’t mean Spotify is neglecting its music offerings, though. It’s steadily released new features like lyrics search, and now, it has a Hi-Fi offering on the horizon. The latter move finally brings Spotify’s audio quality above that of a CD while lowering the value of Tidal. Jay-Z was rumored to be in talks to sell to Jack Dorsey’s Square, but they’ll still get to hang out and commiserate about their Bitcoin initiative.
Is it too late for the competition? — Amazon is starting to throw some money around in what’s left of the corporate podcast industry, and Apple is scrambling to get its podcast throne back. From within the industry, hosting platform Acast has now acquired both podcast hosting company Pippa, and most recently, podcast marketplace RadioPublic and its suite of creator products. As it stands, Acast is likely the most poised to go toe-to-toe with Spotify on advertising compared to Apple or Amazon.
Of course, Spotify’s Big Conquistador Energy didn’t exactly happen overnight. The aforementioned patent was originally filed in 2018, not long before Spotify set its sights on gobbling up podcasts.
While the company has seen consistent growth, it’s still struggled with profitability, likely in no small part to the complicated nature of licensing music. This plan is years in the making as it's methodically built a monetizable side to its business, and other tech companies were asleep at the wheel.