Music streaming giant Spotify is now the leading company that changed the music distribution and streaming model across the world. Despite this reputation, the company had been going through a bit of an interesting history in terms of profitability. Specifically, many speculators were doubting whether the company was actually profitable even as late as last year. Others still cast doubt on their revenue generation capabilities. However, the company has been changing up their model and trying new things for years, and now most recently, Spotify might have found a cash cow in implementing self-service ads.
Spotify will continue to operate using a two-tier system, but with ad revenue picking up an increasing level of profits now. The change in strategy announces that Spotify is becoming more openly reliant on their free model, letting in advertisers from across the spectrum. This will have little impact on Spotify users’ online experience, but has some implications for the company and their advertisers.
While Spotify has had advertising with external clients for a while now, this is a new venture for the company. Let’s examine further…
Self-Service Advertising 101
Traditionally, placing ads can be a full-time job for a company or website. This often leads to a lot of work on part of your sales team and can be laborious. However, the Internet offers other means of making use of your ad space with a lot less hassle.
One of these options is to put up a self-service ads system, which is opening up Spotify to companies that can buy ad space on their platform by themselves. This process is less hands-on, making use of the ‘advertise with us’ button on websites and ads.
To open up your platform to self-service advertising, you need to first create a media kit that allows you to put up an advertising link for external parties. The link redirects to an ad server with all sorts of self-service advertising features and the media kit presents information about your ad space to potential advertisers.
This can be info like ad rates, audience demographics and the locations that you have available on your website. It can also clarify which pages and which places on the page the ads will appear, etc.
Advanced features also include ad metrics and simple forms for advertisers to develop and publish their banner and video ads on Spotify. All of this automates the process to a high degree, even finding the audience for you. Once companies tailor their ad and specify their audience, the information the website has can serve as a great means of finding the right customers. We’ve previously covered the ins and outs of target audience marketing in previous articles. Spotify ad formats also allow for mobile and desktop targeting.
What Spotify’s Self-Service Ads Mean For their Business
There are 286 million monthly active users on Spotify according to the company’s own Q1 2020 report. Among these, 130 million were Spotify Premium subscribers, but a sizeable chunk are not. While subscribers are increasing, going up from 124 million Spotify Premium subscribers in Q4 2019, the increasing focus on free users is where new opportunities present themselves.
Spotify adding self-service advertising to their arsenal is a major shift forward in terms of recognising that their model isn’t purely driven by subscribers. They are admitting that they need the free users and expanding their outreach to more companies. Originally, Spotify was more selective with who advertised their products on the platform. Now, with minimal effort, the entire process can be automated.
Speaking of their marketing team, Spotify will still be needing them for the more manual ad selection. Self-service advertising doesn’t exclude any selective advertising, but rather complements it. Spotify still runs selected ads, like those for its own premium subscription marketing efforts. However, this process merely ads a whole new dimension on top of the existing paradigm.
Spotify have some impressive stats on their side that they can attract advertisers with:
- Largest music streaming service. Spotify’s covers an impressive 36% of the global streaming market
- Users spend an average of 25 hours listening to Spotify per month
- 44% of Spotify listeners consume music, audio books, or podcasts on Spotify daily
- Over 50 million tracks available on Spotify
On top of this, the system also offers a range of options and ad types to companies looking to advertise…
New Opportunities For Advertisers
This also presents major advertising opportunities for firms looking to advertise on Spotify’s platform. As previously noted, the company has millions of monthly users that are fairly active. Additionally, Spotify gathers lots of in-depth info for self-service ads to make use of. Tastes, preferences, location data, connections, and that’s not even mentioning the data they can obtain if users have other social media accounts (like Facebook) linked together.
While the service is relatively new, companies of all sorts are already advertising on the platform. Spotify collaborates with Dunkin Donuts, car brand KIA, Coca Cola, and many more. These companies have the option of running video ads, audio ads and banner ads for the Spotify desktop configuration and the mobile app version.
Spotify switching to a self-service ad system has many benefits. including:
- Ad targeting options can give advertisers even more control of their ad campaigns. The system could allow them to position their ads to display only in certain situations or locations, for example.
- Multiple forms of ads supported on Spotify.
- Self-service features can make it so that a new ad order can begin serving without any unwanted delay.
- All of the advertiser’s contact details and login information is managed by the ad server.
- Invoice generation is easier. Invoices file automatically for any new self-service advertising order.
Still, Spotify finds itself in new waters, so we’ll see whether these changes are worth it. Right now, they seem like decent investments, but new streaming services are becoming a common occurrence. Intense competition could crowd the market and burn users out or divide it too intensely, fractioning up advertisers. It’s too early to declare whether these changes will pay off, but so far the strategy seems sound in its construction.
Images courtesy of Spotify ad studio.