Spotify (NYSE: SPOT) is the dominant company in the music streaming space. However, it also has plenty of competitors, including Alphabet's (NASDAQ: GOOG) (NASDAQ: GOOGL) subscription music streaming service, Google Play Music.
But Google Play isn't even the most interesting Spotify competitor to emerge from its own parent company. That honor belongs to YouTube Music, the intriguing video-based music streaming service that builds on Alphabet's YouTube brand. YouTube Music offers free music streaming, and users can banish ads by opting for the paid YouTube Music Premium service.
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YouTube Music is different
YouTube Music is unlike any competitor Spotify has faced before. In some ways, it isn't even a music streaming service -- or, at least, it isn't just a music streaming service.
YouTube Music offers music videos rather than simple audio files. It's a natural extension of regular old YouTube, which has long played host to music videos uploaded by artists and record labels. While Spotify and its competitors pioneered the subscription music space, YouTube was acquiring a huge library of free music courtesy of music-makers and their representatives themselves.
When YouTube launched a premium ad-free service called YouTube Red, it got mixed reviews but garnered praise from some reviewers for its ability to turn YouTube into a sort of Pandora or Spotify clone. With playlists or YouTube's auto-play algorithm and no ads in between, music videos could run endlessly in a browser tab. YouTube Red is no more -- it was overhauled and reinvented as YouTube Premium -- but YouTube clearly noticed the musical potential of its service.
The release of YouTube Music gave YouTube users a souped-up, music-only version of YouTube Red that allows users to listen to music and watch music videos in their browser or on their mobile device through the YouTube Music app. For $9.99, YouTube Music fans can upgrade to YouTube Music Premium, which eliminates ads. (YouTube Music Premium is also available as part of the more general YouTube Premium service, which also banishes ads on regular non-music videos and costs $11.99 per month.)
And there's one more way in which YouTube Music is one of the most compelling Spotify competitors ever: it offers a free tier of service.
YouTube Music and the free option
Thanks to its wealth of music videos, YouTube has long been an option for free music streaming. But by branding and improving this aspect of YouTube, YouTube Music has created a very powerful Spotify competitor.
Spotify's own free service has gone through several permutations and remains relatively underpowered compared to YouTube's on-demand streaming options.
That makes YouTube Music intriguing and impressive. Already a source for free streaming music videos, YouTube now has an app to offer fans of free music. The free service also can help usher fans into the premium option.
There's little doubt that the free service will be popular. According to a 2017 report, YouTube's free music videos are already the most popular online music streaming option.
At the premium level, YouTube Music drops all pretense of not competing directly with Spotify (and, for that matter, with Alphabet's own Google Play Music): with a premium subscription, YouTube Music users can load their music without a video.
Watching YouTube in the music streaming space
All of this makes YouTube Music one of Alphabet's most intriguing new services in years. There is still some clumsiness: since Alphabet already owns Google Play Music, it risks competing with itself. And, of course, the music streaming space is a very crowded one, and one in which streaming libraries are near-identical and differentiation is tough to come by.
Beating Spotify won't be easy, of course. And Google's overlapping options have some observers skeptical of YouTube Music. But YouTube Music's structural advantages, particularly the existing muscle that YouTube has in the on-demand music streaming space, make the service well worth watching. The streaming music market may be overpopulated, but this is one newcomer that might just have staying power.
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Stephen Lovely has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), and Pandora Media. The Motley Fool has a disclosure policy.