Spotify (NYSE: SPOT) has long been a service focused on music. But music alone has not always been enough for Spotify, which has taken an eternity to turn a profit. Fortunately, there may be another way to cash in: podcasts.
Podcasts aren't all that different from music: Spotify pays for them, users listen to them, and they pay it subscription fees. The trick is that podcasts give the company more information. And it is increasingly pitching itself (to advertisers, at least) as a data collector.
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Spotify as an information company
As the saying goes, "If you're not paying, you're the product." Spotify isn't free, but it's also not expensive enough to make much money. And its plan to better monetize its platform isn't about pleasing subscribers so much as it is about using them.
It tracks what they listen to, and it can draw conclusions about them based on that data. If country music fans are more likely to buy pickup trucks and indie fans are more likely to buy vinyl records, those are insights that Spotify can pitch to its advertisers as a service or as an incentive to buy ads.
This isn't usually how it presents itself in the media. In 2018, Spotify's managing director of sales said of sharing data with advertisers, "We just don't do that." Of course, not letting advertisers touch the data themselves is not the same thing as refusing to use it for targeted advertising as a service, and there was never any real barrier keeping Spotify from changing its mind.
Now, it is letting its advertisers target listeners based on their podcast preferences. That's hugely important, in part because podcast listening habits have so much more potential than music in helping Spotify understand its subscribers.
The specificity of podcast topics could theoretically allow it to learn everything from users' political beliefs to their favorite hobbies. Knowing that a given user likes country music is one thing; it's quite another (and more powerful) to know that a given user likes to cook, loves mysteries, votes center-left, and is a parent.
Spotify's podcast strategy
This isn't the first time we've seen a major Spotify announcement related to podcasts. It's worth remembering that it also has its own podcast studios, which it acquired early this year. The power to make its own podcasts could save money by taking ears off of other podcasts and music (it usually pays creators a per-play bonus). Even before it acquired its own studios, the company was pouring money into podcast licensing deals and, in some cases, development.
Being able to create its own podcasts and follow an original-content strategy like Netflix is certainly good for Spotify. And having its own podcast studios only gives the company even more power to learn about its users. If it wanted to, it could theoretically create podcasts specifically to identify subgroups within its listeners. That may be unlikely, but it's not beyond the realm of imagination, especially for a company that is pitching its big-data capabilities to advertisers.
A new identity
We don't know every detail of this podcast strategy (and some details of deals with advertisers will certainly remain secret). But it's clear that Spotify is aiming to compete with Facebook in more ways than one. Its podcast goals are in line with its larger goals of learning more about its customers and then, in the grand tradition of big tech, selling what it learns.
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Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to its CEO, Mark Zuckerberg, is a member of The Motley Fool's board of directors. Stephen Lovely owns shares of Facebook and Netflix. The Motley Fool owns shares of and recommends Facebook and Netflix. The Motley Fool has a disclosure policy.