Spotify (NYSE:SPOT) is the global leader in streaming audio. And it’s making moves toward becoming a podcasting powerhouse. However, some of the company’s key competitors have big advantages over Spotify. These larger, more established companies have their own voice assistants, their own music hardware and their own systems becoming directly integrated into vehicle entertainment systems. After months of rumors, SPOT announced that it is taking a step toward building its own hardware, starting with the automobile. The Spotify Car Thing has broken cover, a voice-controlled device with one purpose: to play Spotify music while driving.
Spotify Joins Streaming Music Rivals in the Car
Among the top four streaming music services (by paid subscribers), Spotify is currently the only one that doesn’t offer its own hardware solution for vehicles. Apple (NASDAQ:AAPL) has CarPlay, and Alphabet’s (NASDAQ:GOOG, NASDAQ:GOOGL) Google has Android Auto. These systems support native, voice-controlled access to Apple Music and Google’s various streaming music services.
Amazon (NASDAQ:AMZN) — like Spotify — relies on smartphones running software from Apple or Google to allow users to play its Prime Music or Amazon Music Unlimited in the car. To reduce that dependence somewhat (the smartphone is still needed but Alexa is front and center) Amazon announced the Echo Auto in 2018. Amazon’s $49.99 voice-powered gadget brings Alexa into the car, including the ability to control Amazon’s streaming music services.
Spotify just announced a similar device, which the company is calling the Car Thing. The Verge reported technical details on the new SPOT hardware. It is clearly designed to become the focus for a driver who wants to listen to music (or podcasts) while driving. The Spotify Car Thing plugs into a vehicle’s 12v outlet for power, then connects to both the car stereo and the user’s smartphone via Bluetooth. From there, drivers can control music playback via voice by saying “Hey Spotify.” The hardware includes a small display that shows details on what is bing played, and preset buttons for user playlists.
SPOT Says Streaming Audio Remains the Focus
Competitors like Apple make the majority of their revenue through selling hardware. However, SPOT is insistent it doesn’t have similar ambitions. The company was quite clear that music — and podcasts — will remain its priority.
“While we know there has been some speculation about our future plans, Car Thing was developed to help us learn more about how people listen to music and podcasts. Our focus remains on becoming the world’s number one audio platform — not on creating hardware.”
When Will the Spotify Car Thing be Available?
Consumers may be waiting quite some time to get their hands on a Spotify Car Thing, and they may never get a crack at it. According to Spotify, testing starts shortly but only in the U.S. and only for a “small group of invited Spotify Premium users.”
The company also says specifically that it has no current plans to make the Car Thing available to buy.
So What’s the Point?
In the intro, I mentioned the Spotify Car Thing has one purpose. And yes, from a consumer’s point of view being able to listen to Spotify Music and control it via voice would be the sole purpose of having a Car Thing. But what’s Spotify’s angle? Especially if the company isn’t aiming for hardware revenue for diversification or to help reduce Spotify stock’s reliance on subscriber growth?
First, it would be a good idea to take the claims of not being interested in hardware with a grain of salt. If SPOT sold the Car Thing for $50 — what Amazon is charging for the Echo Auto — and you multiply that by even a fraction of the 100 million paid subscribers, there is real revenue potential there.
The company also teased in its announcement that other hardware like a “Home Thing” could make a future appearance, so SPOT could be finally making a play for a share of a smart speaker market projected to be worth over $23 billion by 2025. Clearly revenue from hardware sales does have significant potential upside for Spotify stock.
Spotify itself spikes out a key reason for the Car Thing. Americans are spending 70 billion hours a year driving, and the company wants to learn more about how those drivers listen to music and podcasts. By getting involved at the hardware level, SPOT can capture more granular data. And that information could prove critical for the company as it fine-tunes its streaming services to remain number one amid fierce competition.
As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.
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