I love my Airpods and I love Spotify. I have not been a lover of podcasts, but I have an open mind when it comes to good content.
This week, Spotify has anted up in the attention war by making $500 million in purchases with Gimlet Media and Anchor.
Spotify is a $25 billion company, so betting TWO percent of the Company does not seem crazy when the battle for our attention is in global thermo nuclear mode.
I could ramble on about the ‘why’s’ and the ‘how’s’, but Ben Thompson does a fantastic job of it in his post this morning titled ‘Spotify’s Aggregation Play‘.
Read it all if you want to dig deeper into how Spotify has to be thinking, but the gist is:
What I think Spotify senses, though, is that while podcasts, at least in theory, solve many of their business model problems, Spotify is also uniquely positioned to solve the problems of many podcasters/suppliers. To wit:
- Increasing advertising revenue for the entire industry requires a centralized player that can leverage a large userbase. Spotify is still a distant second to Apple in podcasts, but they are growing fast. Just as importantly, Spotify already has a strongly growing advertising business — again, larger than the entire podcast market — that it can extend to podcasts.
- The open nature of podcasts means it is very difficult to monetize users directly; Spotify, though, has already built an entire infrastructure around monetizing users directly. Podcasts exclusive to Spotify can likely make meaningful money from Spotify subscribers that still gives Spotify far higher margin than music.
This explains Spotify’s multi-prong approach:
- Anchor provides a way to capture new podcasters, leading them either to Spotify advertising or, in the case of rising stars, to Spotify exclusives. Critically, because Spotify has access to all of the data, they can likely bring those suppliers on board at a far lower rate than they have to pay for established creators like Gimlet Media.
- Spotify Advertising, as I just suggested, makes a strong play to be the dominant provider for the entire podcasting industry. Spotify Advertising is already operating at a far larger scale than Midroll, the incumbent player, and Spotify has access to the data of the second largest podcast player in the market.
- Gimlet Media becomes an umbrella brand for a growing stable of Spotify exclusive podcasts. Critically, as I noted above, the majority of these podcasts come to Spotify not because Spotify pays them millions of dollars but simply because Spotify is better at monetizing than anyone else.
This will be the determinant as to whether or not Spotify’s podcast gambit succeeds: being an Aggregator doesn’t simply mean acquiring a large pool of captive customers, it means controlling the value chain such that suppliers come on to your platform on your terms because you monetize them better than anyone else, even as you capture the excess value.
The stakes are high in the Attention war and Spotify has to be a bigger aggregator if it wants to be $100 billion company one day. It can’t get there with video in a world of Youtube, HBO, Amazon and Netflix.