Ads have never been the streaming service’s strong point. In fact, Spotify’s biggest strength is its ability to convince people to become premium subscribers so they can avoid ads. At the end of 2017, around 45 percent of the 159 million monthly active users were premium subscribers, up 29 percent from the year prior. Subscriptions, not ads, are where the money is for Spotify.
After its IPO, Spotify must balance its subscription offering — the most lucrative part of its business model — with its ad-funded business if it wants a fallback revenue option. Like many technology firms, Spotify has sacrificed profit for revenue growth since launching a decade ago. Yet in the year leading up to its IPO, it pulled together an ad platform that allows it to profit from the scale of its audience.
Ad buying veteran Marco Bertozzi joined Spotify as its vice president for Europe at the end of 2017 to further develop its ad business. Months later, he hired ad tech veteran Zuzanna Gierlinska as head of programmatic for the region. Spotify’s ad business started to take shape as other commercial executives joined on both sides of the Atlantic between both appointments. In September, Spotify quietly rolled out a self-serve platform for audio ads, signaling its intent to win programmatic budgets missed by its previous attempt to pull money in from private marketplaces and direct buys.
Spotify sellers are pushing the concept of mood-contextual advertising, based on the music genre being consumed. The idea: music is such a highly emotive and mood-shaping experience that the ability to target listeners based on their likely mood could be a huge differentiator for Spotify’s somewhat rigid programmatic offering, in a digital ad market still dominated by image and video. To date, agencies have only been able to target Spotify playlists that give some indication of mood through direct buys.
Nevertheless, there’s a “creative freedom” to audio advertising, said Daniel Wilkinson, head of paid media at Jellyfish. Spotify ads are “definitely not as expensive as video,” he added, while frequency and reach is “usually a lot higher” because listeners can tolerate a higher volume of ads without getting bored.
Audio, however, is a tough sell to advertisers even for Spotify, which is renowned among ad executives for its brand-safe ads, cross-device targeting and richness of audience data.