Spotify advertising raked in $450 million in the fourth quarter of 2021, representing 15% of the company's total revenue - the highest mark to date for the growing business segment.
Despite the impressive growth in advertising, the market crushed Spotify following its earnings release after the company forecasted slowing premium subscriber growth. Spotify stock fell nearly 23% in after-hours trading following the release.
Spotify only expects to add three million new users in Q1 2022, a stark contrast to the average of 6.6 million premium users added a quarter since the beginning of 2020.
Despite slowing premium subscriptions, nobody should ignore the podcast advertising opportunities ahead of Spotify.
Podcasting advertising spend across all platforms topped $1.3 billion, and that figure could double by 2025 to $2.74 billion. Spotify CEO Daniel Ek has positioned his company to capture a sizeable chunk of that revenue with unique offerings previously unavailable to podcast advertisers.
Podcast advertising before Spotify
Before Spotify jumped headfirst into podcasting, Apple reigned as the top dog. Spotify only recently passed Apple in October 2021 as the most used podcasting platform in the US.
Advertising on Apple and other podcasting apps mainly consisted of hosts reading ads from deals negotiated directly with advertisers. Podcast adverting measurement is notoriously tricky, given that downloads rather than actual impression counts were traditionally the only metric available.
Direct response advertisers use the low-tech workaround of offer/promo codes. If I ran a podcast, I'd be telling you to head to my advertiser's site and "use promo code ADTECHEXPLAINED for 20% off your next order!".
Since you can't click a podcast ad, promo codes would give advertisers a quantifiable way to understand if someone heard their ad on a specific podcast and bought something. If a user checks out with a podcast's unique promo code, the advertisers can measure the effectiveness of advertising on that podcast.
This solution is less than ideal for advertisers who have come to expect programmatic advertising magic, and all the measurement that comes with it,
Dynamic ad insertion
It is possible to dynamically insert ads on Apple Podcasts, but it isn't simple.
When you publish a podcast to Apple, you provide them with an RSS feed. RSS stands for Really Simple Syndication and is an XML-based format used to distribute web content.
XML is the same formatting language powering VAST, and even I have an RSS feed for Ad Tech Explained so someone can pull content into a blog aggregator of their choice. I also use my RSS feed to publish my content to Google News.
Podcasters use RSS feeds to provide platforms like Apple Podcasts critical metadata. Metadata found in an RSS feed include:
- Podcast title
- Publish date
- Audio file
Since Apple Podcasts has no advertising capabilities built into the platform, podcasters had to improvise by modifying the audio file they deliver in their RSS feed.
When a user plays an Apple podcast, they download an audio file that Apple points them to from the podcast's RSS feed. The server hosting the file can then see the requesting user's IP address. Podcast advertising platforms can then stitch ads into the audio content, using IP addresses to determine user location and possibly matching the IP to layer on audience data.
The result is a new audio file, complete with dynamically stitched-on ads. The ads may be dynamic, but this format shackles advertisers to the lone measurement metric of downloads.
Spotify podcast advertising
In addition to a $100 million exclusive licensing deal with Joe Rogan, Spotify shelled out $340 million for the podcasting studio, Gimlet, and podcast distribution platform, Anchor. Spotify also paid $196 million for the Bill Simmons podcast, The Ringer.
Spotify is going all-in on podcasting. But what are they bringing to the table for advertisers?
Spotify has brought podcasting into the modern age by introducing programmatic audio advertising solutions that offer enhanced measurement, data, and seamless dynamic placement. They can execute these features through their self-serve advertising platform or a buyer's DSP.
Spotify proudly touts these capabilities on its website:
Instead of using podcast downloads as a proxy to measure your audience reach and impact, advertisers can validate impressions in real-time, as listeners stream their favorite podcasts on Spotify. Streaming Ad Insertion (SAI) provides campaign metrics and audience insights based on confirmed ad impressions. This technology is only available with Spotify Advertising.
Instead of using podcast downloads as a proxy to measure your audience reach and impact, advertisers can validate impressions in real-time as listeners stream podcasts on Spotify. Streaming Ad Insertion (SAI) provides campaign metrics and audience insights based on confirmed ad impressions.
Streaming Ad Insertion
Spotify streaming ad insertion allows advertisers to dynamically insert ads on Spotify without any podcast creators having to fiddle with fancy server-side stitching tricks of their own.
Advertisers can now deliver ads to podcasts with all the fixings they have come to expect, like performance measurement, data targeting, and clickthrough URLs.
Spotify ad meaurement
Gone are the days of the lonely downloads metric. Spotify can offer up a veritable buffet of ad metrics like:
- Ad delivery metrics like ads served, reach, frequency, and completion rate
- Audience metrics like age, gender, genre, and platform
- Performance metrics like clicks, CTR, and quartile completion rates
Spotify audience data targeting
With first-party data becoming more valuable for advertising, Spotify has positioned its products to help advertisers reach their target audience without outside (third-party) help. Spotify captures user info on registration to segment audiences by age, gender and location, but Spotify's real value comes from the listening data they gather on users.
Spotify can utilize podcast and music listening preferences to help advertisers reach users who resonate with their products.
For example, if you listen to:
- The Relaxing Nature Sounds Spotify playlist: you might be into meditation apps
- The Encanto Soundtrack: there is a higher likelihood you have children and therefore might need back to school clothes
- Florida Georgia Line: you love crushing beers and watching NASCAR
The same goes for Podcasts:
- Pivot or All-In (my two favorites): you are interested in technology & business
- NPR News Now and The Ben Shapiro Show: can indicate your political affiliations
The point is, what you listen to can tell a lot about you. Spotify is better positioned than any podcasting platform to execute on this kind of data thanks to their little music streaming business, the buying tools they provide, and the sheer volume of listening time.
With Apple ATT wreaking havoc on advertiser capabilities around audience targeting, Spotify can still use their first-party data to reach coveted iOS users.
Call to actions
Podcasting has always been an audio-only experience, but Spotify flipped the script and started tying in display advertising into the mix with call-to-action cards. If a user has the app open during an ad, they can see a card that allows a user to click through to an advertiser's destination URL of choice.
More interestingly, Spotify has created display advertising inventory for advertisers to retarget users throughout the Spotify app. Spotify can continue to show display ads to users related to audio ads they already heard as they browse the Spotify app.
Lacking feature development
While Spotify can deliver an impressive lineup of advertising capabilities, the company does have an inexcuseable missing feature: automatic podcast downloading.
Downloading podcasts to a device requires a user to tap a button — for each episode. It is head-scratchingly absurd to lack this basic feature of podcasting.
Apple Podcasts made auto-downloading podcasts a table-stakes feature to expect from a podcast app. This feature ensures that when you embark on your morning commute, all your podcasts are there waiting for you, unperturbed by spotty cellular connections and not gobbling up cellular data.
Spotify is notorious for dragging its feet on feature development. Even after Apple opened up the capability for third-party services to download music offline to an Apple Watch, Spotify still took years to implement the feature.
I find it hard to believe that this was a development issue for a company that invented breakthrough agile software development philosophies. Holding back features like these are almost certainly a result of business prioritization.
In any case, get it together Spotify, because I'm still using Apple Podcasts until you fix this nonsense.
Poised for podcast success
Podcasting is continuing to grow at a rapid clip. Insider Intelligence (formerly eMarketer) predicts that by 2025:
There will be 142.7 million monthly podcast listeners [in the US]. Among them, 43.6 million will listen via Spotify and 29.1 million will listen via Apple Podcasts.
That is up from 107 million total US listeners in 2020. As the pandemic winds down and many of us get back into our cars and commutes, podcasting will continue to open up pivotal access points for marketers directly to our brains.
Spotify is in the enviable position of capturing most podcast listeners moving forward and is laser-focused on advertising more so than any other podcasting platform.
The two closest rival podcasting platforms in terms of market share, Apple Podcasts, and Google Podcasts, do not even offer advertising options and only point to the audio files provided in an RSS feed.
Spotify has focused on owning podcasting like no other. They have built a war chest of exclusive podcast content, a set of advertising features not available elsewhere, and a premium subscription business to back it up.
Spotify is trying to become synonymous with podcasting, and there are not many obstacles in its way.