How Spotify is Killing the Open Podcast Ecosystem | KAY SINGHPhoto by Birmingham Museums Trust on UnsplashTable of Contents<br>Unexpected Competition<br>How Podcasts Work<br>Spotify’s Business Model<br>Spotify’s Podcast Investments<br>Spotify’s Podcast Strategy<br>Spotify’s Killer Features1. Algorithmic Discovery<br>2. Analytics & Measurement<br>3. Targeted Advertising & Monetization<br>4. Original and Exclusive Content
Conclusion
Earlier this year, when Spotify announced that “The Joe Rogan Experience” would stream exclusively on Spotify, it sent shockwaves throughout the podcast ecosystem. This deal – reportedly worth over $100 million – is one of the most lucrative podcast deals. The presence of this deal, let alone the magnitude, is rare for the podcast ecosystem, which is built on open principles i.e. all podcasts are available everywhere. Therefore, the concept of exclusivity does not exist in the vocabulary of podcast listeners nor podcast creators. For Spotify to spend a considerable sum of money on a medium that is not its core business (i.e. music) represents a significant shift in strategy. In this blog, I explore why Spotify is embarking on this journey, and the value Spotify can deliver in this space.<br>Unexpected Competition#<br>To understand this sudden shift in strategy, we need to understand the current state of the podcast industry. According to Statista,<br>Back in 2006, only 22 percent of the adult population in the United States was aware of podcasting. By 2020, this figure had risen to 75 percent. Podcasting is an increasingly popular pastime in the US, and there were an estimated 88 million podcast listeners in the country in 2019. Forecasts suggest that the number of podcast listeners will surpass 160 million in 2023 after increases of around 20 million each year.
When consumers are not in Spotify’s app listening to music, they are listening to podcasts in a different app. This represents a threat to Spotify’s ad-supported free product and a loss of ad-revenue from its free users (Spotify’s premium product is not affected by this because the subscription cost per user is fixed regardless of listening time). To serve relevant ads and, in return, increase its CPM for advertisers, Spotify needs to know its users intimately. This means that Spotify needs its users to spend as much of their digital lives as possible in its walled garden. The quickest way for Spotify to enable this is to build a podcast streaming capability and stream all available podcasts through its music app. This is precisely what Spotify started doing in 2018. Since then, Spotify has quickly ramped up the number of podcast titles available on its platform with increasing engagement every quarter.
How Podcasts Work#<br>It is important to understand the open podcast ecosystem before moving forward. Podcasts are delivered through a technology called RSS (Rich Site Summary). If you’ve seen this icon on the internet before, then you have come across an RSS feed.<br>RSS Icon<br>An RSS feed acts as a content-distribution tool and is often used by websites to distribute web content such as new articles, blogs, and podcasts. It is an XML file that holds metadata and location of the podcast content, which in most cases, is the audio file.
The publisher sets up a public RSS feed URL which is used by the listener in a podcast player to subscribe to the podcast i.e. the podcast player downloads new episodes as they are published. Of course, in modern times, any capable podcast app indexes the most popular podcasts and provides users with search functionality to discover the podcasts rather than inputting podcast URLs. Notice the beauty of this ecosystem because both sides of this publisher-listener transaction are open. On the publisher side, the podcast feed URL is available publicly without any authentication to be consumed by anybody who understands the XML structure of the feed. On the listener side, the listener is free to use their favorite podcast player (there are many out there…maybe too many 😄). The downside to this open nature of the ecosystem is that it creates challenges for measurement and monetization as we’ll see in the rest of this article.<br>Spotify’s Business Model#<br>Spotify made it possible for anyone to pay $10 a month and have access to almost any song ever released! By doing so, Spotify might have single-handedly solved the piracy problem for the music industry and proved a business model exists where consumers will pay for music. Buoyed by Spotify’s success, major giants like Apple, Amazon & Microsoft, and many others have tried to replicate Spotify’s strategy – albeit to varying degrees of success.<br>Source: https://www.statista.com/chart/20826/music-streaming-services-with-most-subscribers-global-fipp/)<br>Spotify has built an impressive business model in a crowded market despite being a late entrant in the music streaming business. Pandora, which once was the...