Spotify, the ad-supported music streaming service, has barely scratched the surface of its advertising capabilities, but the 7-year-old company is treading carefully. The streaming service is up to more than 24 million active users, a quarter of whom are premium subscribers, and earned $577 million in total revenue last year.
Part of the Stockholm-based company’s success, according to Europe VP Chris Maples, stems from giving users choices in their listening experience, which includes offering paid, ad-free options. AdExchanger sat down with Maples recently to talk about Spotify’s advertising strategy and its approach to keeping users and advertisers happy.
AdExchanger: How would you describe the type of advertisers that you attract?
CHRIS MAPLES: We attract almost every advertiser in the market. Last year we carried something like 2,000 advertisers across Spotify. We have a very deep partnership with Coca-Cola, we carry things from Unilever and Proctor & Gamble, all the major car advertisers, the tech advertisers like Microsoft and Google, as well as local advertisers, dating sites and fast-food restaurants — anyone trying to reach a youngish audience or associate themselves with music.
What percentage of your revenue is tied to advertising?
We don’t the break the numbers out that way, but I can say that 75% of our user base is free and 25% is premium. We’re still taking baby steps in terms of working with advertisers and figuring out that side of the business.
What kind of targeted advertising do you offer on Spotify?
When users register on Spotify they can register through their Facebook log-in or through their email. You can target against all the normal Facebook things you would target against like postal data and age demographics — on top of listening habits.
We think mobile is definitely an interesting space. As we continue to expand, mobile is becoming a bigger part of our market. For now, it’s only through our premium service that you have access to mobile. We also tested a free mobile app in the US that was more like a radio player that we’re still tweaking. We’re tweaking our products all the time. For example, we’ve recently moved from a search-based music tool to a music-discovery tool based on your listening habits or based on those people whose profiles you follow.
Are you working with any third-party advertising providers like ad networks and real-time bidding platforms?
We built our own ad server internally when we built Spotify seven years ago. We have our own ad sales reps in our major markets and partner relationships in other markets. In terms of real-time bidding, not at the moment, no. Our philosophy is that we will deliver our products and grow our business first and then scale our ad products as well.
In time, if we think it’s appropriate to work with third parties to help us monetize our ad assets, then absolutely we’ll investigate that. At the moment we’re focusing on our premium offering and we do a lot more brand partnerships that are more integrated than just an ad buy where we may build some content and host live events. In terms of that real-time bidding stuff, we keep watch of all the areas that are dynamic and growing in the marketplace, but no plans currently.
What would be a trigger for you to use an RTB platform?
We don’t have any specifics. The advertisers that spend on Spotify are really comfortable with it and they like the way the service is working. If we were to think about working with third parties, we would want yield management, to make sure the advertisements were the kind we wanted for our services.
Are you doing anything with video ads?
We have some video units. We have some banner-to-video capabilities in our ad page, so we can host video there. We don’t have a standalone video ad unit at the moment. As we continue to grow and iterate our ad units and our ad offerings, we will also investigate video further. First and foremost the thing we spend most of our time on is making sure the people who use our service can listen to the music they want and that their journey is enriched by ad formats and not distracted by it.
What industry shifts do you see happening that could offer more opportunities for Spotify?
The most important shift we’ve seen, and I think it’s more like an evolution, has been this idea of connected devices. When we launched back in 2007, we quickly realized we needed to be on mobile, and along came tablets, and then from there we recently launched into smart TVs with Samsung and LG and we’re also built into Volvo and Ford cars.
For us the big shift is that people want to consume our products in a million different environments and we need to make sure that we’re able to satisfy that need by working with partners to give the best experience we can, whether you’re sitting at home in your bedroom or in your car, a plane or anywhere else.
We also recently launched Spotify Connect, which means if you’re listening to Spotify on your phone, when you walk into your house and you want to listen to the music in your home, you press play on your phone and it’ll play the music from the speakers in your living room. Similarly, if you go to the car, it’ll carry on in your car. It’s a seamless experience. You don’t have to stop and start again. We have 11 partners that are working with us on this and we’re adding more this year.
What kind of user behavior or patterns have you found through your data?
There are some interesting quirks. The profile of the music that you listen to on your mobile is slightly different from the music that you listen to on your desktop. You tend to be slightly more middle of the road on your desktop and more true to extreme areas on your phone.
We also noticed some analytics that show how our music is affected by things that are happening around you. We looked if there were interesting things happening during the Boston bombing, or when the new king in Holland ascended the throne. We saw in those areas peaks in things like bands that are associated with Boston as well as a peak in the Dutch national anthem when the king of Holland ascended the throne. We see some really interesting analytics around people’s listening habits.
Different emotions are related to music. We try and figure out the right music for every label, depending on whether it’s getting up in the morning or getting ready to go out in the evening or when you’re in the gym. We know for example that people listen to music when they’re working out, so we’ve built an app in the service where you can elect the activity you’re doing and the pace upon which you want to do it and we’ll build a playlist that’s perfect for you to work out to.
We also work with lots of other content providers, like Disney, so on top of the music, we have things like audio books as a service and lullabies as a service and bedtime stories as a service. That’s a really interesting way that people are starting to use our service.
