the alphabet (NASDAQ: GOOGL) (NASDAQ: GOOG), the parent company of the search giant Google, has achieved remarkable financial results over the past two decades and today it has a market capitalization of about $1.9 trillion. While there are certainly a number of factors that helped Alphabet reach this rare size, the company’s general recipe for success consisted of pairing eyeballs with unique targeting capabilities for advertisers.
anyway spotify (NYSE: SPOT) Just a tiny fraction the size of the Alphabet, the podcast giant is trying to replicate the same model, only for the ears instead of the eyes. Let’s see if the strategy can pay off or not.
Spotify Advertising Template
Spotify got its start by pioneering the “freemium” model of the music industry. After facing some initial resistance from music companies over an ad-supported experience, Spotify has focused most of its efforts on increasing subscriptions. However, over the past two years, this focus has begun to change.
With the recent push into alternative forms of audio like podcasts, audiobooks, live chats and more, the company’s advertising segment is seeing increased focus from Spotify’s management team. CEO Daniel Eck was very vocal about this on Spotify’s second quarter conference call when he said, “This is admittedly an area I haven’t spent a lot of time on previously, but it’s becoming impossible to ignore.”
By the end of this year, Spotify expects to surpass the total of 400 million monthly active users (MAUs). In order to capitalize on all these ears, Spotify has created a comprehensive marketplace for advertisers known as the Spotify Audience Network (SPAN).
SPAN allows advertisers of any size to promote their message via various forms of audio while targeting individual users based on their listening habits – something that traditional radio cannot deliver. Although the ad inventory on SPAN is currently limited to podcasts or single slots between songs, Spotify has announced plans to add audiobooks to its platform that can serve as another audio format for advertisers.
For a long time, measuring the effectiveness of advertising campaigns has been difficult. There’s even a popular saying in marketing that “Half of advertising spend is wasted, and the problem is that you don’t know which half.”
Fortunately, this problem is silent today. Thanks to companies like Google, advertisers can not only reach a massive audience, but they can also rate the performance of their ad campaigns due to analytics. However, voice-based advertising has almost never made much progress in terms of scalability.
To help address this sore point, Spotify last week began rolling out call-to-action cards for podcast ads. Now, when advertisers run a podcast ad campaign using the Spotify Audience Network, they can include a customizable interactive popup with phrases like “Buy Now” or “Download”.
For example, let’s say Ulta Beauty She was running a campaign with 25% off and wanted to target women aged 20-30 who are in their car and want to listen to dating podcasts. Spotify can provide that. Furthermore, Ulta can now add a call to action with the phrase “Get Coupon”. This new interactive feature should not only reduce friction between listeners, but also help advertisers evaluate the effectiveness of their ad spend.
Could Spotify Become Google?
While comparing any company to Google seems to distort the great business that Google has built over the years, the value that Spotify provides to audio advertisers bears a passing resemblance to companies like Alphabet or ID pads (NASDAQ: FB) She was able to do in digital advertising.
As Spotify continues to build more functionality and include new types of audio in its ad network, investors should expect to see the advertising sector grow rapidly as a percentage of Spotify’s total revenue. Last quarter, ads made up just 13%, but Ek said he believes it could make up as much as 40% or more over the next five to 10 years.
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Susan Fry, CEO of Alphabet, is on the board of The Motley Fool. Randy Zuckerberg, former director of market development and spokesperson for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Ryan Henderson owns Spotify Technology. The Motley Fool owns and recommends Alphabet (A shares), Alphabet (C shares), and Meta Platforms, Inc. and Spotify Technology and Ulta Beauty. Motley Fool has a disclosure policy.
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