“Spotify is an advertising company”

David Turner makes an excellent point about how Spotify is built around advertising. Perhaps this is an important part of the puzzle of why the interface feels so constrained in certain aspects of user tools. A strong focus on advertisement inevitably get in the way of the user experience, even in terms of development focus…

Now, let’s take a small step back to remember: Spotify is an advertising company. An immediate rebuttal is that a large majority of Spotify’s revenue is derived from subscriptions, not advertising. A quick flash through the company’s history could refute that point. The company’s two co-founders, Daniel Ek and Martin Lorentzon, both made their initial wealth in advertising startups. Again, to cite Spotify Teardown, the authors argue that Spotify’s initial business model of advertising was interrupted by the financial crash. This disruption saw major labels, then all still investors, push Spotify to adopt subscriptions to potentially mirror the recession resiliency of television subscriptions. Thus, Spotify, as noted earlier, turned to telecoms. A decade later, that tension remains within the company, as its reliance on family bundles and cheap international promotional efforts only further hurts the amount of money labels can make.

That’s why it’s worth not thinking of Spotify’s subscriptions as offering corporate autonomy like a Patreon-backed project. Instead, Spotify still serves the purpose of being an advertising platform. (Netflix exists in a similar space, where even with well over a hundred million paying subscribers it’s still figuring out how best to interact with brands.) That isn’t only limited to brands but also to music itself, which is why in Spotify’s most recent deal with Universal Music Group, the headline-grabbing takeaway was for increased marketing efforts. Or one can look at the lengths Spotify’s gone against stream fraudsters or even ad blockers. Its own devaluing of a subscription price is okay but attempting to avoid seeing a Lady Gaga ad is unacceptable. 

This is why Daniel Ek has for years huffed the fumes of radio advertising money as what will really make his company sustainable. Again, even though Spotify could potentially reorient itself towards isolating out the influence of advertising, it is embracing them.

Good point too on how its dominant position could be constraining the emergence of competing alternative experiments:

That’s why the company keeps leaning on new video formats, digital experiences, and whatever might force a brand to spend a few more dollars on ad spend. Potential new formats and higher ad buys are constantly being trodden out, while the company still refuses to budge on its current $9.99 subscription price. That refusal to move on subscription price should be challenged more. Nell Jones recently wrote in the Duke Journal of Economics that according to her research, music fans would be willing to pay $14.40 a month for streaming access. Spotify, and in many ways artists, are held back from further experiments in this space due to Apple, Amazon, and Google being capable of withstanding loses from cheaper subscription fees. 

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