Spotify uses machine learning recommenders that take into account what and how users consume playlists and the rich diversity of playlist experiences
User engagement (UE) is a quality of user experience characterized by the depth of an actor’s cognitive, temporal, affective and behavioural investment when interacting with a digital system (O’Brien, 2016a)
“Our customers always tell us that music discovery and listening is a personal experience, and we are enhancing the free experience with this in mind,” said Babar Zafar, VP of Product Development at Spotify. “This is the beginning of an evolution for Spotify and we will continue to make improvements that mirror our customers’ needs. This is not only about giving users a more customized free experience from the day they sign up, but giving them more control over their listening experience so they can easily find and stream their favorites anytime, from anywhere.”
In a quest for more ad dollars,
Spotify has been improving its self-serve platform to grow its ad business,
which still lags behind the money the company makes from subscription revenue.
Ad buyers, meanwhile, remain mixed on Spotify’s ability to drive performance and conversions from audio ads, but remain intrigued by the platform, especially as another key audio ad channel — podcasts — grows on Spotify.
Spotify’s global head of partner solutions, Danielle Lee, said the company plans to add more demographic and interest-based targeting and other audience features to its self-serve Ad Studio in 2019. Lee said the company’s first-party segments on self-serve have been pretty limited to basics like age and gender, but now they’re looking to introduce categories like “fitness enthusiasts” and “mom” based on listening habits.
Spotify also is creating an audience
upload feature that allows select advertisers to match their known customers
with the platform’s audience. Lee declined to share specifics on what
identifiers they will introduce.
focus on growing its ad business comes as most of Spotify’s revenue
is still tied to the ad-free, subscription product — even though the majority
of its monthly active users do not pay for the service. In its 2018
third-quarter earnings report, Spotify said about 10.5 percent of revenue is
from ads and 57.1 percent of monthly active users are ad-supported (and many use ad blockers).
Those numbers haven’t fluctuated significantly from Spotify’s 2017 data.
“Our goal is to grow all of our
channels. The beauty we see through audio, specifically, is the opportunity to
reach consumers in screen-less moments, [which is] is just growing with the
proliferation of connected cars, connected speakers, gaming consoles. We see
an opportunity for brands being relevant in those moments, adding value in
those experiences as opposed to interrupting them,” Lee said.
Advertisers have mixed feelings about
audio ads and Spotify. One direct-response advertiser said he doesn’t like
audio ads because of the interruptive nature, though he noted podcasts can be
an exception. Men’s health startup Ro
has invested in digital ads, TV and out-of-home but hasn’t focused on audio ads
due to lack of efficiency.
“While I haven’t run ads on Spotify in a few
years, it’s always been a struggle to find sustainable, efficient growth from
internet radio. Part of that comes with the territory when running ads on the
free version of a product that also has a paid version with a more premium
audience,” said Rob Schutz, Ro cofounder and CRO.
But other brands have paid for Spotify’s audio
ads, video ads and branded playlists. Spotify said “thousands” of advertisers
have used its self-serve product Ad
Studio since it launched in September 2017. Spotify revealed in its 2018
second-quarter earnings report that more than 20 percent of the total
ad-supported revenue is from Ad Studio and its programmatic products. Ad Studio
is available in the U.S., UK, Canada and Australia, and has a $250 minimum
spend. Spotify also adopted Nielsen Brand Effect last year to improve its
Entertainment companies go “hand in
hand” with audio ads, said Jenny Lang, svp, managing partner of integrated
investment at UM Worldwide. Her agency also sees interest from retailers and
small direct-response companies. As a large agency, UM either works
directly with Spotify or buys programmatically. The self-serve platform is
geared toward small businesses that want to make a quick campaign without using
a programmatic system or working with Spotify, Lang said.
“I think music is still a standard on the plan. Ad Studio we
haven’t used a lot, but we see a lot of benefits. Some of our smaller brands
don’t have audio ads, [so] we could see them quickly create it A.S.A.P.,” Lang
In Ad Studio, Spotify charges between $0.015 and $0.025 per
ad served, as tested by Digiday. Buyers using Ad Studio are limited to only
audio ads with display creative. If a
campaign is higher than $25,000, Spotify encourages a buyer to work with the
company’s sales team, a spokesperson said. The sales team also can offer other
ad formats like video and branded playlists. CPMs bought directly range
depending on the format.
Emily Harris, an independent marketer, has used Spotify Ad
Studio over the last year for clients who put on live music and community
events such as Artist Home & Timber! Outdoor Music Festival. In Ad Studio, buyers can target Spotify
users by location, genre of music, artists
great that a music event can target listeners of performers, especially
headliners. It definitely helps build blanket awareness for folks who might not
see our posters, display ads or hear our traditional radio spots,” Harris said.
But the self-serve platform itself is quite limited. In the
future, Harris said she’d like to see more targeting capabilities such as the
ability to target fans of performers “lower on the bill” and to target fans of
similar artists. Harris said she’d also like to target more general interests,
as ad buyers can on Facebook. Pixel
tracking, similar to Facebook, is another item on Harris’ wish list, so she can
see a conversion metric.Like many
buyers, she uses a discount code on audio ads so she can attempt to track
conversions.Harris declined to
share specific conversion numbers but said Spotify “does seem successful with
implanting impressions, but last touch conversions — and even clicks — are
On the direct sales side, Spotify is expanding beyond its
traditional ad units by encouraging more advertisers to create branded experiences. Spotify announced in January that
brands could now sponsor Discover Weekly, its playlist of new music that is
personalized to each listener every week.