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Spotify's Unique Podcaster Tools Are a Big Competitive Advantage

Spotify (NYSE: SPOT) opened its Spotify for Podcasters dashboard to everyone earlier this week, providing podcasters with access to loads of data and analytics. Importantly, Spotify is able to offer demographic data, including the age, gender, and location of listeners. That kind of data isn't available on any other platform, including Apple's (NASDAQ: AAPL) Podcast app, which still accounts for the majority of podcast listening.

Demographic data is particularly valuable in an industry almost entirely supported by advertisements. And that's the end goal for Spotify -- to create ad products for podcasters.

For now, Spotify for Podcasters offers creators the tools necessary to sell ads more effectively and create more content their audiences will love. That ought to prove a meaningful competitive advantage.

Image source: Spotify.

A unique service

Spotify can provide more in-depth listener data than Apple or any of its other competitors because Spotify requires an account to listen to music or podcasts and it grabs demographic data upon sign-up. Spotify is also uniquely positioned to share data about listeners' musical tastes, which may help inform advertising on both the targeting and creative side.

The company offers a similar service for musicians, Spotify for Artists, which helps musicians decide tour schedules, merchandise offerings, and what songs to record.

Apple provides podcasters with data including total downloads and some more in-depth data like average listening time. But Apple's privacy policies, combined with the fact that each listener isn't necessarily attached to an account, means it doesn't provide meaningful demographic data.

Growing both sides of the equation

Spotify says podcast listening increased 50% sequentially in the second quarter, and it's nearly doubled since the start of the year. The company has seeded the space by investing hundreds of millions of its own cash in acquiring podcast-related companies and producing its own original podcasts. It's also managed to partner with some of the bigger names in podcasting.

Earlier this year, the company introduced algorithmically generated playlists for listeners that include some short-form podcasts. It also made a change to its user interface to highlight podcast content.

On the creator side of things, Spotify is doing pretty well. There are currently over 450,000 podcasts on Spotify. That compares with an estimated 700,000 podcasts available on Apple Podcasts. (Apple's last official update was 555,000 in June 2018.) That said, there are some 2 million podcasts floating around the internet, according to some counts.

Providing the tools available in Spotify for Podcasters should help attract more creators and aid them in finding the content that really resonates with their audiences -- helping both sides of the equation.

The long-term potential

Podcasts are actually a drag on Spotify's profits for now. While it doesn't cost very much to serve podcasts to its listener base, Spotify doesn't have a way of monetizing that listenership. Management has pointed out that podcast listening isn't replacing music listening, it's only increasing engagement. Although that's a good thing, it does increase costs without adding additional revenue.

During the company's second-quarter earnings call, CFO Barry McCarthy compared current podcast advertising to ads on FM radio. "They don't know anything about your likes or dislikes. It's like an FM radio ad. Maybe at best you know something about the demo of the audience you're delivering against. And we think we can do considerably better with digital ad and searching technology that enables us to have a much more targeted user experience."

Indeed, if Spotify is better able to connect marketers with podcast creators thanks to tools like Spotify for Podcasters, it should be able to take a small percentage of ad revenue. It could take an even bigger share if it develops a system to automatically maximize ad revenue for podcasters through programmatic ad sales and dynamic ad insertion. That's just a fancy way of saying each listener would get a unique ad experience based on their interests and real-time demand for ad inventory.

Spotify for Podcasters is just a small step, but one that starts to separate Spotify from the rest of the competition in podcasting.

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Adam Levy owns shares of Apple. The Motley Fool owns shares of and recommends Apple and Spotify Technology. The Motley Fool has the following options: short January 2020 $155 calls on Apple, long January 2020 $150 calls on Apple, short January 2020 $155 calls on Apple, and long January 2020 $150 calls on Apple. The Motley Fool has a disclosure policy.


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