Spotify: The Aggregation Play

Spotify revolutionized the music industry.  They led the charge to streaming and changed the music industry.  Throughout this, Spotify gained massive user growth and significant market share. 

 Normally, massive user growth and significant market share lead to massive profits in the tech industry.  This however was not the case for Spotify due to the higher marginal costs Spotify incurs from each play.  Their marginal cost was just too high.  When this happened to Netflix, they vertically integrated the content and reaped the benefit.  Spotify really didn’t have that option.
Spotify was backed into a corner and they pivoted.  They leveraged their current user base and started to offer podcasts.  Podcasts have a much higher margin.  They began to gain market share.  But, the problem was Apple had a massive head start in Podcasts and significantly higher market share.  So Spotify pivoted again.  They began buying up content (just like Netflix!).  They acquired Gimlet media (podcast company) and the Ringer (media company with podcasts).  Now, Spotify has landed the biggest podcaster, Joe Rogan, on an exclusive deal.
Joe Rogan coming to Spotify means a lot.  First and foremost, tons of new users.  The cost to switch is simply opening another app.  It costs no money for the user, just a minuscule amount of effort.  The gain for Spotify however, is much larger.  They are pushing to own the podcast business.  Dynamically placing ads for higher ad revenue, placing ads for smaller podcasts, etc…
The best part of all of this is that Spotify told us all of this was happening.  The below were the top 4 forward looking statements.  Joe Rogan coming to Spotify helps all four of these.  I don’t know what comes next, but I’ve been extremely impressed by Spotify.  Just reminds me of Facebook/Netflix.

Author: fatbabyfunds