Spotify also provides video from web-native providers including: Fullscreen, the joint venture from AT&T and the Chernin Group; Disney’s Maker Studios; and Tastemade, which also creates videos for YouTube. The first videos are introduced without ads, but Spotify aims to start testing advertising opportunities in the video domain shortly. Deal terms for video partners remain unknown.
In addition to video, Spotify has added podcast support and special ‘clever’ playlists for runners that are able to adjust the song’s tempo to the pace at which the listener is moving.
The service enhancements are debuting on iOS for users in the USA, the UK, Sweden, and Germany with other countries to follow soon.
This update to Spotify can be thought of in two parts:
The former is more straightforward. In the on-demand music market, services need ways to differentiate themselves as they are competing against each other with broadly the same catalogue of content on broadly the same deal terms. Importantly, exclusive music does not have a strong track record of driving usage or acting as a differentiator. That leaves other forms of product innovation such as more limited bundles (e.g. services which limit the number of on-demand tracks per day such as UK’s, now-closed Bloom.fm, or Rdio’s $3.99 per month plan, launched May 2015); or adding podcast support as Deezer did earlier this month.
Spotify’s ‘clever’ running playlists fits into this context and should be seen as a way of adding value to the core music product for a psychographic group, runners, who are frequently keen music listeners. Partnering with both Nike and Runkeeper for integration into their fitness apps should help to drive adoption and awareness. Getting users into the funnel remains one of the key challenges for Spotify, which has seen conversion rates remain broadly static as user numbers have grown.
By contrast, the move into video presents more challenges as it moves the product beyond its core value proposition. The potential and the challenges associated with this move can be easily seen looking at how the move into video superficially changes Spotify’s competitive cohort from music companies like Deezer and Rhapsody/Napster to include some of the biggest companies on the internet like YouTube, Twitter and Facebook.
However, it is unlikely that Spotify’s launch partners represent a content mix compelling enough to attract meaningful audiences away from those major players. But, even as the content improves, it is not obvious how simply adding video will help to extend the company’s reach to users who are already using services like YouTube because adding video to Spotify is unlikely to provide much incentive for those users to change service. To put it another way, it may be easier for YouTube to become Spotify, capturing the users of the video site that are interested in a music subscription, than for Spotify to become YouTube.
Where the addition of video plays a more self-evident role is with respect to Spotify’s traditional competitors and in the context of a re-launched Beats Music. In this context, video gives Spotify a clear point of differentiation which it will be hard for many of its competitors to duplicate either because they lack the scale to attract a strong stable of content partners (e.g. Rdio) or because the company’s past behavior suggests that it does not put a high priority on ad-supported services (e.g. Apple). Importantly for this strategy to work Spotify’s video usage does not need to be particularly high – it may be enough for consumers to understand that Spotify has video and the others do not.
This is not Spotify’s first attempt at building a wider content platform. In 2011 it launched a platform for third party developers to create apps to provide curated experiences and featured early support from the likes of Soundrop, Pitchfork, The Guardian, and Rolling Stone. Available only for the Spotify desktop client, Spotify stopped supporting its app platform in 2014. Spotify’s new services are different in two main ways: 1)Unlike its apps platform these new services are mobile first experiences and 2) These new services are mainly aimed at expanding beyond the core music experience which will make it easier to demonstrate its differentiation from other services.