Issue Extra,  published January 8, 2020

Spotify Formally Enters Podcast Ad Tech

Well that didn’t take very long.

This morning, Spotify is announcing what’s undoubtedly its next major step in the platform’s on-going advance into podcast territory: the launch of its very own proprietary podcast advertising technology.

It’s being called “Streaming Ad Insertion” (SAI) — a conspicuous echo of “Dynamic Ad Insertion” — and at the outset, the ad technology will only be applied to Spotify’s original programming and shows that are exclusive to the platform.

Here’s how the tech is described in the company blog post:

Our SAI technology leverages streaming to deliver Spotify’s full digital suite of planning, reporting, and measurement capabilities for Spotify original and exclusive podcasts. This includes data such as actual ad impression, frequency (number of times a listener heard the ad), reach and anonymized audience insights (age, gender, device type).

The company claims that this is the first time this granularity of listening data is being made available for advertisers (and creators) within the podcast context. When asked to describe how they view the significance of this ad tech, Joel Withrow, Senior Product Manager of Podcast Monetization at Spotify (formerly of Megaphone), said: “With the launch of SAI, Spotify is the only place where podcasts are getting reach at scale that’s supported by advertising.”

Puma was among the first brands to try out the offering, with the global footwear brand running host-read ads into Jemele Hill is Unbothered. The blog post noted that the campaign resulted in a +180% ad recall lift.

Spotify’s push into podcast ad tech should come as a surprise to practically nobody. You can probably trace this thread as far back to a TechCrunch report from January 2019, which found that Spotify had started selling ads on its own podcasts since mid-2018 and, at the time, was in the midst of deciding how it was going to approach ad tech. In June, the company announced that brands can now target ads to the platform’s free-tier listeners based on podcasts they consume, an expression of how podcasting inventory can be further relevant to its broader advertising infrastructure.

That the technology will initially be limited to the platform’s original and exclusive is also unsurprising, since any application on third-party podcasts would probably require Spotify to strike deals with those creators and publishers. I imagine the longer-term goal is to open SAI up to everybody, though the company opted to be vague on this point for now. When I raised the question, they emphasized that SAI is currently in a test phase.

In accordance with that, it should be noted that key execution details are still being worked out, like the standards of the ad unit format and how ad creative production ends up being handled at the end of the day. The host-read ad is expected to be the major format, of course, but the team also discussed alternative producer-created advertising experiences that “feel like it comes from the world of the show” (a la the narrative-ish pseudo-docu-style ads you’d get in some Gimlet shows). That design pursuit would involve considerable attention around volume level, ad loads, production quality, and so on, such that listeners wouldn’t really feel much difference from the podcast advertising experiences they’ve been getting now, other than the fact that they’d be served ads (theoretically) more relevant to them.

“We’re bringing podcast advertising up to par with what marketers expect from digital advertising in general, and we’re working to do that while preserving what’s unique and good and effective about podcast advertising,” said Matt Lieber, Spotify’s Head of Podcast Operations. ”We’re not trying to facilitate a radio advertising-style world.”

For now, Spotify will be handling the creation of advertising experiences that will be funneled to the SAI product. Not to be that guy, but back when I was writing about the Gimlet acquisition, this has the approximate — though not completely matching — shape of a tin-foil hat theory I was kicking around then:

[Spotify has] been trying to become the monetization layer for musicians straight-up. I imagine they would want to do the same for podcasts.

But of course, podcast advertising is a completely different animal from digital audio advertising as they would know it. (For now, anyway.) Which brings me to my tin foil hat theory: a possible future is one that sees the Gimlet Creative team being diverted to focus on developing new-age advertising experiences for Spotify to inject into its original programs and to supply its future podcast monetization tools.

Anyway, when I asked whether we would eventually see outside ad agencies — like, I don’t know, Wieden+Kennedy or something — supplying ad creatives for SAI in the future, Lieber acknowledged the possibility. “But what we’re saying at this point is that we’re not going to accept just any kind of advertising,” he added. “Whatever comes from out-of-house would still have to go through our standards.”

Okay, so, with all the details laid out: what does all of this mean?

On the one hand, that Spotify is focused on building its own proprietary podcast advertising technology — and meeting the needs of brands still wary about the relative bespoke/classical nature of podcast advertising, re: targeting, audience segmentation, etc. — means that the company is expressly motivated in realizing a significant leap in podcast advertising dollars. To close the gap, as Lieber has consistently framed the problem in the past, between podcast listening and podcast monetization.

“We still think the industry as a whole is vastly under-monetized — year over year, the level of podcast creation and consumption continues to outpace monetization,” said Joel Withrow, Senior Product Manager of Podcast Monetization. “We believe that SAI will pull more revenue into the industry, which will allow more people to make more content, which in turn will lead to more revenue. It’s a virtuous cycle.”

But on the other hand, a possible risk is that the company ends up becoming a disproportionately dominant facilitator of all podcast advertising dollars, with Spotify eventually assuming a YouTube-like position and incurring all the associated complications of creator power and autonomy that comes with that configuration. Another possible concern has to do with some blurring of the conceptual lines between podcasts and streaming music — two very different kinds of experiences and engagement — from the perspective of brands buying ads on Spotify, which could lead to some sort of warping in podcast advertising value.

Spotify, of course, believes this won’t happen, and that any value created for podcasting on Spotify will trickle outward into the broader ecosystem; rising tides, all boats, that kind of thing. “What we’re hoping is that SAI will help more advertisers become more comfortable with podcasts,” said Withrow. “And we hope they’ll like the results to the point where more brands will want to come into the medium and even drive their investment outside of Spotify and within the industry as a whole.”

We shall see. For now, SAI is in a test phase, as they say, and we’ll be paying very close attention to what happens within and without.