$SPOT and "The Podverse"
Deep Dive Update
The Abstraction Begins to Materialize
My $SPOT long thesis is that the company is expanding its margin profile, by going from being a music streaming company to an intelligent audio network. When I first crafted the thesis, I held in my mind (and still do) the abstraction that cultural dominance, good management and an improving AI engine would equate to higher margins and top line growth, through time.
It has taken some time for the above abstraction to begin to emerge into the three dimensional world, but we are starting to see early examples of it, such as the recent introduction of Call-to-Action Cards for Podcast Ads, which help users engage more deeply with podcast content and creators extract more value from their audience.
The move to podcasts is accretive to $SPOT´s margin profile per se, but the contribution margin of this feature is structurally upgrading for $SPOT. It is a minor software addition that sits on the otherwise costly underlying infrastructure, that is mostly being paid for by the legacy music streaming business.
Features like this lift $SPOT´s margin profile above the quarrel for streaming royalties and reflect what the above abstraction looks like materially. There are many more features like this to come, as I will explain below.
Not all features will stick, but that is where good management and cultural dominance come in. So long as the two persist, there will be ample space to test features cost effectively and keep the ones that do work.
Now back into abstraction mode.
The matter of the fact is that today podcasts are little content black boxes, compared to other types of content which have been more exploited to date, such as video and text. Today, we have no such thing as a “viral podcast”, because current systems are not processing podcast content and engagement deeply enough and hence UX is shallow. On its current and perhaps non-obvious journey towards viral podcasts, Spotify will create the Podverse.
The Podverse will be an intelligent library that understands the content of an ever growing number of podcasts at super human level. It will lean a lot on the infrastructure that $SPOT has built for the music streaming business, including the AI engine it uses to make recommendations. As such, podcasts will cease to be black boxes and will be highly accessible and shareable. The UX will be much richer and deeper, accordingly.
Most importantly, the problem surface area that $SPOT will be able to tackle at marginally low costs through software will exponentiate relative to what it is today, because so will the number of angles to consume and produce / monetize podcasts. Ultimately, there will be many high-margin pain points on both sides of the platform that $SPOT will be able to solve relatively easily.
Once the Podverse is mature, Spotify will look a lot like Google but for audio. Its current margin profile will look like a boot loader of the Podverse in hindsight and high-margin features like the CTA cards will populate the platform, yielding a much more profitable business.
Until next time!
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