Spotify is poised to dominate the ad market in the next year.
Its new streaming service, which launched last month, has already been downloaded more than 1.3 billion times, and the service is already the biggest player in music streaming, with over 3.5 billion monthly active users.
But its business model is changing fast.
With the app’s release, Spotify was able to add over 200 new paid advertising deals, and it’s already in the process of building out an audience of about 300 million people, making it one of the world’s biggest brands.
Spotify, meanwhile, is still in the early stages of building a profitable brand.
Its revenue is still relatively small compared to that of traditional media companies like Amazon and Facebook.
But the company’s advertising deals mean it now has a substantial slice of the $20 billion ad market, which is expected to reach $50 billion by 2020.
And it is already on the way to becoming a huge player in advertising.
Spotify’s AdSense business has over 50 million active users, according to a recent report by AdExchange.
The company is the second-biggest ad network in the US, behind only Google, and its business is likely to continue to grow as the service expands its audience.
In a recent blog post, Spotify co-founder, Tom Schafer, said the company has “no intention of slowing down in the long run”.
“We are not afraid of changing our business model,” he said.
“We want to change the way we create content, and we will.”
The most important question is how much of the advertising revenue is going to Spotify?
“It’s very hard to estimate exactly how much Spotify’s revenue will be in 2020,” said AdExport’s Andrew Davenport.
“But it’s definitely a very big number.”
For example, AdExsea’s AdPilot estimates that Spotify’s advertising revenue for the first half of 2020 will be about $1.4 billion, while AdPete’s estimate is $1 billion.
But Spotify is also looking at potential ad revenue from third-party services.
Spotify recently announced partnerships with third-parties including Amazon and Google, in which the two companies will provide ad services on the platform.
These include an Amazon video ad, a Google mobile ad, and a Spotify-branded video ad.
“The company’s revenue from ad sales is relatively small,” said Davenports.
“They are looking at the $2 billion a year that Google and Amazon make from ads.”
And while Spotify’s ad revenue is likely growing fast, it is still small compared with those of traditional companies like Google, which are expected to take in $5 billion to $7 billion a month.
But with such a large audience and a growing user base, Spotify has a shot at being a dominant player in digital advertising, especially in the wake of Apple’s acquisition of YouTube and its acquisition of Twitch, two video streaming services.
With Spotify, there is no doubt that its new streaming music service will become one of those platforms, with many advertisers wanting to get in on the ground floor of the streaming advertising game.
AdExchanger estimates that it will generate $9.4 million in ad revenue by 2020, a rise of around $200 million from the previous year.
That’s a lot of money for an app that doesn’t have an obvious revenue stream, and in a world where many companies are working hard to build a digital advertising business, Spotify’s potential could be huge.
But will the business take off?
There are some obvious risks that will need to be addressed.
Spotify is currently in the middle of building up a huge user base and it will be hard to attract advertisers if the app doesn’t attract enough users.
Spotify needs to build up its audience in order to be able to attract the advertisers who are looking for a way to promote their brand, and many of these advertisers will want to avoid paying a hefty upfront fee.
And because of the nature of the platform, it will probably take a while for advertisers to become aware of Spotify.
“You’ll have a lot more advertisers on Spotify who don’t have any intention of paying upfront, because it’s going to be a little bit of a slow burn,” said Schafer.
“If you don’t get that attention, you’re going to have a big negative impact on the market.”
AdExsport estimates that there are over 500,000 active Spotify users, with almost all of them using the app for music.
And Spotify’s subscriber base is also relatively small, at around 250,000.
“That means there’s a good chance that it won’t be able do that well at scale,” said Ryan Hensley, an analyst with AdExse.
But AdExpe is cautious about how Spotify’s new monetisation strategy will work.
“Spotify is trying to make its music-only service work by doing it very differently,” he told TechRadars