One step closer to becoming a podcast ad network

Spotify is going to start using its copious amounts of user data to run targeted ads inside its exclusive podcasts. Targeted advertising remains new ground for podcasts, and the announcement sets Spotify up to potentially branch out beyond its own shows and begin placing ads in other networks’ content. If it catches on, Spotify could become a full-blown podcast ad network.

With technology it’s calling Streaming Ad Insertion, Spotify says it’ll begin inserting ads into its shows in real-time, based on what it knows about its users, like where they’re located, what type of device they use, and their age, similarly to how the broader web operates. Spotify already automates dynamic ad insertion on the music side of its business, it’s now expanding and improving that tech for podcasts.

This means that if you and I were listening to the same Spotify-exclusive podcast, we may receive different ads because we have different interests, ages, gender, and locations, among other things. Brands that use Spotify’s targeted ads will also receive more detailed data than they would from a typical podcast ad. That includes the number of times listeners heard an ad, the ad’s reach, and anonymized audience insight.

Spotify’s in a unique place to pull this feat off. It knows more about its users than most other podcast players, partially because of its sign-up process, and also because of its knowledge about users’ music taste. It also primarily streams podcasts instead of having users download them, a major difference in how podcasting has traditionally worked that enables the company to insert ads as people listen and keep track of what they’re listening to. However, this technology won’t work when someone downloads an episode instead of streaming it because a live server connection is needed to make live ad insertion decisions.

But Spotify says it’s not worried about people downloading more than streaming. “Very few customers” actually download episodes, says Jay Richman, VP and head of global advertising business and platform at Spotify. In these “minority” cases, Spotify would fall back on the ad technology it already uses, which relies on a predetermined ad. (Personally, I download shows whenever I’m planning to fly, and I imagine other people do, too.)

Spotify knows more about you than other podcast platforms

Currently, podcast advertisers rely on a hodgepodge of techniques to figure out where they want to advertise, says Stephen Smyk, SVP of podcast and influencer marketing at Veritone One. Smyk’s team figures out what an advertiser wants to accomplish, like more sales or brand awareness, and makes decisions around that goal. Generally, the team learns about a specific show’s audience demographic by chatting with the show’s creators. Those creators get their data from audience surveys, in some cases, and sometimes Spotify’s own podcasting dashboard, which is available to anyone who puts their show on the platform. Meanwhile, the advertisers measure success by tracking how many people visited unique URLs, used promo codes, or even talked about an ad on social media. It’s a messy system and not nearly as streamlined or sophisticated as web banner technology, but it’s sustained the podcasting business for years now, propelling to reach an estimated $1 billion in annual revenue by 2021.

Many companies agree that better ads technology is needed, though. Other podcast industry players have tried to make podcast advertising more standardized and transparent. NPR, for instance, introduced its RAD technology, which promised to tell advertisers when their ads were actually heard and not skipped, although it’s unclear how well that initiative has gone, as it seemed to struggle with adoption. The Interactive Advertising Bureau has also issued guidelines around advertisements that define what a download is, for example, so creators, hosting providers, and brands all speak the same language.

Users rightly might have privacy concerns about their listening data

Progress is being made, but the podcasting industry is still primitive compared to web ad technology that knows most everything about a specific user. Still, there’s something to be said for the fact that podcast listeners’ data has been kept mostly private. Podcasts are sensitive listening data — the topics can be niche and revealing — so users rightly might have privacy concerns about how what they consume will be siphoned back to brands, even anonymously. When asked about this issue, Richman says that Spotify takes privacy seriously, particularly because it’s headquartered in a European company and is subject to more restrictive privacy rules like GDPR. He also says that users can opt out of data targeting.

Spotify has made it clear that podcasting is an area where it sees a huge potential for growth. The company invested in multiple podcasting startups last year to build out a catalog of exclusive shows, and unlike its music business, Spotify doesn’t have to pay a label every time someone listens to one of those episodes. Spotify only has the upfront cost of creating podcast episodes, which are typically relatively cheap to make, and then it can continue making money off its back catalog. (Premium users also hear podcast ads, unlike when they listen to music.)

Offering more comprehensive and insightful ad technology than anyone else on the market puts Spotify at a major advantage and could cause other podcast networks to lose business, at least until they sign on to make a Spotify exclusive. Why not advertise where you can get the most guarantees of your ad’s success? Spotify alsohinted at taking this technology and applying it outside of its exclusive shows. “This is just the beginning,” says Dawn Ostroff, Spotify chief content officer. That means it’s possible the company will take on big ad networks, like Midroll, to sell ads for other shows and share in the revenue. Either way, Spotify is positioning itself to become the center of the podcast universe, and everyone, from listeners to creators to advertisers, has to contend with that fact.