Move over, Apple (NASDAQ:AAPL) podcasts. More people are streaming their spoken-word audio on Spotify (NYSE:SPOT) than the dedicated podcast-listening app from the iPhone maker, according to MIDiA Research Group. That marks a phenomenal success for the Swedish music-streaming -- or should I say audio-streaming -- company, which launched podcast listening less than three years ago.
It's worth noting that some of Apple's podcast listening has shifted to Apple Music -- Apple's Spotify competitor -- and combining streaming across the tech giant's apps, it's still the market leader.
But the growth of podcast listening on Spotify in such a short period of time indicates the company's massive investments in the space are paying off. Spotify's management said its success with the format is "almost too good to be true" in its third-quarter letter to shareholders.
Winning audio share
Spotify was the first mover in music streaming, and it's managed to maintain its global lead in the space despite increased competition.
Apple launched Apple Music in 2015, and it leveraged its massive installed base of iPhone users to grow to 60 million subscribers in just four years. In fact, it has more subscribers in the U.S. than Spotify. But Apple has struggled to attract users outside of its own devices, and with the global market favoring Android over iOS, Spotify still dominates the market outside of the United States.
Over the past few years, however, podcast listening has grown considerably. In 2019 alone, monthly podcast listeners in the United States grew 23%, according to Edison Research. And the number of weekly podcast listeners grew even faster, at 29%.
As podcast listening becomes a greater part of consumers' audio-streaming habits, it's become necessary for Spotify to establish itself in the space. If it didn't, someone else would, and that would negatively impact Spotify's ability to retain listeners. That's exemplified by the statistic Spotify's management provided that users that listen to podcasts on its platform spend almost twice the time on its platform than non-podcast listeners, and they stream more music, too.
In other words, Spotify's growth to become the single biggest platform for podcast listening indicates a success in retaining users on its platform. Indeed, management noted improved user retention throughout its quarterly letters to shareholders last year as the main reason for its outperformance in monthly active user growth.
Where does podcasting on Spotify go from here?
Despite its new seat at the top of podcasting platforms, Spotify still only reaches a small percentage of its user base with podcasts. In the third quarter, less than 14% of active listeners also streamed a podcast. Long-term, Spotify expects podcast listening to account for around 20% of total streaming on its platform, so there's a long way to go to increase engagement with the format.
For now, the company is primarily focused on increasing engagement with podcasts as a means to higher user retention, increasing total streaming hours on the platform, and improving conversions to paid subscriptions. Management believes there's a strong causation between increased podcast listening and improvements in those areas, and it's working to prove that out with its data.
That said, CEO Daniel Ek said, "We believe monetization of podcasts remains a huge opportunity, and it is something that we're going to start looking at in 2020," during the company's third-quarter earnings call.
One such option is offering an automated advertising service for podcasters. The company announced a new product, Spotify Podcast Ads powered by Streaming Ad Insertion, at CES earlier this month, but it's currently limited to Spotify originals and exclusives. Integrating third-party podcast ad inventory into its programmatic ad-buying platform could provide strong benefits for Spotify not only through direct monetization of podcast listening, but also through establishing deeper relationships with podcast creators, making them more loyal to the platform.
Spotify's progress in podcasting has been great so far, but it's still just getting started.