Amazon (NASDAQ:AMZN) announced last week that it is buying podcast studio Wondery. The deal reportedly will cost Amazon $300 million and comes on the back of Amazon Music, the company's audio streaming service, starting to host podcasts in September of 2020. With the tech giant entering the podcast industry, investors in Spotify (NYSE:SPOT), a company betting big on the spoken word market, may be worried that Amazon will start taking its market share. Here's why that thinking is misguided. 

The Spotify app on various mobile devices.

Image source: Getty Images.

Amazon's goals

Amazon has an interesting media strategy. It has invested heavily in Prime Video, bought the livestreaming platform Twitch, and owns the audiobook subscription service Audible (which, confusingly, you can also listen to podcasts on). Together with Amazon Music, these services have one purpose: To make the Prime subscription a better value proposition. For example, if you are a Prime member, Amazon Music Unlimited (the apples-to-apples competitor of Spotify Premium) costs only $7.99 a month, versus the standard $9.99 a month. 

How does owning a podcast studio fit into this strategy? It is hard to gauge, but it could eventually make content exclusive to Amazon platforms (although it says for now that is not the case), which could help drive users to choose Amazon Music over competitors like Spotify or Apple Podcasts. It also may want Wondery's IP so it can use it for documentaries/movies on Amazon Prime and audiobooks on Audible. Either way, Wondery by itself will have a negligible effect on Amazon's business. It's all about how the company will leverage these assets to grow its various media platforms.

Why this won't affect Spotify

A lot of people get concerned when Amazon, a company with seemingly infinite amounts of capital, becomes a competitor to a business they own. However, if you are a Spotify shareholder, there's no need to worry. The company is ahead of the game with its podcasting strategy, setting itself up to be competitively advantaged, even versus a tech giant like Amazon.

Over the last two years, Spotify has spent over $400 million acquiring The Ringer, Gimlet, and Parcast, three independent podcast studios similar to Wondery. It has also signed exclusive deals, most famously with The Joe Rogan Experience (the top podcast show in the world), but also with Michelle Obama and Kim Kardashian. Unlike Amazon Music, which only has 55 million users, Spotify boasts 320 million monthly active users (MAUs), giving it the scale to make an exclusive show worthwhile. Unless Amazon Music starts rapidly growing its user base or the amount of content it owns, Spotify will still have a better value proposition for both users and creators.

Not only does Spotify have a scale advantage with users and a head start in owning content, but it is working to vertically integrate the entire podcasting stack. This is something no company, not even Apple (NASDAQ:AAPL) (the leader in podcast listenership), is working toward. Spotify owns Anchor and Megaphone, two of the largest podcast hosting platforms, and is building a dynamic advertising technology called Streaming Ad Insertions (SAI) to help creators easily monetize their shows. Even if Amazon, Apple, or another large company spends billions of dollars to try to compete with these tools, with high switching costs and a limited supply of popular shows, it is not something you can replicate overnight. 

Overall, investors should not see Amazon's investment in Wondery as a threat, but as confirmation that the podcast industry is indeed worthwhile for Spotify to invest in. It has set itself up to have a major competitive advantage given the fact that it has a foothold in every part of the podcast supply chain (distributor, content, and platform), which will benefit it greatly as the industry grows over the next decade.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.