Roughly one month ago, the world's largest audio streaming platform, Spotify (SPOT 3.97%), published a news piece on its company blog announcing that it has officially acquired an Australian-based podcast technology company called Whooshkaa.
Though the terms of the transaction weren't disclosed and investors have yet to receive any insight into Whooshkaa's financials, the company's core technology could be a big growth driver for Spotify in the long run. Let's see why.
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What does Whooshkaa do?
Whooshkaa helps institutions of all types manage their audio needs. Its services include basic podcast hosting, internal company communication, private podcasts for education, and perhaps most importantly, broadcast-to-podcast adaptations. Put simply, with Whooshkaa, any business or brand can easily publish podcasts for its intended audience.
While each of these services is useful in its own right, broadcast-to-podcast will likely be the most meaningful for Spotify. This solution allows radio stations to easily turn their live shows into on-demand audio, which provides a ton of value for radio stations for a couple of reasons.
First, the world continues to migrate away from linear radio and more toward streaming audio. Spotify made this quite clear in its press release when it stated, "Audiences worldwide are tuned in to digital audio at record rates, with no signs of slowing." If radio stations intend to grow their audience, pivoting to on-demand audio seems like the logical move.
Beyond sheer listener growth, Whooshkaa also helps radio stations extend the monetization life of their shows. By inserting advertising slots into their audio recordings, radio stations will be able to make money any time a user listens to the on-demand version.
How does this help Spotify?
Over the last few years, Spotify has transitioned its focus away from pure music streaming to all things audio. It doesn't take too much digging to see how Whooshkaa can help with that.
Thanks to its broadcast-to-podcast service, radio stations everywhere will soon be able to upload their radio shows to Spotify's podcast distribution service known as Megaphone. This should give Spotify users yet another audio option to listen to.
It isn't just the additional audio format that should have investors excited. By integrating Whooshkaa into Megaphone, Spotify will be adding new advertising inventory to the Spotify Audience Network (SPAN).
Previously, advertisers that utilized SPAN could promote their message either on podcasts or between songs in Spotify's ad-supported service. However, with linear radio now in the mix, advertisers can run campaigns on their favorite radio shows with even better targeting capabilities.
What shareholders need to know
While it's difficult to assess if the acquisition was a good deal without knowing the exact purchase price, Whooshkaa's technology fits seamlessly into Spotify's overall audio strategy.
Whether it's podcasts, music, radio broadcasts, or potentially even audiobooks, now any advertiser trying to share their message with a targeted audience can do so through a single destination -- the Spotify Audience Network.
With more than 3.2 million different podcasts on Spotify's platform in the most recent quarter -- 68% more than the same time a year prior -- the available advertising spots are vast and growing. It doesn't seem too far-fetched for shareholders to think Spotify's ad-supported revenue could eventually eclipse the revenue the company generates from its subscriptions. Thanks to fewer variable costs on the advertising side, this should result in higher aggregate gross margins for Spotify as its advertising business grows.
