YouTube is getting serious about podcasts. The Alphabet (GOOG -1.10%) (GOOGL -1.23%) subsidiary is making it easier to discover podcasts with a dedicated section in the app and in web browsers.

The video streaming service has long been the de facto No. 1 platform for podcasts, just as it's been the top music streaming service. But YouTube's new focus on the format poses a serious threat to Spotify Technology (SPOT -4.62%), which has invested over $1 billion into the podcast industry.

Already the top podcast platform

Podcasts are already extremely popular on YouTube. In fact, one of the most popular podcasts in the industry, The Joe Rogan Experience, owes a lot of its success to YouTube. Spotify acquired the exclusive rights to Rogan's podcast in 2020.

Video podcasting has become increasingly popular over the last few years, in part due to Rogan's success. Thirty-eight percent of podcast consumers prefer podcasts with video, and they primarily use YouTube to watch them, according to a recent survey from Cumulus Media.

Both Spotify and Apple have developed video podcast features, but they haven't been able to compete very well with YouTube. Just 19% of video podcast consumers use Spotify, according to the same study.

Even for those who prefer an audio-only experience, YouTube is extremely popular. The Cumulus survey found it neck and neck with Spotify for podcast listening.

Giving the people what they want

The development of a podcast section in YouTube is a signal that the company is preparing to give its viewers more podcast content. Indeed, the day after launching the dedicated section, YouTube announced a deal with NPR to bring over 20 of its top podcasts to the streaming platform.

By actively recruiting more top content creators to the platform, Youtube could put a damper on Spotify's efforts to attract top talent. YouTube's parent company has much deeper pockets than Spotify. Not to mention, YouTube has an even bigger audience than Spotify. Two billion people use YouTube every month versus 433 million for Spotify.

Pushing those 2 billion people toward more podcast listening could curb the growth of listeners on Spotify. Spotify has taken the approach of making many of the most popular podcasts on its platform exclusive, and it's been more than willing to spend up in order to secure those commitments. The only challenge is that if YouTube grows its podcast-listening audience, securing exclusive rights to new podcasts may become more expensive for Spotify.

What's it all mean for YouTube?

YouTube is a massive business already. The streaming video platform generated $7.3 billion in ad revenue for its parent company last quarter alone. By comparison, the entire podcast advertising market is estimated to gross just $2 billion in all of 2022, according to the Interactive Advertising Bureau (IAB).

But YouTube has the potential to help grow that number. It can leverage the same advertising technology that allows just about anyone to monetize the content they share on YouTube, extending it to audio-only ads, for users who prefer to the old-fashioned way of consuming podcasts. That could help propel the industry well past IAB's 2024 estimate of $4 billion in ad revenue.

Moreover, YouTube may use podcasts as a gateway to its other services, just as Spotify has done. While Spotify has found higher engagement with podcasts leads to more premium subscribers and music listening overall, YouTube may find more engagement with its other services as well. It could push more premium subscribers to its music service or simply increase engagement with other videos on YouTube. That's to say, podcasts don't have to generate a lot of money directly to be worth the investment for YouTube.

For now, YouTube appears to just be testing the waters. But considering the size of its audience and pocketbook, Spotify investors need to be wary of its potential.