Artificial intelligence (AI) has taken center stage in 2023. The emergence of next-level generative AI systems -- including OpenAI's ChatGPT -- have given many people the first glimpse of what an AI-powered future could be, and they were captivated by what they saw. The ability of these systems to summarize information, write text, and even generate images opens up a whole new world of technological advances for consumers and businesses alike.
Yet big technology companies -- including Amazon (AMZN 0.81%) -- have been relying on AI for years. The digital retailer has long used these advanced systems to track inventory, help predict customer demand, recommend products to shoppers on its e-commerce site, and as a foundational offering for Amazon Web Services (AWS) -- its cloud infrastructure platform.
Now, Amazon has quietly acquired a start-up AI company to develop features for its streaming music and podcasts business.
Image source: Getty Images.
Details are thin
Amazon acquired audio intelligence company Snackable.AI late last year in a bid to improve the features on its podcasts, according to a report in the New York Post. Founder and CEO Mari Joller stayed on to lead AI and machine learning products for Amazon Music Podcasts. The terms of the deal were not disclosed, but Snackable had reportedly raised $3.1 million in funding, according to data compiled by Crunchbase.
Joller said Snackable.AI "used machine learning to extract valuable data and insights from spoken audio, opening up recordings like podcasts, and making them efficient and useful for listeners." She went on to say that Snackable's technology "solved an immediate problem -- helping businesses distill meaningful insights from the plethora of video and audio content (with a lot less effort)." Joller is now "leading a team of engineers, applied scientists, and computational linguists to build AI-powered products for Amazon Music Podcasts' customers."
The executive also has an interesting background in generative AI. Joller's former company -- conversational AI start-up alphachat.ai -- was an automated customer service chatbot that was focused on discovering the underlying intent of potential insurance customers, which Joller described as its "secret sauce." The four-year-old start-up was acquired by Zurich Insurance in December 2021.
Behind the music
Subscription services has long been an area of modest growth for Amazon. The segment includes a laundry list of Amazon's annual and monthly fee-based services, including Prime memberships, digital video, audiobooks, digital music, e-books, and other subscription services (not including AWS).
Digital music has been the underlying gem fueling that growth. While estimates vary, Amazon had 82.2 million music subscribers in 2022, according to data compiled by MIDia, and is the third-largest streaming music platform in the U.S., behind Spotify and Apple. Furthermore, Amazon's listener base more than doubled between 2019 and 2021.
Amazon Music Unlimited -- the company's premium music subscription service -- has been growing by leaps and bounds, though the company doesn't provide regular updates regarding its progress. The last official update came in early 2020, when Amazon said the music streaming platform had 55 million subscribers, increasing 50% year over year.
The company sought to capitalize off its growing listener base. Earlier this year, Amazon increased the cost of the Amazon Music Unlimited plan to $10.99 per month, up from $9.99, with student pricing climbing to $5.99 from $4.99.
Amazon made another strategic move late last year, making its entire music catalog of 100 million songs available to Prime members (who previously were limited to 2 million songs), but only on shuffle, while simultaneously removing the advertising from a large portion of its podcasts. Podcasts are a key attraction for some listeners, and Amazon moved to stoke that interest by adding a Podcast Previews feature that "lets customers easily preview a short, digestible soundbite from a podcast episode, allowing them to quickly discover and find new podcasts through simple swipes." The feature uses curated clips to introduce listeners to new podcasts, helping them find new shows that fit their interests.
Next big growth engine? Not exactly
Podcasts had already been growing in popularity but attracted a whole new generation of listeners as a result of the pandemic. Podcast adoption has been growing at a rapid pace, from 275 million listeners in 2019 to an expected audience of 505 million by 2024, a compound annual growth rate of 13%.
While that growth is solid, it's worth viewing in the context of Amazon's overall business. Subscription services -- which includes Amazon Music and its podcasts -- represented less than $10 billion of Amazon's $127 billion in revenue in the first quarter, or less than 8% of its total sales. Furthermore, most of the revenue from that segment is no doubt the result of Amazon Prime subscriptions. And that's likely the key.
Amazon is looking to make the benefits of its Prime subscription so sticky and so compelling that customers wouldn't even consider canceling their membership. It's well documented that Amazon Prime shoppers are the company's most lucrative customers, so the company has a vested interest in keeping them around.
That's what's behind the music.
