Amazon Music's New Freemium Tier May Bite Into Spotify's Long-Term Advertising Strategy

Amazon’s freemium music service soft launch may force Spotify to reevaluate its own strategy to keep advertisers.

In an interview published earlier this year, David Limp, Senior Vice President of Devices and Services over at Amazon, shared a surprising figure.

The e-commerce giant’s voice assistant Alexa was already available in over 100 million devices around the world.  This includes Amazon’s line of Echo smart speakers and over 150 partner devices.

While an impressive figure, this number still remains shy of Apple and Google’s voice assistant installed base – over 500 million each.

According to the Voice Assistant Consumer Adoption Report, global consumers can now access smart assistants on over one billion devices.

To capitalize on the growing smart speaker boom, Amazon has unveiled its own free music tier.

Will consumers readily abandon Spotify and YouTube Music freemium in favor of Amazon?

Earlier this week, Amazon revealed that it had struck deals with the Big 3 – Warner, Sony, and Universal Music – to launch its own freemium streaming music service.

Keep in mind that the e-commerce giant already offers two subscription streaming music tiers – Music Unlimited and Prime Music.

Similar to Prime Music, Amazon’s free, ad-supported tier features a limited catalog.  This would likely serve as a ‘teaser’ for Echo users.

Emerging data shows that Echo devices handle a large amount of music-related requests.  These include demands to play a song, clarify a song title, identify a song based on a lyric snippet, or pull up a popular playlist.

In its Q4 2018 report, Spotify revealed it had around 209 million monthly active users (MAUs) around the world.  The popular service also had 96 million subscribers.  This means the company has around 113 million MAUs streaming music on its free, ad-supported tier.

Yesterday afternoon, Amazon unveiled its freemium ‘Spotify killer.’  Yet, it did so through a soft launch.

Available only to U.S. consumers with an Alexa-enabled device, the freemium service remains rather limited. Users, for example, can only request songs, which will lead to an Amazon-curated playlist or station instead of a full album.

According to analysts, the limited freemium tier serves a two-fold purpose.  First, the music service will boost its own advertising income.  Second, the company aims to boost sales of Echo speakers.

Stating that Amazon freemium won’t change “anything major” in the music industry, MusicWatch analyst Russ Crupnick explained,

It will probably have little impact on the established players — Spotify has incredible loyalty with its listeners and I don’t see people marching off to Amazon because it’s going to have a free tier.

Amazon has a much more casual audience — it’s large, but they spend much fewer hours [on the platform], and are generally less engaged with music.

Yet, he noted the new freemium tier may bite into Spotify’s much-needed advertising revenue.

This clearly fits in with Amazon’s larger advertising plan: It’s not hard to imagine, after a consumer asks Alexa to play a song, the voice then saying, ‘After you’re done listening to the song, check out this product, available now on Amazon…’.

Midia Research analyst Mark Mulligan agreed.

Amazon’s in the process of building new, large-scale digital properties as a platform for its advertising business, which is growing faster than any of the other tech majors’, and is already a fifth of the size of Facebook’s entire ad business.

Issuing a stern warning to Spotify, he added,

Spotify should be worried, not just because Amazon has already proven itself a more-than-able competitor in subscriptions, but also because it has the ad sales infrastructure that Spotify does not.

A free music audience without effective ad sales is just a cost to the business; a free music audience with a well-oiled ad sales machine on top of it is a cash cow.

 


Featured image by Amazon Music.