Spotify’s voice platform problems

In addition to the struggle of finding a path to profitability, Spotify, the pioneer of music streaming (and a company which I have been following since its closed beta launch in Sweden in 2007), has two new problems, one right now and the other in the mid to long term.

The near-term problem is Apple’s smart speaker HomePod which will go on sale in the US, UK and Australia this Friday, with additional markets to follow in the upcoming months.

HomePod will only play well with Apple’s own music streaming service, Apple Music. Other streaming apps can be used via AirPlay, but HomePod owners won’t be able to control playback through their voice.

In the US, Apple Music is already said to be gaining subscribers at a higher rate than Spotify. For every new owner of an HomePod, Spotify will be a worse choice than Apple Music. Existing Spotify subscribers in the US who decide to purchase an HomePod will have a big incentive to switch, and Apple makes it easy by offering a free trial for Apple Music.

It’s still unclear how much appeal HomePod will have for the mass market. If the device ends up as a niche product for a small group of audiophiles, then the threat it poses for Spotify might be negligible. But if HomePod becomes more than that (which is not unlikely), inevitably, it’ll cost Spotify existing subscribers as well as future growth potential. This applies for all the three launch markets, but of course has a particular significance for the huge and important US market.

Spotify plans to do an (unconventional type of) IPO this year. Any kind of signs of slower growth or lower subscriber retention caused by the HomePod can seriously mess things up for this plan.

That’s the short-term problem. The mid to long-term one is about smart speakers and voice platforms in general.

As a reminder, this market is growing like crazy. Music streaming services are a perfect fit. Unfortunately for Spotify, it is highly dependent on third party companies, who all have their own competing music streaming services and who therefore consider Spotify at least in parts as competition.

Currently, the leading protagonists in the smart speaker and voice sector, Amazon’s Alexa and Google Assistant, provide developer platforms for third party companies, so Spotify is integrated nicely. However, there is no guarantee that it remains that way, considering that both Google and Amazon would love to push their own competing services (whose current problem is mostly branding. I never know the current name of Google’s music streaming offering, but that’s maybe because I am no Android guy). At least theoretically, these companies could any time change the rules in a way which suddenly make controlling Spotify via voice through Alexa or Google Assistant cumbersome and less appealing than controlling their own streaming services. And Apple is not even offering access in the first place.

In this regard, Spotify is pretty vulnerable. The company faces the actual risk of unexpectedly being locked out from the voice platforms, whose existing rules and developer platforms aren’t as much set in stone as those of iOS and Android (where Spotify, when it arrived, actually was a unique service which added value to the platforms’ ecosystems).

The situation is a bit reminiscent of where Facebook was when smartphone usage suddenly took off and the company was facing an uncertain future on mobile, considering that it was completely at the mercy of Apple (with the iOS App Store) and Google (with the Play Store).

Why did this turn out to be no big issue for Facebook? It was so successful in reinventing itself for mobile within the narrow framework offered by Apple and Google, that it became a must-have app. Neither Apple nor Google could afford to hamper Facebook. People would not have bought iPhones or Android devices if they hadn’t been able to download Facebook’s app.

Even if playlists and listening history can be seen as creating certain lock-in effects for existing Spotify users, no music streaming service is as irreplaceable as Facebook was back then. Some would even argue that music streaming is a commodity and that switching costs for users are rather low. At least in comparison to Facebook, this is true.

Therefore, it seems as if Spotify would have to focus on ways to make itself so irreplaceable and unique that neither Amazon nor Google could ever afford to mess with Spotify’s presence on their voice platforms, no matter what, and that Apple would see no other way than natively supporting Spotify on HomePod.

But becoming that type of essential app is tough, and I wouldn’t know how Spotify could do that.

Another option would be for Spotify to launch a voice platform and line of smart speakers itself (with a hardware partner). That comes with its own set of challenges and brings so much uncertainty that it might not be well-timed while preparing for an IPO.

And then, of course there’s the possibly easiest way out (if offers existed): Spotify abandoning its IPO plans and instead selling itself to Google or Amazon to become the default music service for Alexa/Google Assistant.

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