Podcasting is a key part of Spotify’s success.

According to consulting firm MIDiA, more and more people are listening to podcasts streamed on Spotify, which has now outgrown it. This marks a phenomenal success for the Swedish music – or should we say audio – streaming company, which started listening to podcasts less than three years ago.

It’s worth noting that some of Apple’s podcast listening has shifted to Apple Music – Apple’s competitor for Spotify – and by combining streaming across its various applications, Apple remains the market leader.

But the growth in podcast listening on Spotify in such a short period of time indicates that the company’s massive investments in this area are paying off. Spotify’s management stated that the format’s success is ‘almost too good to be true’ in its third quarter letter to shareholders.

Earning a share of the audio

Spotify was the first to offer music streaming, and it has managed to maintain its global lead in this area despite increased competition.

Apple launched Apple Music in 2015, and leveraged its huge installed base of iPhone users to reach 60 million subscribers in just four years. In fact, it has more subscribers in the US than Spotify. But Apple has struggled to attract users outside its own devices, and with the global market favouring Android over iOS, Spotify still dominates the market outside the US.

In recent years, however, listening to podcasts has grown considerably. In 2019 alone, the monthly number of podcast listeners in the US increased by 23%, according to Edison Research. And the number of weekly podcast listeners grew even faster, to 29%.

As podcast listening has become an integral part of consumers’ audio streaming habits, it became necessary for Spotify to take root. If it didn’t, someone else would, and that would have a negative impact on Spotify’s ability to retain its listeners. Spotify’s management statistics are proof of this: users who listen to podcasts on its platform spend almost twice as much time on them as others, and they also listen to more music streaming.

Today, Spotify has hundreds of original podcasts and exclusives to leverage this technology at a time when podcast listening on its platform is growing. The number of hours of podcasts on air increased by 39% in the third quarter of 2019, and Spotify now offers more than 500,000 podcasts on its platform.

In other words, Spotify’s growth to become the number one podcast listening platform indicates the success of its strategy to retain users on its platform.

What does the future hold for podcasting on Spotify?

Despite its new position at the top of the podcasting platforms, Spotify still only reaches a small percentage of its user base with podcasts. In the third quarter, less than 14% of active listeners also played a podcast. Over the long term, Spotify expects podcast listening to account for around 20% of the total streams on its platform, so there is still a long way to go to increase commitment to this format.

At the moment, the company’s main focus is on increasing engagement with podcasts as a way to increase user retention, increase the total number of hours of streaming on the platform and improve conversions to paid subscriptions. Spotify’s management believes that there is a strong correlation between increased podcast viewing and improvements in these areas, and is working to prove this using its data.

According to CEO Daniel Ek, the monetisation of podcasts remains a huge opportunity, and the company will start to look at it in 2020.

One option is to offer an automated advertising service for podcasters. The company announced a new product, Spotify Podcast Ads, at CES in early January, but it is currently limited to Spotify originals and exclusives.

The problem that’s solved with Spotify Podcast Ads is important for advertisers – who had no idea how their ads worked. They didn’t even know whether or not an ad they bought was being consumed by a listener. This innovative new technology introduces new targeting and interactivity, which is a big change for the industry.

The streaming ad insertion technology will allow Spotify to better compete with podcasting applications from Apple and Google.

The launch of Spotify’s new ad technology also comes at a time when the podcasting industry itself is undergoing significant change. Many podcasts today are actually just audio programmes, as they are only accessible to users of a streaming service – not the wider web.

General interest in podcasts is also on the rise.

The number of people listening to podcasts in the US each month is expected to reach 106 million by 2023, Spotify notes. At the same time, podcast advertising revenues are expected to reach more than $1 billion by 2021. Spotify does not disclose its podcast revenues, but in the third quarter of 2019, advertising revenues increased 29% year-on-year to $189 million – an increase that many attribute to podcasts.

Spotify’s progress in podcasting has been considerable so far, but this is just the beginning.