What if Apple had a free, ad-supported option like Spotify’s?
From a note to clients by RBC’s Amit Daryanani that landed in my inbox Sunday:
While paid subscribers accounted for 90% of Spotify’s total revenue, ad-supported user base of ~159M users serves the important function of acting as a ‘funnel’ that accounts for 60% + of Spotify’s paid subscribers since 2014.
We wonder if an ad-supported version of Apple Music represents an untapped opportunity for Apple. We also note that traditional US radio market is ~$14B in size, which is not insignificant. Thirdly, the long tail of users from ad-supported base provide substantial data about content consumption and user behavior. It is worth noting that Spotify’s data set of 200PB is significantly greater than that of Netflix. Arguably, similar amount of data available to AAPL would carry even higher monetizing potential (high disposable income of iOS users). Finally, an ad-supported version might increase penetration into markets outside the US, which for Spotify comprised 68% of total users.
My take: If Spotify’s business model is so great, why is it losing money?
Below: Market shares as of mid 2017.