The day after David Bowie died in January 2016, Pandora users generated 200,000 Bowie-themed stations. The solar eclipse last August drove a 3,000 percent leap in Spotify plays for Bonnie Tyler's "Total Eclipse of the Heart." Music lasts, in other words, but the way we listen to it does not.
Now, the leading streaming services are trying to change things again, taking into account smart speakers and implementing new layers of audio ad tech.
"Voice is very disruptive and here's why: You'll eventually be able to interact with the ads coming through the audio," says Michael Dougherty, CEO and founder of audio ad tech company Jelli. "The first wave happened in 2010, when mobile, not desktop, became the largest channel to stream audio. Now you're seeing voice as the next wave, where voice-initiated listening on Pandora is the highest-growth category for them."
The question is whether enough marketers will hear the pitch.
Pandora and Spotify "can help you build out playlists based on your mood, your personal preferences or where you are," says Tiffany Ray, managing director of digital strategy at Mindshare North America. "And because you can access these platforms across personal devices, your car and the connected home, there's an opportunity to engage consumers depending on how they're listening, by the device. [Yet] many marketers still put out the same generic 15- or 30-second audio ad. They treat digital audio like terrestrial radio, and that's the biggest mistake you can make."
Digital audio is booming: Ad revenue grew 42 percent in the first half of 2017 after generating $1.1 billion in 2016, according to the Interactive Advertising Bureau. The two biggest players in the arena, Spotify and Pandora, are either raising massive capital or making bold acquisitions to simultaneously compete with each other and take on the $28 billion industry that is terrestrial radio.
About two weeks before Spotify closed its first day of public trading on April 3 with a market value of $26.5 billion, Pandora unexpectedly announced that it was buying the audio ad tech company Ads-Wizz for $145 million. It was a bold move, mainly because AdsWizz is one of perhaps three ad tech outfits capable of delivering audio ads using both data and automation. Once Pandora integrates the company, advertisers will be able to buy across major audio publishers, including Spotify, using existing platforms or Pandora's self-service offering.
"The dollars haven't mapped to the category yet largely because supply hasn't been aggregated in a single marketplace," says Scott Walker, senior VP of ad strategy at Pandora. "When you take the largest publisher in terms of supply and addressable audience and you aggregate it around all these different formats—podcasters, traditional broadcasters—it creates network effects and that benefits all constituents."
Spotify uses its own sophisticated array of technologies. It was also the first music company to offer programmatic ad sales to marketers through partners such as AppNexus and Rubicon Project.
But AdsWizz might give Pandora the leg up for the moment, as it provides one more benefit that Spotify can't match: sequential messaging, across multiple formats and platforms, meaning advertisers can target listeners through display and then with video, before sharing a personalized audio ad on Pandora (or Spotify).
Kjerstin Beatty, senior VP of multiplatform media strategy at NBC Entertainment, says AdsWizz offers marketers the ability to use their own data. "So you can get really precise about your targets, but yet achieve scale given the footprint of Pandora," she says. "Just think about how much money marketers can save by using their own data versus having to pay for it."
Spotify said at the end of the year that it had 157 million global monthly active users, of which 71 million were subscribers who listen ad-free. Last month it projected it 168 million to 171 million global monthly active users in the first quarter, up 28 percent to 31 percent, with 73 million to 76 million paying subscribers.
Pandora operates only in the U.S. after discontinuing its service in Australia and New Zealand last July. It reported 74.7 million active listeners at the end of last year, down 7.8 percent from a year earlier, including 5.5 million subscribers to its ad-free products.
Neither company is profitable, and losses are widening. Spotify, which is facing towering expectations after going public, needs to lean more heavily on its ad business to satisfy Wall Street investors. It recently said 90 percent of its revenue comes from subscriptions.
Brian Benedik, VP and global head of advertising sales at Spotify, says both the company's premium and ad-supported offerings "live independently, but both thrive together."
The ad-supported product serves as a funnel to the premium service, Benedik says, but Spotify isn't trying to get everyone to pay. The free service "has a vast audience that brands can get matched with," he says. "That is a different and special business."
Contextually appropriate advertising still seems to be the most common approach. Canada Dry launched a campaign focused on "relaxing harder," where the company aimed to get its message across by targeting people listening to Spotify's "chill" playlist with audio, display and video ads, as well as commercial free "sponsored sessions."
It's early days for delivering audio ads in more automated fashion and with targeting. Still, nearly half of all impressions sold on Spotify last year were bought programmatically, for 18 percent of the company's ad-related revenue, according to a Spotify filing.
The company is banking that its ad tech will increasingly attract marketers searching for new innovative ways to reach consumers. Listeners now use their phone to stream during a morning run, then again during their commute, on their desktop at work and later, in their kitchen with Amazon Alexa, the company says. Spotify can target ads based on everything from music genre and listener gender to location, according to Benedik.
"It used to basically be a one-dimensional world, where someone would create a radio spot and set it and forget it," Benedik says. "But there are so many more signals and now a lot more thought goes into."
Add to that the new voice-controlled smart speakers in home and cars.
Some 160 million people stream audio weekly, up from 44 million in 2010, according to Edison Research. Forty-four percent of U.S. consumers also say they've streamed audio in their vehicles at least once.
Radio still crushes those figures, reaching more than 90 percent of Americans at least once a week, according to the Radio Advertising Bureau.
But Ray, the Mindshare exec, believes the growth of voice assistants means more people are listening to streaming music on those devices. The spread of voice assistants means a greater emphasis on audio overall, she adds. And those same assistants will increasingly allow consumers to buy goods and services without interrupting their audio experience.
"Brands have spent billions of dollars on building out their visual identities to stand out in the crowd—visual packaging, recognizable brand logos or retail shelf space—but in a world where the use of voice assistants is rapidly growing, voice commerce is expected to grow from a $2 billion industry today to a $40 billion industry in 2022," she says.
"Brands and marketers need to start preparing for a new world order around voice and audio engagement—you need to invest in your audio identity the way you would your visual identity," Ray says.
Connected vehicles, for example, are directly correlated to the growing number of people streaming in their car and although many are listening to music, a lot of others are listening to podcasts. As a result, both Pandora and Spotify have made significant bets on the space.
Pandora says its app is in more than 200 different car models and its "Podcast Genome Project" will recommend podcasts much the same way it already recommends music. Spotify is doing something similar.
But marketers still aren't sure what the tech can truly achieve—or even how different digital actually is. Roughly half of marketers consider terrestrial radio and digital audio to be basically the same thing, according to a study by Edison Research and NPR, suggesting that marketers are likely using radio spots for digital.
Vickie Nauman, founder of CrossBorderWorks Consulting, says marketers need to forget what they think they know if they're going to invest in digital audio.
"First, what is the optimal mix of ads to audio content? This has not yet been established—too much or too little won't work and we need more experimentation," Nauman says. "Second, how much time and in what blocks do your listeners engage with your platform? Craft your marketing and ads with that knowledge so listeners get the right exposure. Third, there is a science to humans needing a mix of new and repetition to really 'hear' anything—what does that really look like in different digital environments?"
And rich targeting features are great, but without a standardized measurement, marketers may never fully buy in. The ad industry's Media Ratings Council is still mulling the proper guidelines to define an audio ad impression—a concept known as "audibility," the equivalent of "viewability" standards for digital display and video ads.
For now, an audio ad impression must play for at least two seconds with (of course) the sound on, and be checked for ad fraud.
Lizzie Widhelm, senior VP of ad innovation at Pandora, optimistically calls measurement an "area of opportunity," citing the chance to get credit for generating sales the way online clicks do.
"Measurement is an interesting space because there is no central signal that advertisers measure around," Widhelm says. "The 'last click' in the display space doesn't exist in audio, and this is a big, big space. It's much different than terrestrial radio. ... The power of what we're doing is an ad can be heard and isn't skipped. We see a future where the audio ad works as hard as the video ad, and we know how large that video market is."