Programmatic is now at the top of Spotify’s playlist.
After six months of pilot testing with The Trade Desk, Spotify launched its ad exchange on Wednesday and added new supply and demand partners to the mix.
In addition to TTD, the Spotify Ad Exchange (SAX) is available through Magnite and Google’s DV360, with Yahoo DSP, Adform and others in the pipeline.
“Our goal is to enable more and more programmatic players to plug into SAX,” said Chloe Wix, global head of product and commercial growth at Spotify, speaking at a launch event for the exchange in New York City on Wednesday.
Spotify is also integrating with TTD’s Unified ID 2.0, LiveRamp’s RampID and Google’s PAIR (which was recently open-sourced to the IAB Tech Lab) to support addressability through SAX across audio, video and display units.
For now, buyers are limited to inventory within music, but podcast ads will come to the exchange later this quarter.
Sweet spot
In addition to SAX, Spotify also announced a bunch of updates to Spotify Ad Manager, its self-serve ad platform, including the introduction of custom audiences, an enhanced tracking pixel and new performance objectives, such as the ability to optimize for app installs and web traffic. Other conversion goals are coming later this year.
And finally, because what self-serve ad platform is complete these days without the option to automatically generate ad creative, Spotify is adding generative AI audio ads to its ad manager for US- and Canada-based advertisers.
Buyers can generate a script, edit the draft, add voice-overs from a library of voices customized by gender, age and tone, then either select background music on offer from Spotify or upload a track of their own.
“One of the things we’ve heard early on was, ‘Hey, I don’t have audio creative and I need some help making it,” Lee Brown, Spotify’s global head of advertising, told AdExchanger. “We’re trying to make it as easy as possible for advertisers to come onto our platform.”
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Wix and Brown sat down with AdExchanger to go behind the music (monetization).
AdExchanger: It’s cool that you’re getting into real-time auctions, but how will you avoid the pitfalls of open web advertising, like brand safety challenges, low-quality ads and over-frequency?
CHLOE WIX: We started off slow intentionally with a pilot in Q4 so we could pressure-test the systems, including manual and automated review.
Spotify Ad Manager has been live for the better part of five years by this point and taking significant demand for the past two, so this isn’t the first time we’re dealing with a wave of advertisers we don’t have a direct relationship with. The scale coming from a DSP is even more significant, but we purposely didn’t go GA until we were really ready for it.
LEE BROWN: And this may be somewhat new for Spotify, but it’s not new for the engineers and product people who are building our exchange. They’ve done it before. We feel good about the tech and the controls we have in place and we’re going in with our eyes open. If there’s ever a mistake or something slips, we’ll fix it as fast as we can.
What is Spotify’s average revenue per user for ad-supported listeners compared with people who pay for the ad-free Premium plan?
LB: We don’t share that.
Forgive me, but I have a cheeky question: Is it at all part of the strategy to use a high ad load to nudge people to subscribe? And I ask this with love for Spotify. There’s a shortcut to the app on the home screen of my iPhone and I subscribe to Premium. But the reason I pay for the ad-free version is because the ad volume was driving me nuts!
LB: We do rigorous testing across all of our ad tiers to make sure we understand the right frequency and ad load for our user base, and we’re getting better at the personalized ad load.
For example, if someone is spending more time in focus, are there different ads we can serve to them versus someone who’s sharing a playlist or doing a jam session?
Right now, over 60% of our Premium subscribers came from our free tier, so it’s definitely a funnel. But I’ll also say that people bounce around. We’ll see users go from free to Premium and back to free again.
Spotify’s ad revenue has more than doubled since 2020, but the growth has been primarily driven by brand advertising. Now you’re making a bigger push into performance. Where exactly does Spotify sit in the funnel?
CW: Intent associated with audio exposure is incredibly high. Click rates are well over 1%, which is pretty extraordinary compared to the overall media landscape, and when you think about the fact that there’s a good chance folks have their phones in their back pocket while they’re listening to Spotify, or they’re likely also doing something else, like driving.
We’re making a big bet on performance by helping advertisers optimize their campaigns toward people who are more likely to take an action.
LB: And audio is unequivocally in the conversion path. It’s the OG direct response channel. It was driving you to your local tire shop or your local pizza place forty years ago. Now, it’s on us to do a better job of providing tools so that our advertisers can take advantage of a logged-in audience that’s highly engaged and paying attention.
What do you want the industry to know about Spotify’s ad tech ambitions?
LB: We want to be a platform that serves all advertisers regardless of where they are or what their campaign goal is, from enterprise to small businesses.
Having ownership of our own ad tech is a big step in that direction. We have our own ad server, our own ad exchange and our own ad manager. We’re getting serious about building world-class advertising technology to complement our world-class consumer products.
Gotta ask, any ad tech acquisitions planned?
CW: Thank you so much. It was really nice to meet you.
This interview has been lightly edited and condensed.
For more articles featuring Chloe Wix, click here.
