Amazon recently released a free, ad-supposed music streaming service for Alexa-enabled device owners that could spell trouble for Spotify. The streaming service, which is similar to its Amazon Music service that Prime members can use for free, allows users to access around two million songs via music stations and playlists.
The company’s Music Unlimited service gives users access to over 50 million songs for a monthly subscription cost of $7.99.
Amazon is attempting to use its service to maintain its subscriber numbers and increase advertising goals. And, even though the new service is not likely to have an effect on the company’s business model, Spotify is already affected by it.
Rumors circulated last week that Amazon was releasing a new music service, which led to a drop in its share price from five percent to four percent. There’s been no rebound as of yet.
Why is this concerning the Spotify shareholders?
Spotify has around 207 million active users each month with 96 million paid subscribers. Up until recently, the popular music service seemed invincible especially from companies that just dabbled in the music streaming services industry (Amazon, for example). However, Amazon’s latest move means Spotify investors should pay attention to what’s going on.
Spotify also uses a free, ad-supported service to bring people into the service with hopes that they’ll become a part of the paid service. Amazon, however, can keep some music streamers from ever trying Spotify, which cuts off the company’s chance to increase its subscriber base.
Currently, Amazon’s ad-supported music streaming service is limited to just Alexa devices, but it could expand the feature to smartphone users as well. And, if Amazon feels that non-Prime members should get free music on their smartphone, nothing is stopping them from offering it.
This would certainly have a huge impact on Spotify.
Spotify was experiencing pressure already even before Amazon introduced its new service. The number of Apple Music premium subscribers surpassed Spotify’s own numbers by two million (28m vs. 26m).
On top of that, Spotify is spending about 70 percent of its annual revenue toward music streaming rights with no improvement signs. To stay competitive, the company must work to increase its subscription sales. Of course, Amazon and Apple have deep pockets that help them pay for the expenses. They can take their time in earning money from these services.
Spotify is certainly feeling pressure from all sides, and even though Amazon’s latest music streaming service won’t be the nail in the coffin for Spotify, it will add another layer of stress for it to stay afloat and competitive.