Brief:

• Streaming audio company Spotify last week began testing its first hardware product: an in-car device that lets users request music and podcasts with voice commands. The company developed the "Car Thing" to learn more about how people listen to music and podcasts, according to a company blog post.
• Spotify is testing the device only in the U.S. among a handful of invited users of Premium, the streaming platform's ad-free service that charges $10 a month for unlimited on-demand streaming. The "Car Thing" appears to be a small audio adapter that connects to a car's stereo system using Bluetooth and streams from a nearby smartphone, Variety reported.
• Spotify hinted in its blog post that it may test additional hardware, such as a "Voice Thing" or a "Home Thing" that could be part of a connected home, but said there are currently no plans to make the devices available to consumers.

Insight:

Spotify couched its announcement of a hardware test in a way that was very non-committal to the possibility of starting a new business category. The hardware business is notoriously difficult, and lack of demand is the top reason hardware startups fail, per a study by researcher CBInsights. Even tech giants like Amazon, Apple, Facebook, Google and Microsoft have had their share of hardware flops over the years, demonstrating that a big customer base and access to financing doesn't guarantee success. However, using the device to glean deeper insights into how users listen to music and podcasts in cars could help Spotify better develop voice-powered ads and ad targeting capabilities.

While the company claims to not have plans to market its own device, selling its own hardware platform would make Spotify less dependent on tech companies that are building out their own music streaming platforms — namely, Apple, Amazon and YouTube. The three companies are the leading makers of smart speakers that support on-demand music, further threatening Spotify.

Apple Music last month overtook Spotify in U.S. subscriptions, but Spotify still has a strong lead globally. Growing competition from Apple compelled Spotify to file an antitrust complaint against Apple in Europe, alleging that the iPhone maker abused its control over which apps appear in its App Store. While it's too early to tell whether the European Union will side with Spotify or Apple, the case demonstrates heightened friction among Spotify and a key hardware platform.

Meanwhile, Spotify is building out its podcast library to differentiate its service from rivals as the podcasting market matures and consolidates. The streaming company last week started testing a new version of its app to give podcasts greater prominence, Bloomberg reported. Spotify spent about $400 million this year to acquire three podcasting companies, and has invested in original podcasts that are available only to its listeners. Apple, which helped to support the podcasting industry by adding podcasts to iTunes in 2005, is still the market leader. More than 60% of podcast listening happens through Apple, compared with 10% to 20% for Spotify, per Bloomberg.