Brief:

• Spotify, the music streaming service with more than 159 million users worldwide, said an update to its free, ad-supported tier will give brands and marketers increased chances to deliver more engaging and relevant sponsorship messages to listeners, according to a blog post. The revamped iOS and Android apps give Spotify’s 90 million unpaid listeners more control of their music choices, the company announced at a press event.

• Brian Benedik, Spotify’s global head of ad sales, said the update makes the ad-supported tier more personalized and engaging for fans. Spotify’s Streaming Intelligence dataset provides a contextual understanding of its listeners that goes beyond demographics and device IDs to consumer moods, mindsets, tastes and behaviors, the company said.

• Before this week’s update, the ad-supported tier only let mobile users listen to playlists in shuffle mode. The desktop version had a greater range of on-demand choices. Among other changes, the new apps give free users unlimited listening to as many as 750 tracks among 15 top playlists every month.

Insight:

Spotify’s update is aimed at expanding the audience for its free, ad-supported tier with the idea of converting them to paid, ad-free subscriptions as the company faces growing competition from Apple, Amazon and Google. Spotify said 60% of paying users last year started out as free users, showing the power of getting people onto its platform. Growing its audience is crucial as the company seeks to reach profitability as a newly public company.

Apple Music is the greatest threat to Spotify in the U.S., where the iPhone maker’s paid subscribership is forecast to overtake Spotify’s by this summer, according to a report in The Wall Street Journal that cited industry sources. Globally, Apple Music grew to 40 million paid subscribers this month from 30 million in September, while Spotify has 71 million paying users. Apple has the advantage of preinstalling Apple Music on the more than 200 million iPhones it sells every year worldwide, which means Spotify needs to provide a better user experience to remain competitive. But Apple is prioritizing growth in its rapidly expanding services business, which includes Apple Music and iCloud, as the smartphone market reaches a saturation point. Apple's hopes of boosting its music service by acquiring Shazam hit a snag this week when the EU launched an investigation into whether deal has antitrust ramifications. 

While Spotify wants the steady stream of revenue that comes from customers paying $9.99 a month, the company's updated free service is part of its efforts to make its platform compelling for advertisers that want to reach customers in settings where they aren’t intently looking at their mobile devices, such as while driving or exercising. As the company says, the new Spotify gives audiences “a better way to soundtrack their lives,” and a targeted marketing message can become a seamless part of that experience.