Spotify LogoOver the last few days I have been trying out Spotify as I was really interested in seeing how it uses audio ads to fund the service.

If you haven’t heard of Spotify it’s a free music streaming program (imagine iTunes with all the content in the Store being free) with over 3 million tracks and 1 million users since launching in February. You can’t download songs but you can listen to as many as you want.

So what’s the catch? Audio ads play at the rate of 4 to 5 per hour plus a few banner ads on the program itself and if that bothers you there is a paid-for premium service at £9.99 per month.

After listening for a few hours and trying all the features of the service I was amazed that you get so much for such little ad exposure. I would go as far to say that even 7 to 9 audio ads per hour would be fine. The ads themselves are pretty polished and low on annoyingness, it’s cool that the banners in the program change to match the audio ad when playing.

Audio ads are usually some of the most disliked by consumers in my experience through focus groups. Pandora famously conducted a trial in 2007 serving an McDonald’s ad to just over 100,000 users, with 100 writing in to complain and far more complaining around the web. Pandora decided to halt all advertising until announcing in January this year that they will start serving ads again. I’m guessing the great execution of audio ads on Spotify made them have a rethink.

So why did it work for Spotify and not Pandora originally? I think it fits into two things, expectation and quality of service. Pandora originally started as a ad free service so users were use to the good stuff, free music and no sacrifices. Spotify tells you from the start, use for free with ads or pay for no ads and premium content. Simple. Spotify also has an overwhelming library of music that you can choose to play as you wish, that’s not to say Pandora isn’t amazing but it just doesn’t come near to what you get in return from Spotify for listening to ads. There always has to be a ‘give and take’ with consumers in ad funded models, but when the ‘give’ is a perfect mix with the ‘take’, you’re onto a winner.

Another theory of mine is that radio has over the years created a certain perception of audio advertising that is going to be hard to shake off. Consumers fear that their favourite music services like Pandora, Spotify etc will end up with frequent, lenghly and annoying ads.

Spotify – Mobile Advertising

Spotify currently working on an iPhone, S60 and Android application, this could be huge if you think of the possibilities mobile offers.

The only information you give Spotify when you sign up is date of birth, gender and postal code. Not much to go on for targeted advertising but probably enough for a PC environment once you add in your music listening tastes. Although I wouldn’t mind providing a bit more information such as my interests.

If Spotify manages to utilise GPS/LBS in its mobile application then location specific audio advertising could be taken to a level imagine walking past a shop and being told about a exclusive ticket sale, artist signing or secret concert. Those are just music examples, once you ad in brands and companies that might interest me it becomes far more attractive than regular ads.

You also have the benefit of ads on the phone screen working in sync with the audio ones. For example telling the user to check the phone screen to download a coupon, find out more info, get directions etc.

When I’m listening to music on the move it is probably one of the best times in my day to day life to advertise to me, you have my attention, I’m probably less likely to be in a huge rush if I have my headphones in. And as a Spotify user I have already accepted advertising in return for the desktop service so I would expect no different from the mobile service, no sudden shocks or changes in user experience and that is half the battle won already.

I really think Spotify has the opportunity to change the perception of audio mobile advertising and be one of the first companies to lead us away from animated Gifs and low quality banners.  Other companies should be paying attention to this model, especially services like Tom Tom and Comes With Music.