Spotify could hear ad revenue with The Echo Nest

Contact: Scott Denne

Spotify’s acquisition of The Echo Nest deals a blow to competitors and brings with it technology to help the company expand beyond its subscription-focused business model. The Echo Nest’s algorithms integrate user preferences, digital analysis of songs and context from around the Web to build playlists for online and mobile music apps.

Spotify was an early customer and now it’s going to own the service that powers personalized radio for its competitors, including iHeartRadio, MOG and Rdio. In addition to a potential poke in the eye of its rivals, the deal takes Spotify’s ad capabilities from rudimentary (homepage takeovers and banner ads) to targeted. The Echo Nest recently launched a service that enables advertisers to target audiences based on how and what they listen to.

Advertising is an increasingly viable method of supporting digital radio as mobile marketing takes off, and this deal gives Spotify the tools to expand those capabilities. For example, last quarter Pandora Media saw a 42% year-over-year jump in its mobile ad revenue per listening hour. As the mobile ad market grows and Pandora tunes its product offerings, it now gets more than half of its revenue from mobile ads – an area where Spotify doesn’t (yet) have a product.

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