Listen in — on the future of on-the-go learning
By: Margaret Zhang
Tags: Investment Opportunities, Dormapp, Audio, Knowable, Edtech

Part I of the Audio x Verticals Series: Spotify may want to become your all-things-audio (“audio-first”) destination but it will not own audio. Here’s why.

People are likely to continue going to Spotify for long-form audio content (most podcasts fall into this category and it will be interesting to see where consumers choose to listen to audiobooks)

With significant licensing (publishers, labels) payouts threatening to lower its gross margins further (25% compared to Netflix’s 40%) Spotify knew it had to expand beyond music, starting with podcasts, and eventually into original content like Netflix did (Goodwater Capital has a fantastic explanation on this).

Spotify is not subtle about its plans to become your audio-everything destination:

Its CEO, Daniel Ek, literally wrote about it in his 2019 vision statement

Spotify has been acquiring everything from podcast publishing for exclusive content (Gimlet, Parcast, The Ringer etc.), to podcast hosting* to attract creators to upload to Spotify (Anchor)

You’ve probably seen these “Spotify-exclusive” shows with Michelle Obama, Kim Kardashian West, and Joe Rogan promoted on your feed

*Podcast hosting is the service of packaging audio content files into RSS feeds so these “shipping containers” of music/podcasts can be digitally transported for easy access across a broad selection of listening apps. (Anchor and SoundCloud both dominate this business). “Why can’t I just upload an audio file to where I want?” Great question. Short answer is you don’t have to…long answer is it’s a legacy infrastructure to optimize for total audience exposure. More on this later.

Aside from major listening platforms, hosting services, and large publishers, podcasting has long tail of creators earning little to nothing from their potentially insightful content. This is partially because podcasts have

a discovery and curation problem (you’ve probably seen a dozen separate listening apps like Stitcher, Player FM trying to pair you more intuitively to content you want to hear) and a measuring problem that the industry is only starting to tackle (check out Veritonic’s plan to break sounds bytes down to usable competitive intelligence).

So if you were a top expert on using neuroscience to help people get better sleep (which is a multi-billion dollar industry) the current ad monetization systems are unlikely to reward you sufficiently to continue producing your own content (i.e. you’re better off trying to get a few minutes on next year’s PBS series?) …which brings us off the Spotify track and onto…

Vertical, need-based consumption: Audio is a means to an end that improves accessibility for essential (existing and emerging) vertical needs, some of which we’re already seeing mass adoption (audio-mediation apps, audio-fitness apps etc.)

When I first pitched this intersection to an investor earlier this summer, I got asked this question: So are these vertical apps trying to fight for your earshare (disrupt the podcast industry) or disrupt the vertical industry? It seems intuitive but it’s easy to over-index on the content delivery differentiation (see the audio theses of Greycroft, A16z) to forget why this intersection has tremendous, underexplored potential ($11Bn podcast industry vs $200Bn EdTech industry or vs $99Bn fitness industry).

Here’s how I think about audio disrupting the vertical and not earshare: When you want a guided workout, you open a workout app. You could also just put on a head-bopping Spotify playlist while you do your own workout, but the point is the audio-guided workout app is there when you can’t or no longer want to do an in-person workout class.

Similarly in audio x edtech, audio-learning disrupts the current online course models by addressing the accessibility needs of learning on the go (see the Knowable thesis) and the growing training gap as demand shifts towards the passion economy (see the Dorm App’s thesis). This edge is even more evident now during the pandemic, which is likely to persist in the new normal.

In the long run, it’s in both the creators and consumers interests to have this content separation because:

podcast industry is mainly passively consume content and interactive content requires vertical expertise by moving vertical-specific audio content to a vertical specific platform, you can unlock at least 4/6 ways of non-ad monetization (ie. i. VIP subscription, ii. commerce tools and platforms, iii. interest-based paid communities, iv. tipping, donations, and microtransactions, v. virtual live experiences, vi. digital goods or in-app currencies)

However, Unlike Audio-Wellness, Audio-first EdTech has been largely unexplored.

Spotify’s successful podcast integration, alongside various vertical audio apps in wellness and fitness prove we don’t need to stay continuously visually engaged to consume various content. The question that differentiates EdTech is whether that is still true for content demanding active engagement.