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Can Spotify dethrone Pandora in mobile?

Spotify recently revealed several new additions to its service that put the company closer to a direct competition with Pandora. However, with mobile access only available to subscription-based users and a somewhat unclear advertising model, how can marketers take advantage of Spotify?

Brands can now create playlists on Spotify, similar to what Pandora offers and is rumored to be developing both an iPad application and a radio service. Compared to Pandora, Spotify is aiming to reposition itself with partnerships that are meant to help make music more widely available to digital users.

?Spotify is taking an aggressive approach to dominate mobile music distribution with strategic partnerships, embedding widgets and opening up to third party app development,? said Daniel Wood, digital strategy director at tenfour, Portland, OR.

?I believe that opening the API for brands and entrepreneurs to extend Spotify's core offering will be as instrumental in delineating their market position as it was for early on for the iPhone,? he said.

Spotify did not respond to press enquiries for this article.

Musical partners
One of Spotify?s key partnerships has been with Facebook, which lets users sync their accounts to stream music via the social media site. Although the service is only available on desktop, Spotify has benefited from Facebook to help spread awareness of the service.

Additionally, Spotify recently announced that it has partnered with Coca-Cola to promote the music service in paid media. Spotify will also be included in Coca-Cola?s Facebook page as part of the beverage giant?s goal to connect with music lovers.

Although Spotify is attempting to line up the dots on digital music rights, the service has taken a drastically different approach to mobile than Pandora.

Spotify has mobile applications for iPhone, Android, Symbian, Windows Phone 7, Palm and BlackBerry devices. However, in order to access content, users have to be premium members, which costs approximately $10 a month.

Premium services also do not include ads, making desktop the push for marketers looking to run Spotify ads.

?Charging for mobile is fairly standard across historical competitors like Rdio, Grooveshark and others,? Mr. Wood said.

?As Spotify starts to move in on Pandora's market, they may need to rethink the billing structure to give some mobile access upfront and charge for other features or extended experiences,? he said.

To attach an ROI to their ads, many marketers have used Pandora?s brand playlists to connect with mobile landing pages where consumers can shop, order or learn more about a brand.

Currently, publishers including Rolling Stone, Billboard and Pitchfork have Spotify playlists that let users listen to edited picks. Now brands such as Reebok and Intel will also be able to offer users recommended music.

Since traditional advertising is currently limited to just desktop users, brands need to think outside the box when it comes to the opportunities on mobile.

For example, brands could promote the Spotify playlists as a way to reinforce the brand?s message.

The playlists could also serve a critical role for marketers looking for more content ? once a user interacts with a song, they are likely to want to hear more songs by the artist. If rumors about Spotify developing a radio service are true, this is the sweet spot that the company can hone in on to up the company?s digital efforts.

However, the challenge will be for marketers to include an actionable opportunity for consumers based on their interactions.

Free streaming
Spotify claims to have approximately three million subscribers, representing 20 percent of its overall users.

Although the company has proved that some consumers are willing to pay for content, the majority of consumers still want and expect to get free access to their favorite music.

Additionally, by making mobile part of the subscriber-only features, the company could be missing out an opportunity to win more users over, according to some mobile experts.

?Spotify's early invite-only positioning performed well early on, their investment in Facebook integration has clearly paid off and their brand has risen to the top in what now seems to be an instant challenger to Pandora,? said David Hewitt, Atlanta-based global mobile practice lead at SapientNitro.

?I am sure both companies realize the future is in mobile, however there is obviously a lot of current challenges with ad inventory exceeding demand in that space,? he said.

?Spotify's play to currently position mobile app services as premium is a likely hedge for lower ad revenues and expensive development costs, but does not bode well in comparison to Pandora ? especially in a space where consumers love to start free on mobile.?

However, the push towards subscribers could also mean that Spotify is able to acquire a more loyal group of users. Spotify currently offers a 48-hour premium trial to new users, which is most likely a key driver in the company?s high group of paid users.

If Spotify is successful, it will put the company on par with other premium entertainment companies such as Hulu and Netflix, which have proven that if the context is right, consumers are willing to pay.

?I think these new announcements will be pivotal in their strategy of more monetization opportunities like playlists and local-context building of the experience and will enable a better position to make the mobile platform available for all users,? said Matthew Snyder, CEO of ADObjects-Inc., New York.

?If you look across the board, it is essentially the same thing for even the rich media content streaming space such as Hulu and Amazon Prime,? he said.

?They all need a business model to substantiate the costs, and until advertising tops up that amount, premium is the way to go.?

Stream on mobile
According to some experts, the key to success in the digital music space is making content available wherever users are. Consumers are often listening to music on multiple devices, and the company that figures out a way to deliver the same experience on all platforms will be the ultimate winner.

Although Spotify does have a strong smartphone app strategy, it does not have any apps for tablets, which are increasingly being seen as a category of their own and have high entertainment usages.

?Mobile is crucial for Spotify and all of its key competitors ? maybe with the exception of Sirius XM, which has cars as its stronghold,? said Aapo Markkanen, London-based senior analyst for consumer mobility at ABI Research.

?Mobile listening is such an important piece of today?s music experience that it is important to keep the mobile version a premium feature as a way to encourage people to pay for the service in the first place,? he said.

According to Mr. Markkanen, Spotify?s brand playlists are comparable to Facebook pages, which gives marketers the opportunity to help with brand-building, but can be difficult to tie to revenue. Instead of being a commerce-generating feature, brand playlists will be used to connect users to music associated with a brand.

?It is not about positioning, really. Spotify wants to allow its users to listen to the music anytime, anywhere and that cannot be done without a decent mobile app,? Mr. Markkanen said.

Final Take
Lauren Johnson is editorial assistant on Mobile Marketer, New York