Spotify AI Bets on Personalization to Lock In Subscribers as Music Becomes Commoditized

Why Spotify AI more than music will be the secret to keeping subscribers

The Spotify music app is seen on a phone in New York City on June 4, 2024. Streaming music apps have been nudging users into the artificial intelligence era with a limited track record of success. But AI-based recommendation tools from Apple, Amazon and pure-play streaming company Spotify are moving ahead, with Spotify's latest approach to the future of personal music discovery leaning into the AI prompt in multiple formats. Experts say these tech investments may be critical to Spotify's ability to build a moat around its business as the core input, music, becomes commoditized across the streaming apps. A new ChatGPT integration rolled out recently by Spotify allows users to connect their accounts directly to OpenAI's generative AI chatbot. The launch is good for OpenAI in its broader effort to turn ChatGPT into a platform for third-party apps that function inside conversations. For Spotify, it's a bet that personalized music and podcast recommendations will be improved through the now-familiar format of chatting with an AI and letting it know what you want. Spotify users can ask for songs, artists, albums, playlists or podcast episodes by mood, genre or topic. Results surface inside ChatGPT and open in the Spotify app for playback. Users can interact with the recommendation, and offer specificity beyond what is possible with a classic "like/dislike" feedback option. According to a Spotify spokesperson, the prompts are "an opportunity to uncover new tracks or revisit old favorites, or extend a ChatGPT conversation with a soundtrack that fits the moment." Spotify said the integration is opt-in and that users can disconnect at any time. It also said it will not share music or podcast content with OpenAI for training purposes -- addressing industry concerns around AI and copyrighted material. Spotify also recently rolled out its Prompted Playlist feature inside the streaming music app, a "vibey" feature that allows users to tap into a feeling or memory in order to build a custom mix. The rival streaming services connected to the big tech players are exploring similar AI features. Apple has been gradually layering AI into Apple Music. The "Playlist Playground" beta feature is closest to what Spotify is doing, as it also focuses on chat-based AI interaction that allows users to tweak recommendations via chat. Apple recently introduced AutoMix, which uses AI to analyze songs and automatically blend tracks by matching tempo and beats, eliminating silence between songs, adding crossfades and so on. The company has also rolled out machine-learning tools such as lyric translation and pronunciation features. Amazon Music has offered a prompt-based playlist feature called Maestro since mid-2024, which allows listeners to generate playlists using text descriptions or even emojis. It remains in beta testing rather than full release. Spotify executives have repeatedly described AI as central to the platform's subscriber stickiness strategy. On a recent earnings call, leadership told investors that improvements in AI-driven discovery are central to keeping users engaged with the platform. "Our investments into personalization and AI are paying off," said Alex Norström, co-chief executive officer. "It means people are spending more days in a month with us and across more moments," he said. Spotify's interactive iDJ feature, introduced in 2023, has roughly 90 million subscribers using it as of the most recent earnings report, with users racking up over four billion hours of time spent on the app. Norström said Prompted Playlists as "instantly taken off with power users." "If iDJ is the chat interface to Spotify, where you can talk casually, Prompted Playlists is the Deep Research mode of Spotify," he said. "It lets you describe and set rules for your own personalized playlists - literally writing your own algorithm. ... There's nothing else like it." According to analysts who cover Spotify, the executive hype about AI may need to be the reality sooner rather than later for the company. Even though there are cases of musicians pulling music from specific apps from time to time as negative headline issues appear -- it happened to Spotify most recently due to its founder and former CEO Daniel Ek's defense tech investments -- competitors including Apple Music, Amazon Music and YouTube Music offer largely overlapping catalogs and increasingly sophisticated recommendation engines. "The catalogs at Amazon, Apple and YouTube are similar -- nearly identical songs -- to Spotify, just like Bing and Edge are nearly identical to Google," said Michael Pachter, senior advisor, digital media, sports & entertainment at Wedbush Securities, who covered the streaming industry as research analyst for many years. (Wedbush has never had a rating on Spotify shares specifically.) While Google's search business faces its own AI threat, Pachter said it is also the best model for Spotify to look to in terms of how to maintain a user edge. "Google managed to widen its moat by offering a number of features that make the service stickier, including remembering my credit card and password info. I can't even conceive of switching from Google Search, and I think that is what Spotify is trying to establish," he said. Switching costs may be subtle, but they can be significant. Users build libraries, curate playlists and train algorithms over years. Each additional integration, whether with a car dashboard, a voice assistant or now an AI chatbot -- Spotify says it now connects to over 2,000 device types -- can further entrench the ecosystem. "I expect this ChatGPT integration will be widely used by Spotify users and wildly successful," Pachter said. "Others may try to do the same thing, but the switching costs grow every time you make the effort to build your playlists on Spotify, and that's what they are counting on," he said. Apple Music and other third-party apps do offer tools to export playlists when subscribers seek to change music services. Others on Wall Street are less convinced than Pachter, but did come away from the most recent quarter more positive on the Spotify AI story and less worried about the risks it faces from AI music creation tools disrupting platforms like its own. Spotify's stock price has slumped in the past year by close to 20%, though the stock has performed very strongly since its 2018 IPO. "Spotify addressed this concern head‑on, arguing that AI supports rather than undermines its strategic position. By leaning into personalization, product innovation, and scale advantages, Spotify appears positioned to use AI to strengthen its platform, though the pace of adoption and industry alignment will remain key variables," wrote Bank of America's research team, which rates the shares a buy, in a February note after the most recent earnings.

Spotify Leans on AI to Keep Subscribers Listening | PYMNTS.com

By completing this form, you agree to receive marketing communications from PYMNTS and to the sharing of your information with our sponsor, if applicable, in accordance with our Privacy Policy and Terms and Conditions. And as CNBC noted in a report Sunday (March 22), experts say these tech investments could be crucial to the company's ability as its core offering -- music -- becomes commoditized across the likes of Apple and Amazon's music platforms. The report contends that the core of this strategy is Spotify's recent integration with OpenAI's ChatGPT, letting users request music and podcasts through natural language prompts within the chatbot. The move is designed to offer levels of specificity -- such as excluding specific artists or matching niche moods -- that traditional "like/dislike" feedback buttons can't match. Spotify's internal AI tools are already seeing significant scale, the report added. The iDJ (Interactive DJ) feature, introduced in 2023, now boasts roughly 90 million subscribers who have collectively logged more than 4 billion hours on the app. In addition, the platform's "Prompted Playlists" feature allows power users to essentially "write their own algorithm" by setting specific rules for custom mixes, CNBC added. Co-CEO Alex Norström has said that these investments are paying off, as users are spending "more days in a month" with the platform across various life moments, the report said. However, analysts suggest Spotify's edge lies in the high switching costs created by years of curated libraries and trained algorithms, CNBC said. Michael Pachter of Wedbush Securities likens this to Google's search dominance, where deep personalization entrenches users so firmly that switching becomes inconceivable. "Google managed to widen its moat by offering a number of features that make the service stickier, including remembering my credit card and password info," Patcher told CNBC. "I can't even conceive of switching from Google Search, and I think that is what Spotify is trying to establish." PYMNTS wrote last week about the company's role in addressing the proliferation of music being made via AI. Co-CEO Gustav Söderström said during a recent earnings call that the platform should not police creative tools: "Spotify should not decide what kind of tools you are allowed to use. Are you allowed to use an electric guitar, a synthesizer, a digital audio workstation? Or AI or -- more complicated question -- a bit of AI. ... I do not think it is our decision to make." But Söderström acknowledged the customer demand for clarity about how their music was created. "We've been working with the industry to allow creators and labels uploading music to put in the metadata how it was created so that we can surface this to users."