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Pompilio Intindola
Who would have thought facilitating payments for Beanie Baby trades could be so lucrative? The only acquisition on our list whose value we can precisely measure, eBay spun off PayPal into a stand-alone public company in July 2015. Its value at the time? A cool 31x what eBay paid in 2002.
Ben: It is impossible to flawlessly execute a podcast of this style, and that's the beauty of it. You come up with a bunch of stuff you want to talk about, then you end up having a real organic conversation, and then it turns into a product. That product is totally different from what you envisioned in your head, but can still be great.
Daniel: But I think the amazing thing is, unlike you talking to journalists, et cetera, it's truly a conversational one. The second part is, there's enough time to actually elaborate on the thought and the idea. Whereas you have to be so succinct in how you express your idea and truly get it across in 30 seconds, or you lose the moment and the journalist wants to move on.
Brian Chesky is an example. He's the master of it. He just switches it on, and he's so good. For some reason, he and I always end up getting on the same panels, and I'm like, it's game over even where it started. You can have all the great stuff.
Ben: And we are your hosts. This episode, we sit down with Daniel Ek, the man who saved the music industry after Napster and the piracy era killed the CD business. Some of the stats are mind-boggling. Spotify has paid $40 billion to artists over their lifetime. They're now the single largest source of revenue for the entire music industry.
Ben: It's wild. In fact, we were so interested in having this conversation that when Spotify asked if we wanted to fly to Stockholm and record in person with Daniel in the Spotify studio, we jumped at the chance. Daniel also foreshadowed some of what's to come with the cousin of podcasting, Audiobooks.
We can't wait to hear what you think. Come discuss it after you listen to this episode in the Acquired Slack, acquired.fm/slack. You should subscribe to our interview show, our second show ACQ2. You can find it in any podcast player, and we've had some killer back-to-back discussions with the CEOs of Retool and AngelList both about AI.
Without further ado, this show is not investment advice. David, myself, and our guests may have investments or many shares in the companies that we discuss. This show is for informational and entertainment purposes only. Now on to our conversation with Daniel Ek.
Ben: Unless you're us, and you're looking at the data all the time or other podcasters, I think it's easy to underestimate how seismic of a shift has happened in the podcasting ecosystem since you guys dove in. I just wanted to, Acquired style, go to a moment in time and say, how did that happen? And how did you guys decide to become an audio company instead of a music company?
Daniel: I like to say that there was probably this genius insight at some point in moment, but that's certainly not, in the case of Spotify, true. It is often quite serendipitous. For a long time, I was fighting the urge on this. But we were oftentimes trying to not think of ourselves as the users and customers because once you got through a hundred million users, you're like, well, obviously I shouldn't be the target demo. I need to listen to what the actual users are telling me.
There are some parts that's true with that. But then, more and more, what I've realized is also that actually, internally, we probably have the best sounding board of a quite representative Spotify user and what they might like.
One of my favorite topics is how often people game our platform. For instance, in Germany, unbeknownst to us, one of the crazy things that ended up happening was just people started uploading audiobooks because it turns out that these music labels actually own a bunch of Audiobook rights.
As the platform was taking off, they realized, what else can we put on this platform that gives us a leg up and creates more revenue for us? They realize that they have this catalog of audiobooks sitting on there. I think that was one realization where we realized, hey, this platform doesn't seem to matter all that much what we're putting on it. People just like consuming content.
I and others at Spotify are big podcast listeners ourselves. We love that, but we hate the fact that we had to switch app from our normal one. We hate the fact that we couldn't get the recommendations working. We hate the fact that we couldn't get this to work on my car, speaker or my home speaker, and all these things that we spent literally a decade building for the music industry.
It dawned upon us that podcasters have the same problems that music creators have, and we should be able to play a pretty big role. All the primitives that we built for music should work really well in terms of discoverability, in terms of ubiquity that we call, which is our ability to play on any device. And of course, our freemium model, where the ad-supported and eventually paid models as well should be able to all work together.
The craziest thing in the beginning was probably when we started talking about it as building it in the same app. That was what the biggest resistance was because the common wisdom at the time was obviously, podcasting has to be a distinct own thing.
Ben: Unless I'm a person who already defines myself as into podcasting, I'm never going to click a podcast app to try and get into podcasting. You can't expand the TAM if they're all in separate apps.
Daniel: Even merchandising podcasting is a very different problem than music. It is actually one of the things that we're still working on, trying to crack the code on. That was probably the most contrarian both inside and outside. But to us, it was probably the most obvious one because we had already seen the behavior happening in Germany.
Once we had tried unloading it for ourselves so that we could play around with the product, it was obvious that this would be a great experience. It's probably been the most interesting one for me, and what I often tell other entrepreneurs is like, the fact that people doubt you in the beginning, you need to pay attention to that and hear what valid concerns they may have. But a bunch of that is just that they're not used to the concepts, and it's going to change. By the time it changes, it will have already passed over, not that you were right, but actually, of course, this is obvious.
Daniel: Yeah, people were not talking about it. People actually conceptualized more around renting things. Why is that good for me? This is horrible. That means that technically, what happens if you guys don't want to have that song anymore? That song disappears.
Daniel: Exactly. We were fighting against it. It was so obvious to us that because I grew up with piracy that, actually, all you want is access to it. It was such a hard notion for people to get conceptually because we'd been spending 30 years just getting people into that.
I feel like most of the tech industry spent a decade-plus learning about having separate apps. We said, no, it doesn't really matter. We can put it in the same app, and actually, people will love it even more because we're solving the same user needs.
Daniel: It was really a lot more of a first principles thinking around it. It didn't really make sense if you looked at, what are we trying to solve for? Was it truly so different in terms of a consumer experience? No, it was the same playing view, slightly different modalities, but totally possible.
If you thought about it as a discovery, okay, well, that's a similar problem. Ubiquity, being able to play it on all the speakers, made a lot of sense of having the same thing, search, all of these things were basically shared infrastructure that we can utilize.
Again, if you're searching for content, you don't really care all that much about it on YouTube. On one end, you're listening to music on one side. You had all these other short form videos, sports, and so on. You don't think that those are distinctly different behaviors, so why do you think about it that way? It is because you really think podcasting is a different format. But actually, it's audio.
Daniel: My view (I guess) is the boundaries are from a format side, it's definitely been blurred quite a lot for the right reasons. The better way to think about audiobooks and podcasting is it's really around a business model mostly. One way to frame it instead would be podcasting is ad-supported audio, and audiobooks are paid audio.
For you guys, I also happen to know, you spent so much time and effort on the research of that site. You could imagine that in the future, you have the ad-supported side of your podcast, the certain types of episodes, and you'd have for your subscribers the unlock where they get access to these kinds of deep dives, et cetera. Obviously, this subscription thing could be as simple as, hey, you're part of our other network, and it doesn't cost money, or you could pay gate it's all the way through.
I think it's more of a business model. That's the big format differentiation. As we said, the quality, the mics we're using relative to an audiobook, there's no difference here. You're using high quality camera equipment. Also very similar to more professional styled and do-it-yourself equipment, editing, and all these things. It's getting more and more blurred.
David: Yeah, which is so interesting. To us, we've lived this over the past eight years. What podcasting has unlocked, and how Spotify is bringing so many more people to the medium that weren't consuming before, is a mass audience for niche products.
Daniel: Yeah. Obviously, our view is, we eventually think audiobooks should be much, much larger than what they are today. Hundreds of millions of people who are actually listening to Audiobooks because the content is great rather than today with tens of millions of people.
Daniel: Yeah, believe it's tens of millions. It's one of the fastest growing categories, which makes it interesting. Again, fundamentally, it's both a business model problem. It's, again, the discovery problem and all those other things.
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