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Amazon Music’s Free Tier Is More Advertising Play Than Spotify Killer, Analysts Say

When news began to spread last week that Amazon Music’s long-anticipated free streaming tier was imminent, headlines emerged about its threat to Spotify and Apple Music, with some stories saying that Spotify’s stock price dropped in response to the news.

But not only was today’s launch of the free tier basically a soft one — for the moment, it’s a limited service, only available to U.S. customers of its Alexa voice assistant, and when the listener requests a song, it leads to an Amazon playlist or station, rather than an album — analysts say that it’s more of a bigger play by the company to boost its advertising income and sales of its Echo speakers, and less of an attempt to wrest customers and market share from Spotify and Apple Music.

“I don’t see this changing anything major in the music ecosystem,” says analyst Russ Crupnick of MusicWatch. “It will probably have little impact on the established players — Spotify has incredible loyalty with its listeners and I don’t see people marching off to Amazon because it’s going to have a free tier. Amazon has a much more casual audience — it’s large, but they spend much fewer hours [on the platform] and are generally less engaged with music.

“However,” he notes, “it may bite into Spotify’s advertising, if not its audience. This clearly fits in with Amazon’s larger advertising plan: It’s not hard to imagine, after a consumer asks Alexa to play a song, the voice then saying, ‘After you’re done listening to the song, check out this product, available now on Amazon…’.”

That observation was doubled down by Mark Mulligan of Midia Research, who published an extensive analysis of Amazon’s advertising play yesterday called “Amazon’s Ad-Supported Strategy Goes Way Beyond Music.”

“Amazon is in the process of building new, large-scale digital properties as a platform for its advertising business, which is growing faster than any of the other tech majors’ and is already a fifth of the size of Facebook’s entire ad business,” he tells Variety, noting that Amazon’s true target in this space is Facebook.

However, Mulligan adds, “Spotify should be worried, not just because Amazon has already proven itself a more-than-able competitor in subscriptions but also because it has the ad sales infrastructure that Spotify does not. A free music audience without effective ad sales is just a cost to the business; a free music audience with a well-oiled ad sales machine on top of it is a cash cow.”

And another angle, of course, is aimed at benefitting Amazon itself and its Echo speakers.

“Amazon’s go-to strategy has been to use media incentives to get consumers to purchase more of its core product offerings,” says pricing strategy consultant Rafi Mohammed. “Prime video is a great example — an add-on to coax customers to purchase Prime, with the ultimate purpose of getting them to buy more goods with free 2-day delivery.

“Amazon is deploying the same game plan with its Echo speakers,” he continues. “It’ll offer ‘free’ media — in this case, an ad-supported restricted music library — in an effort to beef up the value of its Echo speakers. The desired side-effect is to hook buyers on Alexa, which in turn boosts sales of Amazon’s core products by encouraging voice ordering. Amazon’s free music tier, initially anyway, is a less-attractive offering compared to Spotify’s ad-supported service.

“Amazon’s free music tier may dampen [other streaming services’] future growth a bit,” he concludes, “but it won’t be a game-changer.” Yet like most everything that Amazon does, it offers formidable prospects for the company’s growth.

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