Audio Advertising, Redux
How Podcast Advertising is Breaking the Mold of Internet Ads
By: Spencer Weiss (M&T ‘20)
Podcasting is a tiny industry. In 2018, the US podcast advertising revenue totaled $400 million, which is 0.43% of the $94 billion spent on US internet advertising the same year. However, since the sorry state of the current audio techology landscape diminishes the financials, the revenue numbers betray the potential of the industry by volume of current and future of podcast listeners. The number of listeners grew 36% on a base of 73 million listeners last year, and the rate of growth has actually increased. Clearly, the products serving the market have not yet been able to reliably meet demand.
Podcast Marketplaces
The reason that ad spending on podcasts lags behind listener counts is not necessarily just lack of awareness by advertisers — though that is likely part of the problem. Rather, there are technical reasons why it is difficult for both podcasters and advertisers to connect at scale. The current internet ecosystem took its present form when advertising marketplaces like AdWords and AdSense made it easier for companies to purchase advertising that could appear on search results and sites across the web without making manual sponsorship deals. This also had the consequence of making Google (and later, Facebook) centralized hubs for companies who wanted to get their messages to users of the internet and minted them as leaders in the industry.
However, no such tools have gained a significant foothold in the podcasting industry yet. Companies hoping to advertise on podcasts must manually reach out to hosts and offer to sponsor their shows, customizing each script and offer to the podcaster’s preferences. However, most shows with large followings already have established sponsorship deals and rarely accept new offers, especially while seasons are running. This makes the advertising market highly non-liquid and leaves both hosts and advertisers worse off. That is because with no ad bidding hosts likely sacrifice some revenue compared to what they could make on the open market and because companies often don’t have a chance to sponsor the shows they are interested in. This means that it only makes sense for companies whose customers have high lifetime values, such as website vendor Squarespace, to advertise on podcasts. This partly explains the lag in ad revenue.
Advertising, in Audio
In addition to structural problems with the industry, podcast ads themselves have been ported directly from the internet and radio ecosystems in a way that doesn’t fit in a podcasting context. Internet ads are often mixed in with your desired content in a relatively unobtrusive way, but since you can’t listen to both an ad and podcast content at the same time, audio ads have to be pre-roll, mid-roll, or post-roll in a “full-ear takeover” akin to more obtrusive full-screen takeover internet ads. This runs the risk of annoying users more than traditional ads, but also has the chance to capture a larger share of the audience’s attention. In addition, since in an audio context no listeners can click on an ad and view content directly, podcast ads cannot easily be used for lead generation. However, exposure and brand awareness have proven to be applicable marketing techniques for the platform so far.
Ads themselves are most often read aloud by podcast hosts, who put their own spin on sponsored content. This means that companies are somewhat reliant on hosts, who may be as enthusiastic — or not — about a product as they feel like. This can be great for conscientious marketers and hosts who test out the products they pitch and can speak intelligently about them informally, since organic and unscripted endorsements are often best. However, this is not a scalable model once the number of companies interested in advertising on podcasts grows. In addition, since ads are read aloud by hosts, they are baked directly into the podcast audio files. This means that while companies can sponsor shows whose audiences might be interested in their product, they cannot target individuals to nearly as granular an extent as is available on the internet. This would be analogous to websites making manual deals with companies to place their ads directly into raw HTML, a concept that is unthinkable in today’s world of programmatically-generated web content.
Podcast Procurement
There have been some promising developments on these fronts recently. Midroll Media, a startup that was acquired in 2015 and then bought competitor Stitcher, is trying to make a centralized advertising hub for podcasts. And most notably, Spotify acquired both Anchor and Gimlet Media this month. Anchor is a podcast manager app competing with Apple’s native Podcasts app and Gimlet Media is a podcast production house with rights to many of the top shows, such as StartUp and Reply All. This is a promising market for Spotify, which already has a programmatic and targeted audio advertising suite for the free tier of its music service. Now that it owns a podcast manager and a set of popular shows, it is in position to provide some much-needed technical and product infrastructure for this growing industry.
WeissFund and Monetization
The opportunity to monetize an industry and simultaneously provide a better experience for the parties involved is not exclusive to podcasting. For instance, Penn Storage, a recent WeissFund portfolio company, is building a platform to match students with extra unoccupied space over the summer with students in need of space to store their belongings. Its use of students looking to put their extra space to use means that it hopes to be able to outcompete established storage solution players who own their own facilities and have to foot the bill to store and transport goods.
At WeissFund, we are excited about these trends in startup strategy and have been lucky enough to fund multiple companies that have taken advantage of this landscape. If you would like to chat about technology or entrepreneurship or are a Penn founder starting a company in the space, please feel free to reach out to us!
WeissFund is dedicated to funding, promoting, cultivating, and supporting student entrepreneurship in the UPenn community. Working on a startup? Interested in partnering? Want to get involved? Drop us a line at apply.innovationfund@gmail.com.
Spencer Weiss is a junior studying Bioengineering and Management. He has worked in engineering and product at several early-stage startups (including Twine Labs, backed by WeissFund). He enjoys data journalism, movies, and being surprised when D.C. sports teams are successful. Feel free to reach him at spweiss@seas.upenn.edu.
