What you need to know:

• Spotify is sharpening its performance play in a bid to properly monetise its free users – two thirds of its user base, but only 10 per cent of revenue.

• Hence the mass rollout of Spotify Ad Exchange (SAX) via DSP integrations with The Trade Desk, Google DV360 plus Magnite's SSP solution, SpringServe, though full inventory and podcast support are still to come.

• Plus lookalike and custom audiences, sharper pixels, and an AI-powered creative tool to generate audio ads in minutes – as it bids to scoop up SME ad krill.

• Spotify's global head of product and commercial growth Chloe Wix acknowledged that while it may seem behind its global platform competitors, getting the back-end tech in order has taken time – and it's still in programmatic build mode.

• Per Wix, the platform remains cautious of the "increased risks that come with the “big machine of open marketplace”.

Spotify wants full-funnel advertising dollars and to properly monetise its majority ad-supported user base. 

Ninety per cent of of the platform's earnings come from its 268 million paying subscribers, roughly a third of its user base.

As of March 2025, the platform’s free ad tier accounted for 62 per cent (423 million) of its 678 million total monthly active users. Yet they deliver just 10 per cent of revenue. In monetary terms, it would make about the same amount from selling each of those users a cup of coffee a couple of times a year.

Hence launching a tonne of ad products in 2024. Now it's launching more, with eyes squarely on performance dollars.

Headlining the announcements at the upfront style Spotify Advance event in April was the global rollout of the platform’s programmatic play via the Spotify Ad Exchange (SAX).

It landed in a suite of performance-led features within walled garden platform Spotify Ad Manager, including custom and look-alike audiences, a sharper Spotify Pixel, lower-funnel targeting objectives and an in-built AI creative tool within walled garden platform Spotify Ad Manager.

All of which means it's going head to head with not just the other walled gardens but the scaled local digital audio players on tapping those performance budgets and SME advertisers as much as the top end of town.

Global head of product and commercial growth, Chloe Wix told Mi3 the platform had known “for a very long time” that it needed to expand its advertising offering beyond brand, but getting the right tech stack in order was paramount.

"We've needed to do a lot of work on the back end to overhaul our technology [and] establish the right partnerships with leading DSPs in the space, in order for us to come out to market with a compelling, biddable offering that will suit a wide variety of clients," she said.

Performance play

It’s not the first time Spotify has offered programmatic, but the first time it’s been widely accessible. Wix noted the streamer’s legacy direct business was “very heavy in programmatic guaranteed”, but that it was never “massively invested in”.

That model is now flipped.

“We recognised this is the direction that the industry was going. This is what our partners on the agency and the brand side were asking for, more than anything: ‘please make it easier… make it more nimble’,” she said.

“By doing so, you make it more performant for them to find ROI on Spotify, quickly.”

Per Wix, the ad exchange was tested by “close to 6,000” advertisers during the closed phase launched in partnership with The Trade Desk last year. Since April, it’s been made widely available via additional DSP partnerships with Google’s DV360, Yahoo DSP and Adform, plus an integration with Magnite's SSP solution, SpringServe. Others are also slated for integration.

Despite that, she says it's still early days – and Spotify is treading cautiously: "We're still very much progressing through the build of the Spotify Ad Exchange.”

The push launched with music ads only to begin, with podcast audiences yet to launch – automating podcast bidding has been a slightly more complex task, said Wix, given ads can only run on Spotify’s owned or licensed content. Which can get messy.

But the streamer is betting on its new partner program to boost that inventory pool, having recently pulled away from (pricier) up-front deals, instead opting for a more scaled distribution play with a 50 per cent revenue cut to boot.

Meta money

Alongside the exchange, Spotify is banking on its new in-built ‘Gen AI Ads’ feature to help draw new advertisers through the door, albeit not yet available locally.

Much like AI plays by local broadcasters, global platforms and streamers, the aim is to get more brands to use AI to build their ads, especially smaller businesses that make up the vast bulk of the market by volume – and which to date have largely spent exclusively on Google and Meta.

"There are some [advertisers for whom] audio has been part of their strategy from day one, and they see the value in it. Perhaps they advertised on radio and then moved into streaming, and now it plays a really meaningful role in their media mix," per Wix.

"But especially as you look towards the long tail of advertisers and folks that think about digital first, audio is not necessarily a default asset that folks have in their asset pack. It's just fundamentally not – and so for a long time, we've grappled with, how do we make this easier for them? How do we lower the barrier to entry ... or eliminate the barrier?

“All you need to be able to do is put in a few prompts, choose a voice that you like, and make some background music, and within just a couple of minutes, you actually have an end-to-end audio ad," she said.

The trick for Spotify will be in keeping a tight grip on programmatic quality control, particularly within podcasts.

Wix acknowledged the “increased risks” that come with the “big machine of open marketplace”, but reckons Spotify has a handle on it with safeguards in place.

Keeping an open dialogue with creator partners is likewise a key focus.

“Of course, more revenue [from more ads] is great for them is great – it means that they get to live off of their art. It's also beneficial to us, but we want to make sure that they feel that they have control.”

Funnel vision

Wix said Spotify is conscious of letting its revenue focus swing “too far” to short-term performance media dollars.

“Even as we move down the funnel, we certainly do not want to abandon our innovative brand roots,” she told Mi3.

“So much creativity happens on Spotify. We are home for creators across music, across podcasts, across audio books, and so many brands come to us for that exact reason. They want to show up and be part of the fabric of what Spotify brings to culture.

“So, for us, we are very, very careful not to over-emphasise the prevalence of direct response, because we are very much continuing to invest in the world of branding… It’s really just thinking more about expanding our toolkit, versus evolving the way that we think about it entirely.”

The streamer’s in-house production team, the Spotify Creative Lab, is front-facing that side of things.

Launched a year ago, the team has just landed in the Australian market to drum up business, with “active conversations” currently underway with local brands, per Wix.

But not yet so active that it is “at a stage to share client names”.