Hi everyone 👋 Turner back again with The Split. As of yesterday, there's now 16,000 of you tuning in every week - welcome to all new subscribers!

If you missed it, last week I wrote about how Fanatics is getting into live streaming and building a business to monetize the full fan experience.

Spotify is set to launch a new TikTok-like AI-driven feed within its app. I'll explain why I think this is very big for Spotify and all its creators. Keep reading after that for new products from Overtime, Apple, and Artifact, followed by some banger memes.

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Spotify's New Feed

Spotify is reportedly redesigning its app to create a vertical TikTok-like algorithmic feed. From Ashley Carman at Bloomberg:

Tapping on this video of Spotify's 2022 Investor Day will open to the 37-minute mark referenced by Ashley:

A feed shifts Spotify's atomic unit of discovery away from playlists and towards individual songs. And more than songs, it's individual pieces of content. Spotify's spent the past few years expanding outside music, getting into podcasts, audiobooks, live audio, and even incorporating video on some podcasts. Spotify's new feed significantly changes how discovery works inside its ecosystem. It also finishes its expansion into a broader content and media platform, putting it squarely into competition with YouTube, TikTok, Instagram, Snapchat, and even Netflix and any other place we consume content online.

If you think Spotify going from music streaming to a broader content platform sounds ridiculous, first off, I agree. It sounds insane to think we'll use Spotify like TikTok. The transition will be challenging, but it's important to clarify the products will never be exactly the same.

That said, audio and music was literally TikTok's wedge to become one of the largest internet platforms in the world. It's now arguably the biggest driver of culture globally. Summarizing what I wrote on TikTok's transition in the summer of 2020:

Spotify doesn't have memes, but it is one of very few apps that lives on the dock bar at the bottom of most phones. The last I could find, the average user listens for 148 minutes and opens the app 2, 4, or 9 times per day (according to Apptopia, App Annie, and Sensor Tower, respectively). That's extremely valuable mobile real estate, and owing this habitual use is 99% of the battle.

One massive change underway is the industry-wide shift to subscriptions and in-app purchases. In October I wrote about how Apple's ATT changes benefitted its own advertising business at the detriment of everyone else's. With mobile ads less effective and time spent plateauing (meaning platforms can't just show us more ads and must make them more effective to increase ad revenue), every ad-driven platform has started looking for new ways to drive revenue growth. Subscriptions and in-app purchases are low hanging fruit.

A timely example of this is Snap. It's subscription product, Snapchat+ just crossed 2.5 million subscribers and $100 million in revenue. It sounds impressive, but it only represents 0.6% of it's 375 million global DAUs and just 0.3% of its recently disclosed 750 million MAUs (Daily and Monthly Active Users). There's still a long way to go!

Snapchat generates just over $32 in advertising revenue per North American user. And after Apple's 30% cut, a $4 per month / $40 per year subscription essentially doubles Snap's revenue per user in its most profitable market. Considering that as of now Snapchat+ is essentially cosmetic upgrades and in-app status signaling, this subscription revenue should have very high margins that fall almost entirely to the bottom line. I wrote more here on how Snapchat+ could eventually get to 100 million subscribers, which would be around 15-25% of the userbase depending on how fast it gets there.

Along the same lines, Meta (are we still calling it that?) just announced a paid subscription feature for Facebook and Instagram. Elon also introduced the notorious paid Twitter Blue feature, which had 140,000 subscribers in November, or 0.2% of its US userbase. And a little more mature, Youtube Premium recently passed 80 million subscribers in November, up from 30 million last year, which is now 3.1% of its 2.6 billion global MAUs.

Contrary to popular opinion and along the same line as Snapchat+, I think a) these will take many iterations to get right, and b) once they do, it's essentially free money. It recently leaked that Snap was targeting 4 million Snapchat+ users by the end of 2022, not 2.5 million. I touched on the "they'll eventually figure out how to get everyone to pay" here when looking at Elon's Twitter acquisition, but I think the same line of thinking is true for all of them.

Tying things back to Spotify, it has figured out how get consumers to pay. It's premium product is more mature but has a considerably higher penetration. Prior to COVID, it was closing in on 50% of of all MAUs. This has decreased over the past three years to 40% in Q4 of 2022 after faster growth in its free, ad-supported userbase. Spotify's essentially in the opposite position of everyone else: large subscription base with a small but growing advertising business. But it does hint at what some of the other platforms could look like in a few years.

It's important to note Spotify's subscription revenue isn't quite the same as the others. It pays 70% in royalties to music labels, which essentially caps its gross margins in music at 30%. How does shifting the type of content browsed by users in its new feed impact this revenue share? Or maybe it just incentivizes labels to push consumers to use Spotify for music-related content over other platforms because it they stand to benefit the most?

This also means Spotify's business model is setup to share up to 70% of revenue with content creators. This is significantly higher than the 40-50% we've seen from other platforms mentioned above. And opening up discovery with an algorithmic feed on the homepage levels the playing field for creators where the best content can potentially hit 500 million MAUs.

Three years ago I wrote about how TikTok leveraged a similar playbook:

Spotify is almost entirely what most people would think of as "premium" content. But in its 2021 Stream On event, it mentioned a goal to be home to 50 million creators by 2025. Its new feed and blending of content formats may create an opportunity for less premium UGC (user-generated content). I'm personally not convinced kids will ever make make lip sync videos in Spotify, but Spotify is positioned to be one of the best ecosystems for professional creators to monetize their content. It might take time to expand beyond audio, but for the time being, podcasts are one of the most premium forms of UGC.

Spotify also has credit card data attached to all its premium users. This gives it a head start pushing consumers towards creator-specific subscriptions and a la cart purchases, which it's hinted are coming in the past.

Investors have always been critical of this revenue share and how it impacts Spotify's margins. One way may expand its margins is its advertising business. From its Q4 2020 shareholder letter:

The biggest expense for most labels is marketing, and Spotify's started capturing some of that marketing spend on its platform through sponsored recommendations. And since these ads are within its own ecosystem, it's more insulated from macro shifts like Apple's ATT than others. It's also a much different advertiser base than the SMBs and brands finding success on TikTok and Instagram.

Spotify's New Atomic Unit of Discovery

If you've followed what's happening on YouTube over the past year, creating short-form videos on YouTube Shorts has become one of the best growth channels for longer content. I've seen multiple friends with podcasts execute this "Shorts to long-form" playbook very well on both TikTok and YouTube, a content format directly within Spotify's strike zone. I can't find any links on it to share here, but Spotify recently started allowing creators to upload small podcast clips.

Sourcing short-form content in the feed opens a similar growth channel for creators on Spotify. It also creates a new form of ad inventory for Spotify, and the recommendation algorithm built for its playlist and ad business will probably lend well to the new feed. Just like every other product that reaches scale, we should expect to see Spotify start flexing its distribution to 500 million MAUs and layer on even more products and features for consumers and creators over time.

In summary, an AI-driven feed completely changes Spotify to look much more like YouTube, TikTok, and Instagram. All three will have a mix of short and long-form content. Creators will use a combination of both to drive awareness and engagement that monetizes with ad revenue share, ecommerce, events, subscriptions, a la cart purchases, and who knows what else.

It's going to be exciting to watch. And a great time to be a content creator.

🚀 Product Launches

Spotify Launches AI-Powered DJ: Speaking of Spotify and AI, its new DJ is essentially a voice-based assistant that opens a new surface for discovery and will probably be pushed in the new feed. Here's the launch video, and check this picture below for another preview of how the feed might look.

Overtime Launches Boxing Vertical: New to me, boxing is the fourth-most popular sport amongst Gen Z. Celebrity involvement has driven it to relevance, and Banana portfolio company Overtime is launching its third franchise, Overtime Boxing (OTX). This comes after launching it's Overtime Elite League (basketball) in 2021 and OT7 (football) in 2022.

Overtime's playbook was simple in theory, but very difficult in practice. It first built up distribution online to the tune of 75 million followers across Instagram, TikTok, YouTube, and more. It's now building sports leagues around this fan affinity and engagement. It monetizes the leagues with advertising, and recently signed a deal with Amazon to stream one-third of it's OTE basketball games. I wonder where we'll be able to stream OTX? 🤔

Web Notifications are Coming to iOS: The latest iOS 16.4 beta allows web apps to push notifications to the homescreen, just like a native app. While this is probably just Apple easing antitrust pressure around the App Store, I'm sure we'll see a few cool use cases built around it.

This chart from Marco Buono highlights just how much change is coming to Safari.

Artifact Leaves Private Beta: I wrote about Artifact a few weeks ago here. After playing around with the beta for awhile, it's definitely worth trying if you like news apps.

🔗 Links and Charts

Americans Are More Active Despite Team Sports' Decline: And boy do they like Pickelball, which is now the fifth most popular US team sport.

Looking at viewing popularity (and going back about eight more decades), it's amazing how fall baseball has fallen. Soccer appears to have it in its sights. h/t Joe Pompliano for sharing!

95% of US listeners respond after hearing a podcast ad: 88% of Canadians do so. And marketers expect the share of podcast ads bought programmatically to triple by 2027.

60% of Americans Under 25 Have Completed a Purchase on Social Media: This was way higher than I expected. And Pinterest's' influence appears to be on the rise, as it influenced 28% of people in 2019 to 46% by 2022. h/t Rex Woodbury for sharing!

Instagram Kills Live Shopping, Will Focus on Ads: Just in case you missed it, I find this fascinating because on paper Instagram is probably the best positioned to crack live ecommerce outside of Asia. I think it's just hard to get consumers to care, and the sellers need to be extremely good at what they do. Call me crazy, but I think Temu and its direct connection to manufactures in Asia put it in a very interesting position within US live shopping, possibly even more than TikTok. I think these two could eventually become the largest players in the US and Europe, each winning different categories (and Amazon finally getting itself together is a big wildcard).

📚 Long Reads

How Canva Grows: An incredibly detailed read on how Canva scaled from the very early days to a product used by over 75 million people per month.

Defensibility & Competition: A great post from Elad Gil that argues most software starts off non-defensible and must build a moat over time. He also reminds us that serving a customer need very well is way more important for startups than thinking about defensibility.

The Maze is in the Mouse: Praveen Seshadri shares how Google has lost its way. It's a great post, but in summary, it suffers from (1) no mission, (2) no urgency, (3) delusions of exceptionalism, (4) mismanagement.

De-Influencing, TikTok's Latest Trend: In response to the rise of inauthenticity and overconsumption, a fascinating look at how influencers are flipping the script and telling consumers what not to buy.

What Is ChatGPT Doing … and Why Does It Work?: A great explanation of how Large Language Models (LLMs) work and how ChatGPT generates text that sounds human.

🔊 Long Video

I think this is the first time I've ever shared a long video here, but this 19-minute watch goes into detail exposing a serial NFT promoter. The story's interesting in itself, and it exposes what was really driving the NFT market during its heyday (Hint: celebrity and influencer promoted scams.)

💼 Career Services

Banana Talent Drop #12 will go live this upcoming Sunday, February 26th.

The Banana Talent Collective now has 210+ candidates hailing from the companies below + more (if you're at a Banana portfolio company, reach out for access).

If you're starting to explore a new role and want to passively get in front of hiring managers at startups, or if you're hiring and want a feed of pre-vetted candidates, apply to the collective here.

🍌 Monkey Business

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