It seems that everyone and their grandmother wants to get in on the large language model (LLM)-powered AI revolution. Spotify is the latest company to get in on the action explaining that it’s partnering with Google to use its AI to provide better recommendations on its platform.
Spotify already does an excellent job at recommending music thanks to AI investments it made over the last decade but now it wants to extend this to podcasts and audiobooks. In addition to improving recommendations, Spotify will also use LLM technology to help identify what it calls potentially harmful content – it’s unclear if this will just be labelled or removed altogether.
Gustav Söderström, Spotify’s chief product and technology officer, said:
“The evolution of our technology has been matched by Google Cloud’s commitment to building the best possible platform for our products to run on and driving further innovation with the emerging capabilities of generative AI.”
This news should be music to the ears of Spotify shareholders because if users are being recommended better suggestions it should boost listening time which in turn means more ads will be pushed and Spotify’s revenues will increase.
What’s not known is how much this will cost Spotify, running an LLM isn’t cheap and Spotify will be leaning on Google to generate recommendations a lot seeing how many users it has. It will likely be paying a decent chunk of money to Google for this service.
According to data from Yahoo Finance, Spotify missed the earnings consensus in Q4 2022, Q1 2023, and Q2 2023. It did manage to beat the consensus of analysts in the third quarter and it will no doubt be hoping that this partnership with Google can help it to increase revenues further.
Between 2019 and 2022, the company has continually managed to raise its revenues from almost $7 billion to almost $12 billion but each year its earnings (revenues minus costs) has been in negative territory. It’ll be interesting to see if these AI recommendations help to turn these earnings positive or just act as a drag after it pays Google.