Spotify launches ad exchange and generative AI ad creator, adopts UID2 in major push for ad dollars

At a glitzy event in New York on Wednesday, Spotify unveiled a raft of new ad tech products and partnerships designed to attract more brand investment in digital audio.

Spotify officially announced its own ad exchange, SAX, enabling real-time programmatic bidding on its inventory for the first time. Initially launched as a pilot last year, SAX will be available via The Trade Desk, Google’s DV360 and Magnite among other ad tech platforms, across major markets including the U.S., Canada, Europe, Australia, India and more.

Spotify also announced a new AI-powered audio ad creation tool, new and improved measurement capabilities and the adoption of new targeting tools including The Trade Desk’s Unified ID 2.0.

“Spotify’s ad revenue has doubled since 2020, but we’ve been primarily focused on brand and top of funnel. We now want to expand both our advertiser base and move down that funnel,” Emma Vaughn, head of content and advertising business development at Spotify, tells The Current. “We think it’s going to lift the entire TAM [total addressable market] of the audio ecosystem.”

Spotify’s advertising business is gaining momentum, with 675 million users on ad-supported plans. The company reported its first-ever profitable year in February this year, with a 7% growth in ad revenue and a 12% growth in ad-supported monthly active users year on year for the last quarter of 2024.

“This is the first time that we’re bringing auction-based buying to the platform,” Vaughn says. “We’re modernizing our ad platform to give advertisers the flexibility to buy Spotify in whichever way they want.”

Unpacking what’s new

Historically, advertisers had to buy Spotify inventory via its sales teams or its self-serve ad platform. SAX solidifies Spotify’s moves toward fully programmatic ad buying. Its earlier steps — such as opening its inventory to The Trade Desk last year — already positioned the platform as a growing favorite among some agency media buyers.

The new exchange also makes ad buying easier for small and medium advertisers, says Vaughn, pointing to a cohort that helped fuel the rise of platforms like Meta and Google. To further support marketers without access to creative agencies or in-house creative teams, Spotify is offering its ad creation tool powered by generative AI free of charge.

“We’re making it easy for advertisers to create audio scripts and voice-overs in a way that would previously have taken days,” Vaughn says. “I do think it’s been a bit of a block. Between that and all of the improved measurement and the scale, we’re starting to chip away at those blocks.”

Spotify has also invested in proving out the ROI of its ads to marketers. Vaughn says Spotify’s tracking pixels have become more advanced and can measure more elements of a campaign’s impact. In addition, objective-based buying with Spotify’s newly launched objectives optimized for app installs and website visits will allow marketers “to buy for specific objectives that they weren’t able to in the past.”

Partnerships with DoubleVerify and IAS provide brand safety, while the adoption of UID2 can enable privacy-conscious, cookie-free targeting.

“When you think about lower funnel and performance, so much of the focus in the industry before has been on that final click, whereas so much of what is so important is everything that gets the consumer to that final click,” Vaughn says.

What’s next

Video is a growing segment for Spotify, particularly with Gen Z, whose video consumption on the platform has grown more than 50% year on year, according to figures shared by Vaughn. “With younger generations, that flexibility of having foreground-background optionality is crucial.”

Spotify data shows combining audio and video ads boosts purchase intent by 27% and drives incremental sales by 66% compared to audio-only campaigns. “Talking to partners … you get so much more value when you add audio to anything you’re doing with CTV, for example,” Vaughn says.

Even putting the flexibility of formats aside, reaching elusive Gen Zers is where Spotify may indeed have an edge.

“Over 75% of Gen Z has said that they feel mentally happy when they are using Spotify and they use it as an escape from doomscrolling,” Vaughn says. “That’s something that I think is a powerful differentiator for us from other platforms. It creates an impactful and safe environment for advertisers.”

The Current is owned and operated by The Trade Desk Inc. This information is provided solely for background and is not a representation or guarantee of any future performance.