Spotify Is Entering the Hardware Market

The world’s largest audio streaming giant, Spotify (NYSE:SPOT), recently announced the launch of Car Thing, a smart player designed for the car. For a company that’s built its success on other companies’ devices, this is its first foray into the world of hardware. 

Following the April 13 announcement, Spotify’s stock price jumped as much as 5% on the day, suggested the move pleased investors. So let’s see what the market liked about Spotify’s latest announcement.

What is Car Thing?

Car Thing is a smart player designed specifically for car rides that allows users to easily control the audio while on the road. Between its four-inch display screen, circular dial, and embedded microphones, drivers can “ask, tap, turn, or swipe to get to the songs, artists, playlists, or podcasts” they want to hear.

Spotify's new hardware device called Car Thing is mounted on a car dashboard

Image source: Spotify.

Car Thing comes equipped with three different types of mounts so that drivers can find the most convenient spot to place their display screen in the car. From there, the smart player connects to the user’s mobile app to maintain a connection throughout the drive and it easily plugs into each vehicle’s sound system.

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Currently, Car Thing is only available to paying subscribers and is being given away at no cost (minus shipping expenses). However, the product launch is being sold on an invite-only basis for now, and users who want one but don’t have an invite are being placed on a waitlist. This rollout strategy should help Spotify gauge demand while not overspending on promotional production costs. 

Why launch a hardware device?

To long-time Spotify shareholders, this move probably came as a bit of a surprise. During the company’s 15-year existence, not once has Spotify ventured into the world of hardware. The move begs the question: Why?

In Spotify’s news release announcing the launch, the company stated that it’s seen demand for this type of product. In the United States (the only place where the product is currently available), commuting is a huge part of daily life. Whether it’s on the way to work or running errands, Americans spend plenty of time in their cars consuming audio. According to Spotify, this has led to more than 70 million user-generated driving-related playlists on its platform. 

But while there’s an abundance of listenership stemming from commutes, the process of listening to audio in a car still has its issues. Though some cars have built-in infotainment systems that connect easily, many cars don’t, and connecting or managing the audio can often lead to drivers looking down at their phones. 

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With Car Thing, Spotify’s goal is to make that process as seamless and frictionless as possible. Before even pulling out of the driveway, listeners are instantly connected and able to control what’s being played using their voice or a simple touch. While it might seem like a trivial upgrade to the ordinary system, it’s one more step in enabling effortless audio control. 

Phones and tablet streaming Spotify

Image source: Spotify.

What does this mean for shareholders?

Since, on average, hardware is naturally less profitable than software, this might seem like a step in the wrong direction for Spotify — especially since the company is currently giving Car Thing away for free. However, management addressed this in the company’s news release, claiming that this is just one part of its larger ubiquity strategy. Spotify’s VP of Product Sten Garmark has expanded on this concept previously, stating that the strategy “involves creating a truly frictionless experience for consumers.”

While small features like this smart player might not feel like a needle mover financially, accessibility from just about anywhere deepens the connection between users and their accounts. This should ultimately help boost user retention and may even add new users who are looking for a more optimal in-car audio system. 

This customer-centric approach is an underlying driver of why Spotify now boasts 345 million total monthly active users — far more than any other audio streaming platform. For shareholders such as myself, it’s comforting to see a management team that perpetually innovates, and this should serve as yet another stepping stone on Spotify’s path to reach 1 billion users.

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This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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