|Cost of Revenue||€5.99B||€1B|
While ad-supported users can still access the platform for free, they have limited access, as content is interrupted by ads, and not all content is available.
Thus, if we look at it from a gross margin standpoint, the ad-supported version seems less interesting.
However, it’s key to remember that the ad-supported version represents the company’s acquisition funnel.
Free, ad-supported users, in many cases, turn into premium members.
In addition, Spotify has strengthened its advertising network. Thus we might expect the ad-supported version to scale much more quickly both in terms of revenues and gross margins in the coming decade!
It’s a funnel because it enables Spotify to identify the various steps in the users’ journey to have them become subscribers.
In this way, at each step of the way Spotify can identify the key steps to take to make sure that the users convert into premium members.
Thus, spinning Spotify’s flywheel.
Thus, with the combination of Spotify’s funnel and its flywheel, an incredible digital company was built!
Read Next: Spotify Business Model.