Amazon launches ad-supported music service to Echo owners

Amazon today announced the launch of a free, ad-supported music service in the U.S. that will be available to anyone who wants to play free music on their Echo speaker.

Until today, Echo owners who wanted to stream music from Amazon could either pay for an annual Prime membership for access to Prime Music or they could pay $3.99 per month to stream from Amazon Music Unlimited (or $9.99/month to stream on non-Echo devices, as well.)

The new service has the same catalog as Prime Music, which today has just over two million songs. Amazon Music Unlimited, meanwhile, has 50 million songs.

The new service gives Echo owners a way to enjoy free music from Amazon on their Echo, instead of having to turn to a third-party free provider, like Spotify or Pandora. It will also offer a way to push Echo owners to upgrade to the paid subscription services Amazon offers, including its Amazon Music Unlimited service and even Prime itself.

Amazon’s plans to wade into the free streaming market and more directly compete with Spotify had been previously leaked by Bloomberg. The report noted that Amazon had been in discussions with the labels in order to obtain the licenses to stream the free music — something it agreed to pay for, regardless of how much advertising it sells.

In addition to being a differentiating and attractive feature for potential smart speaker buyers — something that could have them opt for an Echo over a Google Home device or Apple HomePod, for example — the service also offers Amazon a new way to monetize its large and growing installed base of Echo speakers.

Amazon’s ad revenue was $10.1 billion in 2018, or 4.3 percent of its total revenues, and now it’s looking for new ways to grow that number.

The news also comes on the heels of a 2018 forecast from eMarketer that had predicted Amazon’s share of the smart speaker market would decline in 2020, as competition from rivals — including Google Home, Sonos One and Apple HomePod — would heat up. But there’s still plenty of time for that to change.

The market for smart speakers hit critical mass in 2018, with around 41 percent of U.S. consumers now owning a voice-activated speaker. Amazon also said at the beginning of the year that more than 100 million Alexa-powered devices have been sold to date — but this number includes non-Echo devices, including those from third-party manufacturers.

The launch of a free music service will be a significant blow to Spotify which, before now, was the top subscription music streaming service with a free tier. The free customers often then convert to paid subscribers as they use the service over time, something that has helped Spotify grow to reach 96 million paid users and 116 million free users. Apple Music has 56 million paying subscribers, but no free funnel.