The following year, we began developing our audiobooks strategy at Spotify. The audiobooks industry had long been (and in many ways still is) dominated by an incumbent: Audible. Within two years—just last fall—Spotify launched a first-of-its-kind premium audiobooks product, granting account owners access to 150,000 audiobooks as part of their existing premium subscriptions. Although I left the company shortly after that launch, I still strongly believe in the strategy that I’ve seen work before in podcasting. We decided to take on a seemingly fenced-off market and offer consumers the first, truly viable alternative to Audible. In all three of these instances—podcasting hosting, podcast consumption, and audiobooks consumption—my colleagues and I were told to tread carefully, to explore other avenues, to respect the No Trespassing sign. T
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I’ve come to learn through first-hand experience that monopolies often serve as the ideal competitor to take on. There are four main reasons why:
- Monopolies have already proven the industry is viable and lucrative
- Monopolies refuse to cannibalize their own dominance
- Monopolies have institutionalized their inefficiencies
Monopolies have the most to lose from making mistakes, whereas startups have the most to gain
early validation by someone in green fields often attracts swarms of other hungry players and their institutional funders. We’re seeing this play out today in AI; we saw it several years ago in crypto; we will see it happen in the near future in AR/VR. The assumption that undeveloped industries stay undeveloped for long is a fallacy. Over time, the cost of competing drops, and the likelihood of being differentiated plummets. Monopolies, on the other hand, operate in validated industries by definition. They could only have achieved their positions through product-market fit, and they can only defend their positions long-term by continually offering user value while operating a business with healthy financials. In other words, monopolies have already done the hard work of validation for you.
Consider the podcast hosting players I mentioned at the top. When Anchor began competing with them, we offered an array of differentiated value propositions to podcasters that none of those incumbents replicated. For instance, we allowed users to host audio files for free, with no limits to quantity or file duration. The others generated most of their revenue from monthly hosting subscriptions, so growing their user base by forgoing this revenue would cannibalize much of what made their businesses function. We had nothing to lose by doing so and everything to gain; they had little to gain and everything to lose.
Incumbents have everything to lose if they modify their core format — the playlist, the feed, the subscription tier. The alternative is not to modify the format but to change the medium of exchange between curators and consumers. A new mode of curation creates a new mode of consumption, and the monopoly’s format becomes the thing that was cannibalized.Even in the early days of Anchor, this inefficiency gave us a supply-side advantage. We were able to abstract away from creators the pains of distributing their podcasts to Apple by offering a service that managed this for them. We called it “one-tap distribution,” and it was one of our most beloved features.
Startups can pivot and fail and learn rapidly. In fact, it’s one of the only advantages they have over deep-pocketed competitors. I often share related advice with first time founders: “Most of your assumptions will be wrong. You have to iterate your way to find out which ones are right.” The first part of that advice is true for monopolies, too. It’s the second part they can’t quite get behind.
Nir Zicherman is a writer and entrepreneur. He was the co-founder of Anchor and the vice president of audiobooks at Spotify. He also writes the free weekly newsletter Z-Axis
