Scale Economies of Podcasts: Anchor

What is Anchor?

I will quote straight from their website:

Our mission is to democratize audio. We believe everyone should be able to have their voice heard, regardless of background or experience level. If you’ve ever tried to start a podcast, you know all the logistical barriers that can stand in your way. At Anchor, we aim to remove all of these barriers. Our goal is to make podcasting easy and fun, without sacrificing the quality every podcaster deserves.

I have used Anchor for launching Sessions by SE. 100% free, Anchor hosts your podcast episodes and distributes everything! It seems like every podcasters dream.

Here are some of the notable features of Anchor:

• Unlimited free hosting
• One-click distribution: distribute to all major platforms free of charge with just one click. Ability to manually distribute as well
• Monetization:
  • Sponsorships: you decide which brands to work with and control the ads however you would like
  • Listener support: listeners can automatically subscribe to give podcasters monthly donations. Awesome!
• Co-hosting: you can easily create one podcast with multiple people on the Anchor app
• Super easy analytics, as you can see above
• Episode builder: add in different segments to escape editing woes, use Anchor’s library for sound effects, integrate Spotify and Apple Music for background music
• Editing tools: if you do have some editing needs, Anchor provides this for you

The Business behind Anchor

Anchor’s Model

The most interesting part of Anchor is that podcasters don’t have to pay anything to Anchor. This was novel. When I was searching for podcast hosting services, top hosters like Podbean, Buzzsprout and others had either installed a fee or limited the amount of space you could use. To understand the underlying business models of podcasting hosting, I read the Anchor co-founder’s Medium article.

Here’s my summary of the article:

• Cloud storage costs have plummeted over the past few years, making podcast hosting extremely cheap. Other hosters are now using the price differential between customers and storage to reap in revenue
  • This is true across other businesses as well: it’s free to host data on Google, Dropbox and Apple, but they all have certain limits before they ask for further payments
  • Anchor even makes the claim that hosting one podcast for one year only costs Anchor $1…talk about cheap!
• Anchor’s key belief is that charging creators is ‘unfair’ and serves as a barrier (which is very true from my own experiences)
• Their business model is based on economies of scale: per-user cost drops as static costs remain relatively the same while more users make use of the server space

The rest of article pretty much echoes their vision of democratizing their audio, but it doesn’t take much guesswork to determine how Anchor creates revenue: advertisers.

Although podcasters have the option to opt-in for monetization, most people will do it. There’s literally no cost in opting in. Meanwhile, Anchor has a massive collection of users that would be willing to host ads on their podcast. This is a goldmine for digital advertisers. I would bet that Anchor charges digital advertisers to list their ads to podcasters, all while retaining control with the podcasters.

This is a beautiful example of the concept of economies of scale. Facebook and Instagram use very similar models: they rely on massive user growth to entice advertisers to spend money on the social media platforms. This allows the social media giant to grant free access to consumers because the revenue per user is so much greater than the cost per user, because static costs (servers, employees, etc.) are divided out over millions of users! To learn more about economies of scale, you can check out my notes from the book 7 Powers.

After reading a little bit more about Anchor, I found out a key fact: 40% of the world’s new podcasts are hosted on Anchor. Market domination, check.

Spotify’s Acquisition

Anchor’s success has not gone unnoticed: it was acquired by Spotify in December 2019.

Why would Spotify want to acquire Anchor? Spotify is primarily a music-streaming platform and makes millions from it. Few reasons:

• Spotify has always had a desire to be the top platform for audio, just as how YouTube has become the top platform for video. Music, however, will not boost growth.
• The podcast industry, on the other hand, has been posting great metrics for growth:
  • From 2018 to 2019, there has been a 27% increase in podcast listeners
  • 90 million people listen to podcasts monthly. I personally expect this number to grow just like how YouTube was poised for growth before 2010
  • Celebrities are now joining in on the podcast craze, which is an indicator that this industry is experiencing a boom
• Spotify must become a leader in podcasts for it to be a leader in the audio market. Daniel Ek, the founder of Spotify, says it best:

Based on radio industry data, we believe it is a safe assumption that, over time, more than 20% of all Spotify listening will be non-music content. This means the potential to grow much faster with more original programming — and to differentiate Spotify by playing to what makes us unique — all with the goal of becoming the world’s number one audio platform.

• Anchor has a huge market base for podcasts, so it makes sense for Spotify to acquire Anchor and gain a tremendous foothold in the podcast industry
• Combine that with Spotify’s huge audience and Anchor’s free distribution on Spotify, and you’ve got yourself a killer formula for podcast domination

Free Distribution with Apple Podcasts

Spotify’s main rival in the podcast space is Apple Podcasts, which has long been the leader in the space of podcasting. This probably explains why Anchor distributes on Apple Podcast: it was the market leader before Spotify came along. With an intense focus on the user, it only made sense for Anchor to freely distribute on Apple Podcasts in order to acquire users.

In response to Spotify’s acquistions, Apple has aligned its podcast strategy with Apple TV strategy: originals. Fundamentally going against the grain of the free nature of podcasts, I would be incredibly interested in how Spotify and Anchor will react to Apple.

I am guessing that this situation will be quite similar to the competition between the freeness of YouTube and the exclusive content of Netflix. If Spotify focuses on user growth, it will quickly become the YouTube of audio. With that, exclusives would be much more valuable (note to self: analyze YouTube Exclusives).

Key Metrics

From the brief analysis of Anchor’s business strategy, it is clear that user growth and acquistion are the key metrics for this business. However, an important metric to also look at is user engagement. Here are some metrics that I would be curious about:

• Number of episodes per month per user: helps us measure podcast consistency
  • Podcast growth per user: if Anchor could somehow help podcast creators grow their podcasts, podcasters are more likely to keep using and engaging with Anchor
• Rate of monetization among users: this is key for Anchor’s revenue growth.
• Number of users using episode editing: Anchor has made editing for podcasts extremely easy; in order to gain more users, podcast editing is a pain point they need to overcome.

Users

Just listing a few users off the top of my head that would be using Anchor:

• Professional podcasters: they probably use podcasts as a significant source of income
• Amateur podcasters: people like me who are new to the podcasting world but are super interested
• Advertisers
• Listeners: Anchor also sets up a small landing page for each podcast, and there are people that listen (for Sessions by SE, around 15% of our listeners are listening from Anchor).

For Anchor to truly thrive and align with Spotify’s vision of ‘audio-first’, it needs to target the amateur podcasters. Their user experience should be smooth in order to encourage more content creators to join this platform.

The Challenges for Anchor

Until now, I have been praising Anchor for its openness, a great collection of features and its forward-thinking business model. However, I do want to note some challenges that Anchor will need to address.

User Challenges

These are not challenges specific to Anchor: these are simply painpoints that podcasters face in general:

Editing: editing is a HUGE pain point for podcasting. Take a look at the set-up of some of the biggest podcasts:

What they all have in common is an enormous source of equipment, all in effort to make editing easier. These podcasts also have teams solely meant for editing. This may seem intimidating for the average podcaster.

Monetization: attracting advertisers is hard for amateur podcasters who have a small base of fans. The economics are not favorable for these individuals

Marketing: getting listens on podcasts is also difficult. Asides from broadcasting the podcast on your social medias, there isn’t much else you can do. There’s no ‘search algorithm’ you could optimize like YouTube and Google. Furthermore, there’s no central Podcast Discovery place like YouTube is for videos.

Business Challenges

Here are a few things that I had in mind when I consider current events and competitors:

Originals: what is the best strategy to counter exclusive content from Apple, a long-standing leader in the world of Podcasts?

Consistent and growing viewership: money from podcasts is solely based off the number of views an ad can get. Maximizing this is important for Spotify’s strategy. This will require some marketing savvyness and a clever use of Spotify’s existing hold on music streaming and redirect it to podcasts.

Censorship: YouTube has constantly gone under fire for its censorshop policies, which are either ineffective or harm content creators. While I haven’t heard of instances of podcast sensorship, Spotify and Anchor should keep this on the horizon as more people start to publish content on their platforms.

Proposed Features:

Here is a list of features plus some designs I drew (coming soon!) that Anchor could use to address user painpoints:

• Discover: to drive podcast growth, users are needed. However, users currently have no idea what podcasts exist and which podcasts to listen to. I am imagining a site very similar to YouTube where users can search up podcasts and get recommendations
• Recommended podcast playlist: Just like Spotify has its massively popular Discover Weekly, Anchor should pair up with Spotify to launch a similar series for podcasts
• Auto-edit: Using the power of ML and data, Anchor could determine how succesful podcasts sound and use those insights to auto-edit podcasts. Users would still have the ability to manually edit and add clips, but this significantly eases the process of editing podcasts
• Multi-person editing: A major pain point for amateurs is that editing takes way too much time, especially due to the lack of a collaborative editing experience. By developing even a simple collaborative podcast editing tool, Anchor would ’anchor’ itself as a leader in podcast editing. Being a one-stop shop for all things podcasting would really drive Anchor’s growth

Let’s use a priority matrix to determine which of these features to pursue. For this matrix, I will use a pretty simple criteria list that I found in Lewis Lin’s Decode and Conquer:

• Reach (R): how many users will this feature impact on a scale from 1 to 10?
• Impact (I): What benefit does it make to users as rated on a scale from 1 to 10
• Confidence (C): how confident are we that this feature will result in this reach and impact on a scale from 1 to 10?
• Effort (E): how much time and resources doe it take to build this feature on a scale from 1 to 10?

We define the RICE score as:

$$RICE=\frac{RIC}{E}$$

Feature	Reach	Impact	Confidence	Effort	RICE Score
Discover	10	8	8	7	91
Playlist	8	8	6	4	96
Auto-edit	3	7	4	10	8.4
Collab. edit	4	6	5	9	13.3

Well, it seems quite obvious that a recommended playlist would be a good feature to begin with. A Discovery page would be a close second; depending on the capabilities of Anchor’s development team, I would have actually selected the Discover feature. This aligns more with Anchor’s strategy and would launch podcasts to a different level.

While editing would have been really cool, the development resources would have been extensive. It took a while for Google to crack collaborative editing for documents; it may take some time to launch a similar user experience for audio editing.