April 16, 2024

Spotify Slashes 17% Of Its Workforce as It Focuses on AI

Making the third round of layoffs this year, Spotify has cut yet another 1,500 jobs, which constituted about 17% of the company’s global workforce. The two previous rounds of layoffs in January and June saw 590 and 200 positions being slashed, respectively.

According to the letter that Spotify CEO Daniel Ek sent his employees, the layoffs are meant to help sustain the company’s profitability in the face of slowing economic growth. As the audio-streaming service continues to focus on delivering a hyper-personalized service, Spotify is investing increasingly in artificial intelligence.

Experts Approve of Spotify’s Strategy

The last six months saw the shares of Spotify’s parent company, Spotify Technology SA, grow by more than 30%. The company’s share prices also grew by a whopping 135% year to date, giving strong positive indications of its strategy. Experts, too, seem confident that Spotify’s shift towards AI while downsizing its workforce can work out well for the company.

Justin Patterson, an equity research analyst at KeyBanc Capital Markets, mentioned in a research note how Spotify is making use of AI across its platform to enhance the experience.

Compared to the previously predicted profit of 37 million euros, the company now expects to suffer a loss of EUR 93 to EUR 108 million in the fourth quarter of the fiscal year.

The company is currently in the process of rolling out an AI voice translation feature for podcasts and an AI DJ that simulates a traditional radio experience.

These, together with the audiobooks being rolled out to Premium Subscribers, have the potential to drive more engagement and stronger potential, Patterson believes.

According to Daniel Ek’s letter, Spotify hired more than usual in 2020 and 2021, when the company enjoyed a lower cost of capital and significantly increased demand during the pandemic. Now that the extra demand has dried up, Spotify has to join the other tech companies in retrenching.

The layoffs will cost Spotify around 130 million euros to 145 million euros, with the fired employees being granted five months of severance payment, healthcare coverage, and vacation pay.

Spotify also spent $1 billion on podcasts — an investment that the company now needs to make up for. Much of the amount went into acquiring podcast studios that were eventually shut down and making deals with celebrities for podcasts that never actually took place.

Spotify’s Focus On AI and Personalization

For the last decade, Spotify has consistently given its users a hyper-personalized experience. The company’s acquisition of The Echo Nest Corp, a music analytics firm in 2024, to combine natural language processing with machine learning played a major role in its personalization efforts.

Last month, Spotify also entered a collaboration with Google Cloud to give its podcast and audiobook recommendation system a major overhaul by using Vertex AI Search, an AI language model from Google Cloud.

Spotify’s AI technologies can recognize musical tempos and pitches and connect music from artists within the same cultural context to build a database of similar music. These details, along with various metadata, allow the AI to decide which songs would suit a user’s taste the best.

It’s based on this information that automatic playlists such as ‘Discover Weekly’ and ‘Daily Mix’ are created.

Vertex AI Search further boosts these recommendation capabilities, taking a range of factors into consideration to aid with content discovery.

However, “Running LLMs to understand all podcasts/audiobooks is resource intensive and may add limited value compared to basic predictive models”, said Reece Hayden, senior analyst at ABI Research, who otherwise agreed that the integration of LLMs could work in favor of Spotify.

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