Spotify
by Parker · 142 things on Twos
- 7 Reasons Spotify Beat Rhapsody/Napster and Dominates the Music Streaming Industry
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- Spotify - Most innovative companies - Fast Company
- Founded in 2006 by now-CEO Daniel Ek and Martin Lorentzon
- Known for helping to legitimize the "freemium" model: the tiered pricing strategy whereby basic services like music streaming are provided free of charge (with advertising, in Spotify's case), but premium services like ad-free listening and direct downloads cost users extra.
- Spotify has built its brand by using outdoor ads that target local users--like "Dear Person who played 'Sorry' 42 times on Valentine's Day: What did you do?"--as well as creative content like teaming with New York City's MTA to transform an entire station into a David Bowie tribute
- New data-powered personalized playlists like Discover Weekly, Fresh Finds, and Release Radar were reeling in listeners by the millions
- Much of Spotify's success is due to increasingly sophisticated data collection, which allows it to keep releasing new products that captivate its users around a particular mood or moment in time rather than offering the same tired genres70M paid subscribers
- Data
- Valuation: $8 billion
- Profitable: No
- Staff: 2,000
- Users: 100 million (40 million paying)
- Headquarters: Stockholm, Sweden
- Competition: Apple, Tidal, Amazon, YouTube
- How Spotify Built a $20 Billion Business by Changing How People Listen to Music
- 70M paid subscribers
- Did the same thing Napster did but legally with a new way to listen to music without the limitations of physical media or ownership
- The company’s early years were spent focusing intently on one thing: the race to reach product-market fit
- 2006–2010: From the Ashes of Napster to Product-Market Fit
- What made Spotify so brilliant was that it fundamentally improved on the Napster experience in every way. Spotify would deliver music instantly, with high-quality audio, no downloads, and completely legally
- For Ek, the only way to compete with free music was to make the experience of using Spotify so good that users would happily pay $10 per month even though they could easily download torrents of their favorite music for free
- We were hell bent on making it feel like you had all the world’s music on your hard drive
- Obsessing over small details can sometimes make all the difference
- To find its initial users, Spotify contacted influential music bloggers in Sweden, inviting them to try the new product
- Having raised more than $85M in just two years as part of its Series A and B rounds, Spotify invested much of its early-round funding into hiring top engineering talent
- Word of an exciting new music app out of Sweden had spread quickly among tech circles, and the company went on a hiring spree to keep up with product development
- They weren’t settling for the good enough; they were going for the best. They were looking for the best people, the best talent and were not easily impressed by the regular VC giants
- Spotify chose to focus on developing a solid product and growing slowly by restricting how many invites users could give away to their friends. This allowed Spotify to maintain its focus on product development; plan for and manage steady, gradual user growth; and create an air of exclusivity around the product itself.
- The Big Four record labels became Spotify’s biggest shareholders, receiving almost one-fifth of Spotify’s stock for just 100,000 Swedish krona (approx. $112,000)
- It’s difficult to overstate just how pivotal this initial agreement between Spotify and the Big Four labels was
- The second major event that shaped Spotify’s growth during its formative years came in 2009, when early Facebook investor and Napster founder Sean Parker wrote what WIRED described as a “1,700-word love letter” to Spotify
- Sean Parker ’s Email to Spotify’s Daniel Ek
- 2011–2014: The European Invasion
- Freemium users could only listen to 20 hours of music per month for the first six months, after which this was reduced to just 10 hours per month. Finally, freemium users couldn’t listen to the same track more than five times
- Spotify’s Premium subscription, on the other hand, eliminated the friction of the freemium app. Not only were there no ads on Spotify Premium, there were no listening limits, either. Premium users could listen to music in Offline Mode, a feature that was introduced shortly before Spotify’s launch in the U.S., and play tracks on their mobile devices—a significant differentiator at that time
- When Dropbox hit 100M users in 2012, analysts remarked that Dropbox’s conversion rate of around 4% was solid for a company with a predominantly freemium user base
- Spotify's conversion rate was 7%
- The biggest such move during this period was when Spotify officially integrated with Facebook, becoming the official music player of the social network.
- Spotify users who were active on Facebook listened to more music than Spotify users who weren’t on Facebook
- The integration with Facebook netted Spotify 1M new Facebook-connected users in just four days
- Ads kept the lights on, but the relatively low revenue from Spotify’s freemium ads meant it didn’t make sense for the company to further pursue ads as a separate revenue stream
- In 2012, Spotify raised $100M in its Series E round led by Goldman Sachs. This put Spotify’s total venture capital funding at that time at almost $300M
- To grow its user base, however, it would have to turn its attention back to its primary engine of subscriber growth, its freemium product. To accomplish this, Spotify did what it does best—making its freemium product even better by doubling down on developing new product features and making the Spotify experience even more engaging.
- 2015–Present: Personalization, Playlists, and Product
- In July 2015, just weeks after raising $526M from 15 investors as part of its Series G round, Spotify introduced the first of its algorithmically curated playlist features, Discover Weekly
- Discover Weekly attracted 40M new users to the service, and more than 5B tracks have been streamed through the playlist feature
- Spotify decided to invest more engineering resources into development of its algorithms and the infrastructure required to deploy similar internal projects. This would not only make the Spotify experience stickier, but more personal to each individual user
- Spotify has created two regular, weekly events that Spotify users not only enjoy but also actively look forward to
- By bookending the beginning and the end of the week with new playlists, tracks, and artists, Spotify has effectively made itself an indispensable part of music fans’ entire week.
- 170M monthly active users worldwide, of whom 75M are paying subscribers
- Generated approx. $1.36B in revenue in Q1 2018
- How big is the potential market you’re targeting?
- Who are the established players in your target market, and what do they do poorly?
- Have any other companies tried—and failed—to launch a similar idea to yours?
- Can you identify partnership or integration opportunities that could help your business grow? Spotify’s early integration with Facebook, in 2011, was pivotal to the company’s expansion into the U.S. market. Can you leverage similar partnerships to grow your company?
- Is your product good enough to survive a shift in business model?
- Could a more established, entrenched competitor diversify its current offerings to encroach on your market? If so, would your company be able to respond effectively? If so, how? If not, why not?
- Is your target market big enough to support another growing company? Can your market realistically support another player?
- Spotify has succeeded in spite of seemingly overwhelming odds not only because it’s free, but also because it’s a superior product. By making Spotify an intuitive, rewarding, and engaging experience, Spotify has capitalized on opportunities its competitors missed by combining the thrill of discovery, the excitement of sharing music with friends, and a vast catalog of every kind of music—all of which make Spotify a truly best-in-class product and a unique success story
- The definitive timeline of Spotify’s critic-defying journey to rule music
- July 2006: CEO and cofounder Daniel Ek sold Advertigo, his adtech startup, and become a millionaire at 23
- “When you’re a computer geek, you think you want to be the guy with all the girls at the table, but I realized after a while that ain’t me.”
- October 2008: Spotify launches in several European countries
- August 2009: Spotify is not available yet in the United States, though there were ways to download it from Europe
- February 2010: Ek tells the Daily Telegraph, “The music industry is currently worth $17 billion (£10.8bn); it’s going to be $40 billion or $50 billion soon. There will only be four or five players left in a few years,” he says. “If that’s the case, we will end up with a company worth tens of billions.” Prescient!
- March 2010: Ek makes a keynote appearance at SXSW, where people expect him to announce Spotify’s U.S. release. He doesn’t
- April 2010: Spotify releases a desktop music manager
- November 2010: Spotify integrates with the music-discovery Shazam so every time you use Shazam to figure out who’s singing a particular tune, it populates a playlist with those songs
- Spotify’s ambition to make Spotify “like water” as Ek was fond of saying, and an early effort that now sees Spotify integrated into everything from Starbucks to Facebook Messenger
- March 2011: Ek announced that Spotify has one million paying subscribers
- July 2011: Spotify launches in the United States
- September 2011: Spotify announced two million paying subscribers
- November 2011: Spotify announces its own platform for developers to build experiences on top of Spotify, for buying concert tickets or reading reviews
- February 2012: President Obama releases a Spotify playlist in the early run-up to that year’s Presidential campaign
- March 2013: Spotify launches its first TV ad campaign, in an effort to reach mainstream music fans
- May 2013: Spotify makes its first acquisition: Tunigo, which already helped users find, create and share new music and playlists on Spotify
- December 2013: Spotify adds free streaming on mobile devices, a long-awaited feature
- February 2014: IPO rumors start in earnest
- March 2014: Spotify acquires The Echo Nest, a startup that specializes in using machine learning to make recommendations and predict the type of music users will want to listen to, generating playlists from that data as well as helping advertisers reach those music fans
- May 2014: Spotify announces that it has 40 million listeners and 10 million subscribers. Apple buys Beats Music.
- March 2015: Jay Z and a consortium of superstar artists, including Rihanna and Kanye West, launch Tidal, a rival streaming music service
- May 2015: Spotify expands into podcasts, video streaming, and news radio, making deals with Vice, Comedy Central, ESPN, and the BBC, and it introduces the ability to match your music to your running pace
- June 2015: Apple introduces Apple Music. Spotify hits 20 million subscribers out of 75 million listeners
- February 2017: Spotify launches original music-themed podcasts from Gimlet Media and Panoply in its latest effort to diversify its offerings
- June 2017: Taylor Swift returns to Spotify for the first time since her public 2014 breakup with the service
- December 2017: Spotify and Tencent invest in each other
- February 2018: Spotify files to go public in a direct listing that will not raise any additional funds
- Why Is Spotify so Successful (Or Lessons From a $46 Billion Business)
- They don’t think they are in the music business, but instead, they are moving to be in the audio business. This is why they have acquired media companies like Joe Rogan and Bill Simmons
- Great User Experience
- Using Spotify apps is dead simple. The app design centers around “playlists,” an idea that is easily understood
- Brilliant Use of AI/ML
- They can use models to make songs and playlist recommendations that tend to be quite useful
- Aggressively Expansion Into Other Content Forms
- This opens the door for Spotify to add podcasts , short stories, audiobooks, and any different kind of audio content they could imagine.
- Simple Pricing
- Spotify has a simple pricing model that you can explain to anyone. They have two plans: a free and a premium plan. The premium plan then has a further option for a family plan
- I’m sure Spotify could figure out multiple plans based on specific features, but they have kept their pricing simple for a reason: it works.
- Integrates with All Devices
- Desktops and phones are apparent, but you can find support for Spotify in Chromecast, Google Home, Alexa, Playstation, Apple Watch, etc.
- How Good is Your Core Customer Experience?
- Is Your Pricing Scaring Customers Away?
- Are You Doubling Down on Success?
- Spotify has built an objectively great product and supported that with effective deal-making with music labels and artists
- How Spotify came to be worth billions
- Spotify says its value could be more than $23bn
- It's used in 61 countries, has 159 million active users and a library of 35 million songs
- Spotify offered music fans a free service with advertising, in hopes they would upgrade to the £10 a month ad-free subscription
- How Spotify became the cornerstone of music streaming
- Comprehensive catalog = universal listening options
- From charts that offer rankings of the most-streamed songs in every country (or globally), to Discover Weekly playlists, which offers every user a customized weekly playlist of suggested songs based on their music tastes – Spotify is essentially guiding users to the content that they want
- There are also end-of-year playlists that give you interesting stats such as most-streamed songs, favorite artists and how much of the year you spent listening to music
- You can listen to Spotify anywhere and everywhere, with little to no friction in switching between devices
- By creating an easy, straightforward paid plan, Spotify has managed to create an offer that covers just about any lifestyle and budget
- Spotify Success Story: How it Brings Music for Everyone?
- Spotify is fueled with the tagline "Music for Everyone."
- Spotify claims that its mission is "to unlock the potential of human creativity—by giving a million creative artists the opportunity to live off their art and billions of fans the opportunity to enjoy and be inspired by it
- Spotify has raised a significant amount of $2.1B to date (January 2022)
- 15 Years of Spotify: How the Streaming Giant Has Changed and Reinvented the Music Industry
- The music industry revenues fell 50% from 1999 too 2015 based on digital songs bing pirated for free
- Founded in Stockholm on April 23, 2006, and seeking a solution to the industry’s piracy problem, the on-demand audio-streaming service was built on the understanding that consumers who aren’t inclined to buy a specific album or song might be willing to pay for ease of access to a large library of music
- From Rhapsody to Napster: How this pioneering music service coulda been Spotify — and why it isn’t
- Rhapsody re-branded its own service as “Napster” in 2016.
- Napster has struck a number of partnerships for versions of its subscription service, including for iHeartRadio and Sprint in the past couple of years, and launching “unRadio” with T-Mobile earlier
- Napster’s lack of capital, forcing “a lot of calculated and often conservative moves because they could not afford the luxury of being wrong as much as Spotify
- But a major difference, he added, is Spotify’s reluctance to do custom development for partners, instead keeping intensely focused on its core product
- McKinley said, “In nearly every significant partner relationship, Rhapsody does not own the customer … the partner does.”
- Spotify's rise has been (due) to its independence, brand kudos and a strong user interface,” said Sidebottom. “These have in turn led to strong uptake often from word-of-mouth. Its comprehensive free tier has also been key to attracting and upselling users.
- Spotify charges $10/month for its Premium subscription after a 30-day free trial, similar to Napster’s Premier level. But unlike Napster, Spotify has an ad-supported free subscription level
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- Spotify: A Product Story
- Convenience trumps everything
- Build for yourself first, but don't build for yourself only