Everything you need to know about Spotify

“With Spotify, it’s easy to find the right music for every moment – on your phone, your computer, your tablet and more.There are millions of tracks on Spotify. So whether you’re working out, partying or relaxing, the right music is always at your fingertips. Choose what you want to listen to, or let Spotify surprise you. You can also browse through the music collections of friends, artists and celebrities, or create a radio station and just sit back. Soundtrack your life with Spotify. Subscribe or listen for free.”

Fast Facts

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  • 2006: Spotify was founded.
  • 2008: Europe-wide launch and Series A of $21.6M.
  • 2011: Spotify lands in the US

Currently:

  • 1,600+ employees
  • $2.18 billion in revenue, not yet profitable
  • $5 billion paid out to rights holders
  • Privately held, but IPO is imminent
  • Freemium model: Basic streaming is available for free (funded by advertising). Upgrade for an ad-free version with more features and better quality streaming. Spotify Premium is $9.99/mo, with discounts for a families at $14.99/mo and for students at $4.99/mo.

 

History

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You’ll find Daniel Ek, C.E.O. of Spotify, in the company’s headquarters in Stockholm, Sweden. Ek founded Spotify along with Martin Lorentzon in 2006.

Ek was rich before he turned 22 thanks to his programming talent. He had dabbled in the music piracy industry and worked at several other tech companies, but he needed to do something meaningful. He became fascinated with music discovery via Napster and wanted to turn the concept into a real business. Music could use improvement—piracy was annoying and risky, you couldn’t personalize radio, and buying albums was a big investment. But what if there were a free, legal way to listen to any music you wanted to? Enter: Spotify.

Streaming turned music from a product into a service. The music industry was ripe for a disruption. Revenue was struggling thanks to Napster wreaking havoc and iTunes’ singles cutting into album sales. In an industry ravaged by piracy, labels had nothing to lose by trying something new. Thus, Spotify got off the ground.

 

Music curation

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My daily mixes for each of my unique tastes: classical for studying, modern rock, show tunes, and girl power. Not pictured: early 2000s emo and hip hop/rap.

At first, Spotify’s target customer was someone with music central to their identity—a “lean forward listener.” This person would actively browse around and find new music. To introduce a social aspect, Spotify integrated with Facebook in 2011 to show users what their friends are listening to. But sometimes, your friends have bad taste. Social suggestions weren’t cutting it for “lean backers,” or people who would like to relax and passively listen to good music. To take on Pandora in the “lean backer” market, Spotify took a curatorial turn to emphasize music discovery. They acquired Tunigo, a company that builds playlists curated by experts. They also acquired Echo Nest, a company that creates algorithmic playlists based on over 50 parameters, such as “speechiness” and “acousticness”.

This combination of hand-curation and machine curation became the ideal balance. Popular playlists such as RapCaviar and Baila Reggaeton are hand-curated by experts, while Discover Weekly, Daily Mix, and Time Capsule are algorithmic based on your listening patterns. Mondays are more bearable when you start your day with your fresh Discover Weekly, a personalized mixtape updated weekly with new artists. More than half of all Discover Weekly listeners will come back the following week, stream at least 10 tracks from it each week, and/or save at least one song to their own playlists. Thanks to Spotify’s music suggestions, listening diversity is up nearly 40% since 2014; the average listener streams about 40 unique artists per week. Many artists get their big break thanks to Discover Weekly, including BORNS and Hasley.

 

Crunching big data to make little moments special

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Example playlists suggested by Spotify one night.

“When the beat drops on your favorite song and suddenly the drive gets smoother, the run gets easier and the cooking gets spicier? That’s how we connect to your audience—in the moments that matter.”

With over 100 billion data points generated each day, Spotify is sitting on a gold mine of data. People show Spotify their true colors by listening to any music that they want to. “You are what you stream”—your tastes indicate who you are as a human. Spotify’s first generation of data analysis was to figure out who those listeners are and what sort of genres and artists they like. Data scientists crunched the numbers, but they also talked to real users and took a human-centered approach. They wove empathy and creativity into understanding this personal data.

The next level of analysis is to figure out how a listener’s preferences change as the day goes on or as they move from place to place. How does Spotify fit into a user’s routines? By figuring this out, Spotify can become a meaningful soundtrack to your life. No matter what mood you’re in, Spotify has a playlist for it. They want to make it seamless for you to catch up on the news with The Daily podcast in the morning, work hard to “Brain Food” playlist in the afternoon, and drift off to the “Sleep” playlist.

 

Building competitive advantage

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Spotify’s highly personalized nature thanks to their data wizardry creates relatively high switching costs. Other big streaming players include Apple Music, with about 27 million paid subscribers, and Jay-Z’s Tidal with about a million. But when you’ve spent time carefully crafting killer playlists and training Spotify to pick up on your niche interests, why would you abandon that to switch platforms?

Spotify also has a growing number of integrations. For example, tidbits of Genius’s 2 million songs and 4 million annotations now appear next to some songs, so help listeners interpret the lyrics while they listen. Just this week, Spotify launched a new multimedia format called Spotlight, which will merge storytelling, information, and opinion into a visual supplement to playlists. Spotify and their partners are serving as a modern MTV News by giving fans deeper insight into their favorite music.

 

Upcoming IPO

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Despite Spotify’s power, the company fate continues to rest in the hands of licensing deals with the Big Three record labels—Universal Music Group, Sony Music Entertainment, and Warner Music Group. To regain some control pre-IPO, Spotify signed long-term licensing deals with all three labels.

It’s likely a good time for the company to go public. Spotify quietly filed for an IPO recently, which is expected to come to fruition in March or April. The company is valued at around $15 billion.

Spotify plans on directly listing on the New York Stock Exchange. This is an unusual method, as it cuts out the need for underwriters to set an initial price, and therefore avoids some bank fees. “Spotify can buck tradition because, though it’s not yet turning a profit, it is earning cash, and it is not planning on raising more revenue from investors.” It will be very interesting to see how Wall Street reacts to this unusual standard.

People we’ll be meeting

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Shane Tobin is currently the Head of Partnerships for Content & Creator at Spotify. He has previously worked as Head of Creator Insights & Activation and Head of Creator Partnerships. Shane came from Echo Nest, the algorithmic suggestion tool, where he worked as VP of Business Development. Shane is BC Class of ’94. Bio: “Specialties: contract negotiation, artist and label relations, brand integrations and sponsorship, music/video licensing, artist management, concert film production, licensing negotiation, social media, content acquisition, channel programming, online strategy, mobile integrations, software partnerships, product development”

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Sue Igoe is the Head of Global Software & Tech Partnerships at Spotify. She has previously worked as the Head of Business Development for Telefonica Digital and SVP for Recyclebank. Sue is BC Class of ’94. Bio: “Recognized digital media and operational executive with focus on Strategic Partnerships and Business Development. Experience spurring triple-digit growth and scaling operations to meet explosive demand. Senior mentor in creation of positive corporate culture and corporate social responsibility. Source high-performing team members and develop them to deliver “stretch” goals.”

 

Coming soon…

More on Spotify’s use of big data, specifically for advertisers, in my presentation this Wednesday. Stay tuned!

Questions

  1. I read that Spotify’s multi-dimensional experiences were designed with lean-back listeners in mind, kind of like artistic screensavers. How do you see lean back and lean forward listeners interacting with Spotlight differently? How is Spotlight different from music videos?
  2. What is the process for choosing a partner to work with, such as integrating Genius? What are your thoughts on partnering with hardware manufacturers?
  3. What impact does crowdsourcing have on Spotify? Users can create beautiful playlists, and maybe their friends will listen to them, but is there any support for someone to market their playlist?
  4. Given that Spotify quietly filed for the largest direct listing to date, can you talk about how that decision was made, considering the industry and environmental factors? For example, was Spotify aware of Apple’s Homepod?
  5. Why include Hulu only in the Student bundle?

8 thoughts on “Everything you need to know about Spotify

  1. Thank you for the thorough information! Spotify kinda runs my life 🙂 I need it when I study, work out, hang out with friends, or just simply try to fall asleep! I am always amazed by Spotify’s ability to know my taste and to come up with the perfect playlist. Very excited to hear more about its analytics capacity this Wednesday!

    Liked by 2 people

  2. Spotify was the company I chose at our meeting before Winter Break as the one I am most excited to visit. I did so because many of the reasons you highlighted: the impending IPO, the company’s use of analytics, and, of course, the playlists. As a user, I was debating switching over to Apple Music. However, once Spotify announced its partnership with Hulu and It’s Always Sunny in Philadephia was removed from Netflix (Sad!), I decided to keep my Premium Student subscription. Although I wish Spotify’s “Friend activity” feature was a bit more robust and interactive, I can’t see myself switching anytime soon!

    Liked by 3 people

  3. Its amazing how we will be visiting a company that I use literally every day. I am really interested in watching the public offering,however I am slightly worried because it has me flashing back to Snap’s IPO. Very promising company, but yet to be seen how it will continue to expand and generate revenue especially when pressured by large music labels. It looks like PE creditors are willing to fund the loss currently. I will say that the platform is very sticky. Could be a possible target for acquisition as well!

    Liked by 1 person

  4. Insightful information. I share the same concerns with John, however. I think a huge challenge with Spotify is the firm’s revenue model. Far too many people use Spotify for free without paying for Premium, and are willing to listen to the extra ads to save that $10 a month (including me). I am interested to see what steps the firm will take to try to monetize more of their traffic. I would be curious to hear if you had any suggestions as to how Spotify can go about trying to fix this problem that brings struggles to many subscription-based applications!

    I love the fact that their IPO will be a direct listing. I think this method of going public will be the future if Spotify is successful, signalling a trend to highly valued private companies. People forget that GOOGLE also took this unorthodox method!!

    Liked by 1 person

  5. Awesome post, Katie! As I’m sure is the case for many, I feel like Spotify revolutionized the way I listened to music. Before joining, I didn’t have any music on my phone and now I have a whole world of options available to me. I love the personalization the service offers and how (scary) accurate its recommendations and mixes can be. It was really interesting to learn more about the data and technology behind my favorite playlists! Looking forward to your presentation! (P.S. I love your Daily Mixes!)

    Liked by 1 person

  6. As a ‘lean back’ music listener, I really appreciate Spotify’s algorithms tuning in to my specific interests, especially during Mondays when I can look forward to my new Discover Weekly playlist!

    Really looking forward to visiting them to see how they align their company value system with their profiles of Spotify users. Plus, thanks for sharing the profiles of the people we’ll be visiting!

    Like

  7. Great overview of Spotify! There are so many exciting things happening with the business, and I’m stoked for the visit! Like a lot of us I use Spotify literally every day both for listening to music and find new tunes. I agree with your point about Spotify’s high switching costs––the app simply has too many personalization features for me to even consider changing up where I get my music from. Excited to hear your presentation today!

    Like

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