“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.”
- 2006: Spotify was founded.
- 2008: Europe-wide launch and Series A of $21.6M.
- 2011: Spotify lands in the US
- 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.
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.
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
“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
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.
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
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”
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.”
More on Spotify’s use of big data, specifically for advertisers, in my presentation this Wednesday. Stay tuned!
- 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?
- What is the process for choosing a partner to work with, such as integrating Genius? What are your thoughts on partnering with hardware manufacturers?
- 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?
- 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?
- Why include Hulu only in the Student bundle?