Spotify: Music for everyone

Fast Facts

  • Launched Sweden 2008, US 2011
  • $34.08 billion market capitalization
  • 35 million songs for free
  • 180 million users
  • 83 million subscribers
  • 65 markets
  • Largest driver of revenue to the music business today

How Spotify Forever Changed the Music Industry

Founded in Stockholm in 2006 and launched in 2008, Spotify has completely transformed how we listen to music. Beforehand music listeners would buy music physically or through a service such as iTunes. Now you can pay a monthly subscription for access to stream 35 million songs. With the use of data, Spotify caters to every music listener’s needs. From the avid music fan to the casual listener, Spotify meets your music desires with personalized recommendations, playlist sharing, and listening anywhere.

Spotify was founded by tech genius Daniel Ek, a serial entrepreneur and a millionaire by the ripe age of 23. Following a strong start to a career in tech, Daniel moved to the countryside to do some soul searching, and one night walking home, he came up with the idea of a rapidly fast (and legal) music streaming service. It took him two years to convince investors that this idea could transform the music market, and in 2008, his idea took off with Sweden being the first market.

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Freemium Model

Spotify employs a freemium user model. With this, customers have the option to have a free membership or a premium membership. If choosing to pay, they can opt for the student premium membership for $4.99/mo, the regular premium membership for $9.99/mo, or the family premium membership for $14.99/mo. Some of the benefits that separate the paid subscribers from the free users are no ads, unlimited skips, downloaded music, and listening anywhere.

However just this past spring, Spotify announced new benefits for unpaid memberships. With 71% of Spotify’s users being under the age of 34, it’s paramount that artists are able to get their music to these listeners. This age demographic is less likely to spend $9.99 a month for a music membership, but at the same time, artists can’t afford to lose this audience. Because of this, Spotify has given free users more control over their listening experience. One way is the fifteen new on-demand playlists that are unique to each user. These on-demand playlists include Spotify-curated playlists as well as individualized ones such as Discover Weekly, Release Radar, and Daily Mix. Previously, personalization took too long to kick in to full effect. Spotify has since worked to improved this. Now, when a profile is created, they ask users to choose their favorite artists so they can make immediate recommendations. Also, they have improved the playlist curation process with a tool called “assisted playlisting” in which they ask users to type in a mood or theme of the playlist in order to recommend song additions. Some of these new features are crucial in turning free users into part of the 46% premium user ratio.

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Spotify Goes Public

Spotify made a controversial decision in April 2018 when the company decided to go public in a non-traditional manner. Rather than a typical Initial Public Offering where a bank underwrites the deal, Spotify opted for a direct listing and offering initial shares on their own. This involves selling shares directly to investors without having to pay someone to underwrite the deal and line up investors at a set price. In addition, there was no lock-up period, so shareholders were able to sell their shares immediately. Spotify was able to take this unique approach to go public due to several reasons. First of all, the company was not in need of capital as most companies are when they decide to go public. Also, the company and its business model are well-understood, so they were able to skip a roadshow in which executives meet with potential investors. In the past direct listings have occurred, but they usually are following a bankruptcy, a company spin-off, or when a company switches exchanges. Very rarely do companies do a direct listing with an initial stock offering without a bank underwriting them. Below is the company stock history which has had a positive trend since its initial listing.

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So. Much. Data.

Without the magnitude of data that Spotify accumulates, it would not be the music giant that we all know and use today. With tens of millions of users listening to music every minute, Spotify is able to gain a lot of intel about what users listen to, where they are listening, and even what device they are using. They put this data to drive major decisions at the company. Data is used to train algorithms and machines to listen to music and gain insight into the experience of users. Discover Weekly is a feature on Spotify in which a weekly playlist is created with music that the user has never listened to on their account, but they are expected to enjoy. Another interesting feature is Release Radar which is a weekly playlist made up of new releases by artists you follow. They will also add a few new artists to expose you to different songs. In addition, Spotify uses location-based data to market. They place Spotify ads throughout cities highlighting artists that are popular in that area. Without the giant pool of data and the strategic implementation of this data, Spotify would not be able to experience this traction in attacking the music industry.

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Growth

Spotify’s R&D team has emphasized the possibility of not just growing the company but the music industry as a whole. They believe there is much room for growth as the music industry is still pretty small as compared to broadcast radio. In addition, reports have suggested that Spotify is looking to launch its own smart speaker product that utilizes voice assistant to rival the Amazon Alexa.

 

I’m looking forward to going further into depth on how Spotify is transforming the music industry in my presentation on Wednesday!

10 thoughts on “Spotify: Music for everyone

  1. This is a nice preview to your presentation on Wed (excited to hear it!). It was cool to read about how Spotify utilizes data to enhance the user’s experience of the app. I am interested in seeing how Spotify is expanding on their R&D beyond incorporating with different companies.

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  2. I agree with Felicia, I’m looking forward to hearing your presentation Wednesday. That would be very impressive if Spotify were to enter the smart speaker market as is rumored. Thinking about our platform reading, that would certainly give Spotify more control over its market as it seems that they currently rely on platforms like Amazon’s Alexa speakers, Google Home, and Apple and Android phones to provide their service. Really interesting!

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  3. I find it fascinating how almost three quarters of Spotify users are under 34, as it does seem that the older generations have a harder time participating in shared economies, or products like Spotify where you do not technically “own” your music. I know from personal experience that my parents were always much more hesitant to use Airbnb or Uber than my siblings and I had ever been, since it seemed drastically different form how they were raised. I am excited to see how other companies will expand to fit this new mold, just as Spotify had been able to do in the music industry!

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  4. It is definitely true that Spotify has changed the music industry; 10 years ago I had no idea what Spotify was and now I cannot imagine my life without it (I am listening to Spotify as we speak). It is interesting that we think of Apple as a leading, innovative company but in terms of music they had to completely recreate their business model to mimic Spotify. I am excited to hear more about the company on Wednesday!

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  5. I really liked reading this post for a couple of different reasons. I did not know that Spotify’s process for going public was different than the typical. Spotify opting for a direct listening and offering their own shares, as well as not doing a roadshow were both very interesting to me. It’s also exciting that their stock performance has continued to be positive because I am a a big fan of Spotify. Another thing that jumped out to me was your emphasis on data. Spotify’s data use definitely makes the App as good as it is. I wonder if its data use will be any sort of problem for them moving forward.

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  6. Great job! You could even argue that Spotify is as much a data company or content curation company as it is a music streaming service. We visited Spotify just weeks before the direct listing and even then it was clear that they prided themselves on providing a superior user experience based deep within their analytics. I am a longtime Spotify supporter (Premium since 2012) and listened to almost 60 days of Spotify last year alone, so I’m excited to see your presentation!

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  7. Hi Maddie,

    Thank you for sharing! It really is remarkable how Spotify has changed the music industry and has caused the freemium business model to spark among many other businesses. What I think is really interesting with Spotify was their unconventional IPO. If it failed, the company could have easily gone bankrupt, however, it is very admirable that the Spotify executives had the courage and the confidence in their product to release the shares themselves.

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  8. Last year I wrote a research paper on the history of online streaming, and how the industry transitioned from the notorious Napster (which was attacked and shut down by the music industry) to Spotify, which is completely legal, and in fact supported by so many artist (although Taylor Swift shed light on the small pay-outs that Spotify pays to musicians). I really enjoyed learning more about Spotify- especially about their unconventional IPO!

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  9. Great post and presentation! I am an avid Spotify user, so it was very interesting to hear Spotify’s story and their plans for the future. Your note that Daniel Ek needed two years to convince investors that Spotfiy would revolutionize the music industry reminds me that even some of the best ideas take a lot of convincing. I can’t even imagine the music industry without Spotify, but experienced investors saw little future for Spotify until 2008! I would love to hear even more about Spotify’s Discover Weekly algorithm because, I know for me, this offering has kept me from leaving the platform (network effects at work!).

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  10. Hey Maddie,

    This was an awesome presentation! As a new Spotify user, I didn’t realize that Discover Weekly and other curated playlists were so new to the app, and honestly couldn’t imagine listening to music without it. I mostly listen to the Daily Mix that Spotify creates, and they definitely use their huge amounts of data well because they are able to personalize my playlists so well. The one thing I have realized, however, is that my Daily Mix is often comprised of the same songs over and over. Not sure if that is an issue for Spotify to solve, or if I just spend too much time listening to the same music!

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