- 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.
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.
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.
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.
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!