This post was written for an internship application.

The last product I used that took my breath away was Spotify.

I was searching for an alternative music streaming service to use in high school. YouTube’s layout for streaming music was extremely frustrating to use since everything was so video-centric. Playing music became more of a distraction than an enjoyment. When I found Spotify, I was drawn to its user-friendly interface and how it connected to my social media accounts. Since Spotify automatically posted statuses on your Facebook and Twitter back then with what song you were currently listening to, I could form an identity easier as a shy teen. I was able to connect better with friends since I was able to see and comment on what they were listening to and it was easier to explore my music tastes. Spotify was the first platform for me that made listening to music more social and it exceeded expectations set by its mission statement: “Give people access to all the music they want all the time - in a completely legal & accessible way”.

Spotify’s Business

Let’s look at Spotify as a business and see how it stands out among its competitors too. Spotify is a music streaming service that offers over 20 million songs to its users since 2006. It’s business model is sustained by subscription fees from premium users as well as advertisements. However, the music streaming industry has proven unsustainable over the years as a number of other competitors have already reached bankruptcy while big money spenders like Apple, Google, and Amazon are entering the market.

What makes Spotify sell?

For starters, Millennials.

  • According to Statista, 65.85 million Americans use music streaming services monthly in 2017, on average for 14 hours 39 minutes every week.

  • Predictions show that 55.8% of the entire US population and as much as 68.4 percent of US internet users will have become online radio users by 2018.

  • On average, users under 25 years old consume 15% more data than those between 25 to 45 years old.

  • Millennials in North America spent an average of 107 minutes using music streaming services daily in the second quarter of 2017

  • According to Statista, 40% of Millennials who subscribe to service subscriptions had a music service subscription as of January 2017.

Besides Millennials, other things that make Spotify sell are regulating music distribution for artists and improved internet connectivity for uninterrupted streaming. Since on-demand music streaming services control internet piracy issues, offering credit and neighboring rights to artists, they are turning into a legal hub for music lovers to listen to their favorite songs. And according to Statista, over 4 billion people are active internet users, increasing users who use music-on demand services like Spotify.

Here are slides of Spotify’s business model broken down (Pandora’s is included for comparison):

Music streaming companies have been struggling for years to find a steady business model but the number of parameters prevent profits. Only three major labels own three-fourths of the music market, making negotiations extremely tough to get rights to use artists’ songs and Spotify revealed that 70% of its revenue goes to record companies for royalties. Because of this strain, companies like Google, Amazon, and Apple have an edge since they can afford to lose money to launch their service and benefit from the service to sell more products. Which is why I root for Spotify. It shows that even though Spotify doesn’t materialistically have more to offer than competitors, users have an admiration for the product.

As a multi-faceted business, Spotify’s attractiveness has to reach their diverse audience. However, artists don’t care as much since music streaming services yields a very low revenue stream. An artist is paid an average $0.001128/stream which has sparked a lot of complaints from artists since they don’t feel valued or compensated enough. As of now, I don’t believe that Spotify’s business model is sustainable or healthy. Maybe Spotify can continue to expand it’s audio real estate by including audiobooks on the platform or add a “listen together” feature where friends could listen to the same queue of songs at the same time in different places.

Above on slide 6, I included Pandora’s business model canvas for comparison. I picked Pandora because although the company has a slightly different mission (mainly used to discover new artists and music rather than listen to your favorite songs), their business models are fairly similar. Pandora faces the same issues as Spotify regarding contract negotiations and royalties and yet Pandora is more attractive to artists and advertisers by providing them data analytical tools to help them. Additionally, Pandora acquired two companies to further their growth. NextBigSound is a data analysis company specialized in the music industry and TicketFly is a ticket selling company for live events.

Pandora isn’t Spotify’s only competitor. Tidal led by Jay-Z banks on lossless audio quality, exclusive journalistic work, and Jay-Z’s reputation to attract customers. However, Tidal doesn’t have a freemium and their subscription fee is twice as expensive as Spotify’s. Apple Music is Spotify’s strongest competitor with their edge of exclusive releases, but as a product it’s compatibility to only Apple products limits it’s accessibility to users.

Spotify’s Impact

Spotify’s impact on people is just as powerful and maybe less harmful than its competitors and that is a core value I have for a favorite product. Not only is Spotify’s product strongly competitive with other music streaming services, it also gets involved with the community it affects. In the past few years, Spotify has made political and social stances from removing podcasts hosted by Alex Jones to pulling R. Kelly from any type of promotion. As a faithful premium user throughout college, I’m proud that Spotify took action instead of not taking ownership.

When he was interviewed by Kara Swisher and Peter Kafka of Recode about his views on R. Kelly, he was very transparent about Spotify’s decision to “un-promote” the artist. The reason why they took action was because of the feedback they were getting and it shows that Spotify listens to their users while staying true to their mission.

It wasn’t to go after being moral police about who did right, who did wrong. You get into really tricky things such as has this person actually been charged with something, have they actually been convicted of something, etc. That was never the goal. We are a platform where we want art, we want to express a lot of diverse opinions. I […] think being a platform from being an editorial-driven service is something totally different. I think in our case, the reality is, as I said, we have three million artists. What we wanted to be was just transparent.
— Spotify CEO Daniel Ek, Code 2018

Spotify is also able to get weird and wonderful too. A company that crunches user data in new fun ways to connect with their users is extremely intelligently attractive to me . Spotify’s billboards make me laugh, which is an impressive feat in the digital age. In a way, Spotify crosses over a professional boundary by putting on blast it’s user’s music taste… because thats what good friends do right?

At the end of the day, Spotify has generated a lot of sentimental value to me, and because of that, it’ll be hard for another music platform to be my favorite. I trust Spotify’s Discover Weekly algorithm more than myself to know what I’m in the mood to listen to and the playlists that I’ve made with different college friend groups will make it easier to relive and reminisce on fun times.

Resources referenced:

  • https://www.statista.com/statistics/698382/music-service-subscriptions-by-age/

  • https://www.recode.net/2018/5/31/17397188/full-transcript-spotify-daniel-ek-code-2018

  • https://www.cnet.com/how-to/best-music-streaming-service/

  • https://vizologi.com/business-strategy-canvas/pandora-business-model-canvas/

  • https://prezi.com/5w1lfm8qpyr9/spotify-business-model-innovation/

  • https://insights.daffodilsw.com/blog/how-spotify-works-business-model-and-revenue-streams