Marketing & Promotion- Spotify

Posted on February 24, 2016 by Justin Hunter

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Company Background

In 2005, Martin Lorentzon and Daniel Ek founded Spotify in Stockholm, Sweden. The two found a creative way to “Spot and Identify” In the Spring of 2007, Spotify’s first public beta was released, and that fall, Spotify was launched for public access in Europe. Three years later, Spotify was released to the United States (TechCrunch 2013).As the company began to expand, Ek and Lorzentzon decided to introduce advertisements to Spotify. That decision turned to be quite lucrative as the company had a twenty-one million dollar valuation in its Series A Round up (TechCrunch, 2012). Spotify is one of the, if not the leader of on-demand music streaming. The app offers ad-supported free membership or premium membership for a monthly fee. The new company headquarters are located in London, England and currently employ 1,370 people (Statistics Brain, 2015).

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Assets

Spotify has not yet vertically integrated and has very much stayed focused on its main goal of streaming music to it’s customers. Many of the features the application has can be classified as its assets.

Through the use of Discover Weekly, Spotify has created system that recommends music to you based on your previous streaming history. Listeners look to Discover Weekly when they want to hear new music and often find their favorite songs without putting effort in researching. Spotify has essentially cut out the time spent researching and replaced it with a computer generated system that benefits all involved. Discover Weekly is only available by purchasing the premium level which seems to be a primary reason listeners subscribe. Other reasons for upgrading include eliminating advertisements and sneak previews of new songs (Global Perspectives: Marketing Management, 2012). Spotify lets users connect through various social media platforms and share their playlists and favorite tracks.

 

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Business and Revenue Model

Spotify aquires its content from the music owner and monetizes through its subscription based service. The application has 25-30 million subscribers and approximately 75 million on the ad-supported free tier. This number has nearly doubled since last year and shows no sign of slowing down. A marketing firm counted 317 billion on-demand streams which is a 92.8% increase from last year (Statista, 2016).  In 2014, Spotify reported that they made $1.3 billion dollars in revenues, a 45% increase from 2013. (NY Times, 2015)

Spotify has many competitors as the music streaming market has proven to be a multi-billion-dollar industry. Apple Music ($9.99/mo), Tidal ($19.99/mo), Pandora ($4.99/mo) and Soundcloud (free w/ limited ads) are some of Spotify’s biggest competitors.

Before the creation of Spotify and many other streaming apps, there was a world-wide boom in illegally downloaded music. In 2009, 95% of all music downloads in the UK were illegal (The Guardian, 2009). Although Spotify has almost eradicated illegal downloading, they were still accused of cutting out the writers and publishers for royalties. In 2014, Taylor Swift removed her music from Spotify claiming that the royalties were not sufficient and that the company was undervaluing the art. Swift’s departure inspired the likes of many other artists across the industry. Contrarily, independent artists feel that the real mistreatment is the treatment of small artists. “This royalty bias toward popular artists comes at the expense of small independent artists” (The Kernel, 2015).

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Looking to the Future

As an effort to continue the growth of their empire, Spotify recently introduced a new video streaming department. “We’re bringing you a deeper, richer, more immersive Spotify experience,” stated Daniel Ek. Spotify already partners with networks like Comedy Central, ABC, BBC, and ESPN (Variety, 2015). The company should attempt to vertically integrate in the near future and attempt to compete with other video-streaming sites like YouTube and Vimeo.  In 2015, Spotify reported that their net losses were close to $197 million dollars, a thirty percent increase from 2013. Spotify said that they attribute these loses to investments its in personnel increases, product development and international expansion (NY Times, 2015). Not long after these investments, Spotify was valued at a remarkable $8.53 billion dollars after raising $526 million dollars only a few days after apple announced Apple Music to the public. This valuation makes Spotify the highest valued venture capital-backed company in Europe (The Telegraph, 2015). The sky is the limit for this streaming empire.

 

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Martin Lorentzon (Left) and Daniel Ek (Right)

 

Works Cited:

 

 

 

  • Crook, J. (2015, July 29). A Brief History Of Spotify. Retrieved February 12, 2016, from http://techcrunch.com/gallery/a-brief-history-of-spotify/

 

  • Davidson, L. (2015, June 10). Spotify valued at $8.53bn valuation after fresh funding round. Retrieved February 11, 2016, from http://www.telegraph.co.uk/finance/newsbysector/mediatechnologyandtelecoms/11664186/Spotify-hits-8.53bn-valuation-after-fresh-funding-round.html

 

  • Faughnder, R. (2015, June 28). Apple Music versus the streaming competition. Retrieved February 12, 2016, from http://www.latimes.com/entertainment/envelope/cotown/la-et-ct-streaming-spotify-apple-music-tidal-20150629-story.html

 

 

 

 

  • Richter, F. (2016, January 12). Infographic: The Rise of Music Streaming Continues. Retrieved February 12, 2016, from https://www.statista.com/chart/4220/music-sales-in-the-united-states/

 

 

 

  • Sullivan, C. (2015, May 29). Why Spotify is the Next Must-Have Marketing Tool. Retrieved February 14, 2016, from http://www.targetmarketingmag.com/article/marketing-with-music-how-spotify-becoming-the-next-must-have-marketing-tool/

 

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