This research paper focused on examining the impact that the online service Spotify has had on the global music creation and consumption industry. The literature review demonstrated that Spotify has had a disruptive effect on the industry and has significantly contributed to innovative transformation. Among the key innovations that have been introduced by the music service and have rapidly become widespread, including on competitive platforms, is the concept of fixed payments to music labels for listening to their own products. Despite this commercial approach, Spotify has managed to maintain accessibility for users, which allows the services strategies to be seen as balanced.
Discussion
Another innovation, which then became characteristic of all subscriptions, was an initiative called Spotify Wrapped. It makes a list of the most listened-to music during the year for each individual user. This has gained particular popularity due to the fact that people have the opportunity to post their results of the year on social networks. This was an advantage for the company, as it attracted an even more significant flow of customers and expanded the audience.
Several theoretical approaches can explain this phenomenon of Spotifys success at once. Therefore, based on the concept of disruptive theory, the provision of a new function in a music subscription has contributed to a change in the entire industry. Many companies, such as Apple and Tidal, have also implemented the ability to create playlists in their applications regarding the music listened to by people during the outgoing year. Kotters eight-step change model can also be used to explain the companys popularity. This is due to the fact that the creators of Spotify set out to provide people with the opportunity to listen to music without restrictions and financial costs; that is, it represented urgency for implementing changes. Subscription to eliminate advertising integrations has become the most productive solution for both the provider and music labels. Regarding the theory of social change, Spotify has become an innovator in adapting to the publics preferences. This happened due to the global expansion of the music provider and the involvement of a large number of diverse artists (Spotify, 2021). Thus, depending on the alteration preferences of society, the company adjusts the algorithms of music recommendations to meet users needs.
The companys strength was the offer of a new business model, which was preferred by both organizations in the industry, artists, and customers. Despite the initial complexity of creating the concepts on which the company is now based, it successfully successfully transformed the industry with its subscription system. The main reason was a change in the direction of making music accessible rather than being able to fully own the rights to own it. This can also be explained by social changes that imply a change of interest regarding users musical preferences.
Conclusion
It is worth noting that Spotify is taking various measures to adapt to possible future changes. Hence, in addition to its standard subscription, it has introduced a family plan and is constantly expanding its music library. Moreover, its practical analytical tools provide personalized selections depending on the music preferred by listeners. Monthly active users of the music provider are constantly growing, for example, due to the introduction of successful product feature launches such as our Lyrics experience, as well as marketing and content initiatives ( Spotify technology S.S. announces financial results for first quarter 2022, 2022, para. 3). According to the framework of the innovation funnel, the company effectively develops an action plan that helps to adapt to future changes.
This research paper focused on examining the impact that the online service Spotify has had on the global music creation and consumption industry. The literature review demonstrated that Spotify has had a disruptive effect on the industry and has significantly contributed to innovative transformation. Among the key innovations that have been introduced by the music service and have rapidly become widespread, including on competitive platforms, is the concept of fixed payments to music labels for listening to their own products. Despite this commercial approach, Spotify has managed to maintain accessibility for users, which allows the service’s strategies to be seen as balanced.
Discussion
Another innovation, which then became characteristic of all subscriptions, was an initiative called “Spotify Wrapped.” It makes a list of the most listened-to music during the year for each individual user. This has gained particular popularity due to the fact that people have the opportunity to post their results of the year on social networks. This was an advantage for the company, as it attracted an even more significant flow of customers and expanded the audience.
Several theoretical approaches can explain this phenomenon of Spotify’s success at once. Therefore, based on the concept of disruptive theory, the provision of a new function in a music subscription has contributed to a change in the entire industry. Many companies, such as Apple and Tidal, have also implemented the ability to create playlists in their applications regarding the music listened to by people during the outgoing year. Kotter’s eight-step change model can also be used to explain the company’s popularity. This is due to the fact that the creators of Spotify set out to provide people with the opportunity to listen to music without restrictions and financial costs; that is, it represented urgency for implementing changes. Subscription to eliminate advertising integrations has become the most productive solution for both the provider and music labels. Regarding the theory of social change, Spotify has become an innovator in adapting to the public’s preferences. This happened due to the global expansion of the music provider and the involvement of a large number of diverse artists (Spotify, 2021). Thus, depending on the alteration preferences of society, the company adjusts the algorithms of music recommendations to meet users’ needs.
The company’s strength was the offer of a new business model, which was preferred by both organizations in the industry, artists, and customers. Despite the initial complexity of creating the concepts on which the company is now based, it successfully successfully transformed the industry with its subscription system. The main reason was a change in the direction of making music accessible rather than being able to fully own the rights to own it. This can also be explained by social changes that imply a change of interest regarding users’ musical preferences.
Conclusion
It is worth noting that Spotify is taking various measures to adapt to possible future changes. Hence, in addition to its standard subscription, it has introduced a family plan and is constantly expanding its music library. Moreover, its practical analytical tools provide personalized selections depending on the music preferred by listeners. Monthly active users of the music provider are constantly growing, for example, due to the introduction of “successful product feature launches such as our Lyrics experience, as well as marketing and content initiatives” (“Spotify technology S.S. announces financial results for first quarter 2022,” 2022, para. 3). According to the framework of the innovation funnel, the company effectively develops an action plan that helps to adapt to future changes.
Whenever an information gap or an unresolved scientific topic emerges, misinformation will likely arise as people attempt to reason, better comprehend, and connect the dots. This has been the case with COVID-19 vaccines, which have been met with both appreciation and skepticism. Recently, some celebrities such as Joe Rogan have found themselves in trouble for promoting misleading remarks about COVID-19 on his show. Rogan, who owns, The Joe Rogan Experience, the world’s most popular podcast, signed a deal with Spotify to have his content exclusively hosted on the streaming platform (Dickson, 2022). With pressure mounting on Spotify to eradicate misinformation on the platform and take decisive action against Rogan, examining how the bedeviled company can win the public’s opinion is imperative.
The Joe Rogan Case
Joe Rogan’s podcast is considered the most popular worldwide, meaning that it attracts millions of viewers and listeners. According to Rolling Stone, Rogan’s podcast has approximately 11 million listeners per episode (Dickson, 2022). Without a doubt, any COVID-19 misinformation emerging from his platform can be catastrophic. Spotify faces a big challenge because Rogan was allowed to host Dr. Robert Malone, an anti-vaxxer banned from other platforms such as Twitter. Malone made anti-vaccination remarks throughout the episode, including pushing the narrative that hospitals are financially motivated to report false COVID-19 fatalities (Dickson, 2022). Rogan is under fire because he seemed to embrace these ideas, with more emerging evidence that he had made racist remarks in many of his earlier podcasts. Therefore, further actions from Spotify should seek to win public trust, primarily through effective communication.
Spotify’s Position on the Matter
Spotify does not believe it has a duty to police content posted on its platform (Holtermann, 2022). This is a reckless statement from a public relations perspective. The company has assured the public that it will add content advisory on some podcasts. This is a welcome move but should be implemented faster. Spotify has not dismissed Joe Rogan or shown intentions to investigate him. This is a blatant show of irresponsibility and lack of concern for public safety. Finally, Spotify lacks a discernible policy to tackle fake news or misinformation. These missteps from the start of the issue have continued to shape a negative attitude and public opinion about the streaming company. Without a quick solution, the company’s troubles may not end soon.
The Communication Process
The ability to communicate with one another is a fundamental feature that distinguishes humans from other species. The act of communicating is the ability to transmit stimuli – usually verbal – to other individuals to change their behavior (Lecture January 24). The purpose of communication often revolves around persuasion for three reasons: Shaping, reinforcing, and changing. According to lecture notes, shaping is helpful in creating a favorable mood (attitudes) or brand identity, changing for influencing behavioral transformation, and reinforcing (most commonly used) for strengthening existing behaviors (Lecture January 24). Therefore, the company should incorporate all three strategies to tackle its problems effectively.
Communication and Action for Persuasion
Spotify executives are under pressure to address COVID-19 misinformation spread on the platform. In response, the company has claimed that it has no obligation to tackle the misleading information on the ongoing pandemic. Unfortunately, the public and various leaders have not received this well. As a result, some musicians have removed their content from the platform, and many others threaten to do the same (Holtermann, 2022). Many users also suggest that they intend to replace Spotify with alternative streaming companies. This underscores the urgency of deescalating the situation. Spotify can start by using three rhetorical elements to change, shape, and reinforce public opinion. These include ethos, pathos, and logos, as proposed by Aristotle.
Ethos
According to Aristotle, ethos speaks to the audience’s moral status. Spotify has not come out openly and admitted that Rogan’s show violated its ethical policy. It has emerged that the company has no policy regulating fake news on its platform (Dickson, 2022). This needs to change, and Spotify must start appealing to the public’s moral understanding. As Spotify looks to improve its policy on misinformation, it should come out openly and declare Rogan’s remarks as unethical. This will show that the company has a moral stand. More importantly, Spotify must reshape its organizational culture to embrace accountability. The picture Spotify has painted currently is that it lacks accountability, which is highly unethical.
Pathos
Pathos refers to a communicator’s appeal to the emotions of the audience. Spotify’s actions have shown a lack of concern for people who have succumbed to COVID-19, including health professionals working tirelessly to beat the virus. The pandemic has occasioned an endless period of suffering globally, and a large corporation like Spotify should empathize with those affected. Many people expected Spotify to condemn Malone following his disparaging remarks towards health professionals on Rogan’s show, but this did not happen. Thus, Spotify should release an apology statement to healthcare workers to show the company’s support and understanding for their endless sacrifices during this pandemic.
Logos
Logos is the use of rational arguments to appeal to the audience. This can include the use of facts and figures to reinforce the argument. Spotify has succumbed to public pressure and removed some of Rogan’s podcasts from its platform. However, this may not be enough because the public expects Spotify to do more. Many argue that Spotify has not taken stringent action against Rogan because of his influence and million dollar deal he signed with the company. Therefore, the company should dismiss Rogan indefinitely pending an investigation into his conduct. It must remove all content related to spreading COVID-19 misinformation from the site. This action should be extended to users abusing the platform’s lack of tight misinformation policy.
Additional Strategies
Spotify needs to show that its operations align with basic corporate social responsibility guidelines. Spotify should outline clear strategies it intends to use to tackle misinformation. This should include an intention to train employees on effective content moderation and hire more staff to increase its content moderation capacity. More importantly, the company should announce its commitment to developing or investing in a robust artificial intelligence system that will be used to track content and flag inappropriate ones before they reach the public domain. Such actions would reinforce people’s trust that Spotify is correcting its mistake.
Conclusion
In summary, Joe Rogan has put Spotify in a precarious situation. The company risk damaging its reputation further it fails to tackle the issue effectively. This could also lead to huge losses in revenue from streams if many users make good at their threat of leaving the platform. At the same time, Rogan plays a crucial role in the platform because his podcast attracts millions of listeners worldwide. Notably, his podcast is currently the leading globally in terms of followers and revenue. Despite these impressive statistics, Spotify, like any other company, has a social responsibility of ensuring its existence does not threaten public wellbeing. Since this has happened, Spotify needs to move swiftly and reassure the public of its ethical and legal obligations. It can achieve this by implementing the persuasion strategies discussed in this presentation.
Reference
Dickson, E. (2022). Doctors Demand Spotify Puts an End to Joe Rogan’s Covid Lies. Rolling Stone. Web.
The article under study is written by Janko Roettgers and published in 2018. It is reported that Spotify, a famous European music streaming service available worldwide, offers a new subscription option for students (Roettgers). Students of US colleges and universities (title IV accreditation) will have access to Showtime’s products and Hulu’s services for less than $5, which makes $29 per month (Roettgers). Users will be able to sign up with Spotify as the company wants to avoid collaborating with Google Play and iTunes.
This information is valuable for potential and existing subscribers who are currently enrolled in US educational establishments of a certain kind. However, this piece of news is also essential for many people involved or interested in the media business. First, it is important to know that such services as Spotify, Showtime, and Hulu merge and collaborate, which contributes to their markets’ growth. This collaboration can be regarded as an example for many businesses operating in the industry.
At the same time, this news is also associated with corporate social responsibility issues. The company provides certain perks for students, which can be regarded as a stimulus for American people to continue studying after their graduation from school. Of course, the subscription cannot make an individual enter a college, but this is another benefit students have as they can access more information, which is a significant competitive advantage. The company introduces new trends in media business attracting particular groups of people. Clearly, various offers exist, and they are crafted for different customers.
To sum up, it is possible to note that the information about new subscription options introduced by Spotify draws many people’s attention. Students and other potential and new customers can sign up for a better value. Media business researchers and practitioners can consider the ways mergers are carried out in the industry, customers are attracted, or a media company’s corporate social responsibility can be manifested.
As a target organization for analysis, Spotify is chosen, a Swedish streaming service that allows for legal listening to music files and provides access to both songs and other formats, such as podcasts and audiobooks. It has both a customized website and a user-friendly mobile app that is suitable for all types of operating systems and different devices. The problems related to this successful service’s operational activities and organizational design are excessive spans of control and weak role distribution. Mankins and Garton (2017) analyze the routine activities of Spotify and note that its principle of distributing tasks among employees is based on “loosely coupled, tightly aligned squads,” which, in turn, makes it harder for them to adjust to long-term plans (p. 5). However, this practice is fraught with poor performance due to limited management practices and the lack of time and resources to assess the adequacy of the relevant operational decisions.
From a theoretical perspective, the presented problems can be considered as risks caused by managerial omissions due to the inability to control the activities of a specific number of employees within the framework of the assigned tasks and developmental goals (Scott & Davis, 2007). The issues are relevant in the context of the extensive market coverage that Spotify is seeking and require appropriate intervention because employees cannot regulate the range of tasks on their own, and only “God controls not only the rain but also the whole natural order” (Merida, 2015, p. 117). Therefore, the general problem addressed in this research is the inability of management to establish a sustainable algorithm for allocating tasks based on the available workforce, which results in excessive spans of control and weak role distribution.
References
Mankins, M., & Garton, E. (2017). How Spotify balances employee autonomy and accountability. Harvard Business Review, 95(1), 1-7.
Merida, T. (2015). Christ-centered exposition: Exalting Jesus in 1 & 2 Kings. B&H Publishing Group.
Scott, W. R., & Davis, G. F. (2007). Organizations and organizing: Rational, natural, and open systems perspectives. Pearson Education.
Spotify is one of the biggest music streaming platforms in the world, which is widely used for listening to music, podcasts, and shows. The consumer profile of Spotify Premium users is based on the data about the demographics of Spotify and the information about its target audience (Start.io, 2022). The consumer of Spotify Premium is a 20-year-old female, Jessica, who attends college. She invests in her hobbies and is interested in developing and expanding her musical taste. She lives in the dorm room, and her room has several posters with her favorite artists.
She is also a fan of digital art and modern, user-friendly designs. She tried other platforms such as Apple Music, Deezer, and YouTube Music before, but Spotify offered more variety while offering discounts for her student status. Jessica is an active social media user. Therefore, she enjoys annual roundups of the favorite music she listens to throughout the year. She enjoys sharing the insights she got with her friends who also use Spotify and discuss how their year went by in terms of music. Other streaming platforms do not offer such creative and fun content. Hence, Jessica remains loyal to Spotify and does not plan to change the way she listens to music.
Finally, Spotify allowed Jessica to expand her music taste by offering radio for the tracks she likes as well as daily playlists of recommended new music that matches her mood. The podcast section in Spotify allows Jessica to follow her favorite shows and download them to listen to on road trips and during workouts. Such customization and convenience fulfill all the musical needs of the consumer and offer emotional connection due to engaging content and roundups.
Daniel Ek and Martin Lorentzon started Spotify in 2008. There was no common business model for the digital music market back then; instead, companies adopted a variety of tactics to entice online music enthusiasts. Streaming music services, online radio stations, and P2P networks were the market leaders. Daniel Ek founded and grew the company with the intention of combating music piracy.
The organization began with a greater number of free users than paid users, with free users being 15 times more prevalent than paid users in 2010. Since then, the ratio has declined progressively to seven in 2011, five in 2012, and three in 2014 (Voigt et al., 2017). At the start of 2016, Spotify Premium had 30 million paid subscribers and more than 70 million free users, with the United States and the United Kingdom accounting for the majority of paid subscribers (Voigt et al., 2017). Despite the fact that the concept was not completely novel, Spotify was a significant improvement over its competitors because of its superior speed, user-friendliness, and social features.
Organizational Structure
A squad of no more than eight persons acts as Spotify’s primary organizational unit. Its more than 2,000 employees work in self-managing, cross-functional, and co-located scrum teams called squads (Mankins & Garton, 2017). Each squad is liable for a specific part of the product, which it maintains from concept to execution. They have formed what is known as a “tribe” out of a light matrix (Mankins & Garton, 2017). Each tribe is made up of numerous interconnected squads, and each squad is connected to the rest of the tribe by a horizontal grouping called a chapter. The major responsibility of the chapter is to promote training and proficiency among the squads. Spotify’s business strategy relies on a unique organizational structure consisting of squads, tribes, chapters, and guilds.
Current Events
Many new, smaller-scale events have been introduced recently, including podcast debuts, artist collaborations, and album releases, but some larger-scale events have also taken place. The year 2022 heralded a number of Spotify’s big events. There were four quarterly results calls for Spotify’s shareholders and the general public this year. March of 2022 also saw the Morgan Stanley Technology, Media, and Telecom Conference (Spotify, n.d). On September 7, 2022, Evercore ISI held its second annual technology conference (Spotify, n.d). In addition, in June of 2022, Spotify held an Investor Day (Spotify, n.d).
Successes and Failures in Media
Spotify Wrapped is Spotify’s most successful media advertising campaign to date. In the first week of December 2020, Spotify had a 21% increase in mobile app downloads thanks to Spotify Wrapped (Rahmasari & Purwaningtyas, 2022). After the release of Artist Wrapped, several musicians and podcasters would take to social media to express gratitude to Spotify’s fans and promote the service. By mentioning Spotify and including screenshots in their postings, hundreds of millions of people were naturally exposed to the brand. Nevertheless, one of the most prominent marketing failures surrounded Spotify in 2018. Subscribers to the ad-free Spotify Premium plan were seeking refunds, arguing that playlist promotions for Drake’s new album qualify as advertising. On the day of its release, Drake’s “Scorpion” album shattered all previous streaming music records on services including Spotify, Apple Music, and Amazon. In addition, it was advertised so strongly that some Spotify subscribers demanded money back for the service’s overexposure of the US rapper.
Description of Industry
More than half of the global profits from the recorded music business are now derived from online streaming platforms, making them one of the most important distribution channels for this medium (Kaimann et al., 2020). In today’s digitized world, online music platforms like Spotify are in high demand; therefore, the users of the digital music platform are those who seek simple access to music. The main suppliers of the industry are recording companies and musicians. Spotify has emerged as a crucial channel for musicians to both publicize their work and monetize it. Streaming music services on the internet are in a very competitive market. Companies like Apple Music, Amazon Music, Google Play Music, Spotify, and Deezer are all trying to achieve a competitive advantage. In addition, digital music streaming service platforms have several substitute products found in other industries that serve a similar purpose. Radio broadcasting, free streaming sites, illegal file sharing, and social networking are all noteworthy alternatives.
Spotify Competitors
Apple Music, Amazon Music, and Tencent Music are the three main competitors of Spotify, excluding other smaller-scale companies. All these streaming services are expanding globally. Compared to its competitors, Spotify’s popularity stems from its focus on user experience and inexpensive cost.
Apple Music
Apple Music is a music streaming service established in 2015 with a collection of over 100 million songs in more than 100 countries (Apple, 2022). Its biggest advantage over Spotify is that it has a wider variety of products available to use with its music streaming service, Apple Music. Apple Music radio stations, curated playlists, lossless audio, Dolby Atmos compatibility, and music-related content are some of the company’s most prominent products (Apple, 2022). Still, Spotify is ahead of the competition because it has stayed within its original focus on music.
Amazon Music
Amazon has owned and operated the streaming service since its inception in 2007. It can presently be accessed on desktop web browsers and mobile devices running the Android and iOS operating systems. Amazon Music competes head-on with established services like Apple Music and Spotify thanks to its massive song selection of over 75 million tracks and counting. When comparing Spotify and Amazon Music members in the first quarter of 2021, 32% of the global music streaming subscriber base was Spotify users, nearly twice as many as Amazon Music subscribers (Statista, 2022). Besides similar products, Amazon Music’s e-commerce space product is one of the main reasons for its success and advantage over Spotify.
Tencent Music
Tencent Music offers music streaming for Android, iOS, and other phones. QQ Music and KuGou are prominent services that are very similar to Spotify. Tencent owns Kugou, Kuwo, and WeSing, which have 615 million users and 120 million paying users (Tencent Music, 2021). Tencent, a Chinese multinational corporation with headquarters in Shenzhen, provides a wide variety of services, including music. QQ and WeChat are only two of the many mobile applications owned by the firm; others include a mobile payment system called WeChat Pay, popular online games like League of Legends and Clash Royale, and more (Tencent Music, 2021). Comparatively speaking, its valuation is larger than that of Spotify, giving it greater financial resources with which to make acquisitions inside the industry.
Products
Spotify offers digital music, podcast, and video services and products. Spotify’s core features, including playing music, are available at no cost; however, paying for Spotify Premium is also an option. Unlimited playback, downloads, skips, and no ads are just some of the perks of Spotify Premium.
Prices
Rather than paying the full $9.99 per month for Spotify Premium, students may get a subscription for only $4.99 per month, thanks to Spotify’s student discount (Spotify, n.d.). With the launch of the $14.99/month family plan, which allows for up to six users, the monthly cost of Spotify Premium may drop to as low as $2.50 for users outside of educational institutions (Spotify, n.d.). Because of its membership strategy, Spotify is able to present itself as an affordable service.
Place and Promotion
The company’s website and app serve as the primary channels for the distribution and sale of all products and services. In 2013, when Spotify began to face competition from the likes of Apple and Amazon, it launched its first marketing campaign centered on the emotional effect of music (Vonderau, 2017). There were three commercial videos, each of which featured people listening to music and was accompanied by a voiceover detailing the range of emotions they experienced while listening to their favorite band or musician. The next year, Spotify initiated a promotion called #thatsongwhen, which prompted listeners to talk about the feelings and memories that were triggered by specific songs (Vonderau, 2017). Both of these efforts promoted Spotify’s service and helped spread the word about the company’s products. By tapping into human emotions, Spotify’s advertising became more vivid, engaging, and driven purchases.
SWOT Analysis
Strengths
Spotify’s strong brand image and big user base boost brand recognition and user acquisition. The corporation advertises its product on Facebook to improve its market presence. Spotify is the market leader despite competition from Apple Music, Amazon Music, and Tencent Music. The focus on user experience and inexpensive cost are important reasons people pick this platform. Spotify’s huge music catalog and tailored playlists attract music fans and casual consumers.
Weaknesses
The company’s royalty payments are enormous. Although it has reduced its licensing costs with important arrangements with labels and publishers, it worries that rivals may pay more fees for broader user reach. Spotify’s licensing relationships with record companies constrain the supply chain for artists and performers, which is a problem as well.
Opportunities
Spotify is expanding its footprint into developing nations like India and Africa by capitalizing on its well-known brand and large user base. Their acquisition approach is proactive, allowing them to break into new areas and rapidly grow their market share.
Threats
Because of the proliferation of new entrants and established competitors in the online music streaming market, the company faces a substantial threat from competition. The firm has to reduce royalty costs and enhance the user experience to stay ahead of the competition.
Recommendations and Conclusion
As was identified, the company’s biggest challenge is retaining its position in an increasingly competitive industry where customers are spoiled for choice and switching costs involved with a platform like Spotify are small. Spotify is now available in nearly every country on the planet, with the notable exception of some Asian countries like China. Over 60 nations in North and South America, Europe, Asia, and Oceania have access to its music streaming service. Therefore, the takeaway here is that Spotify might benefit from expanding into new markets, especially those in Asia. New products may engage new artists by licensing their music exclusively to Spotify. Through these alliances, publishers and record labels may raise the digital exposure of their songs while simultaneously aiding Spotify in expanding its reach among its core demographic. Overall, Spotify has established its greatest competitive advantage, which is the size of its user base and its ability to harness data from its users.
Music is a one of the most popular leisure activities worldwide. It is so popular that the music industry is a dynamic industry that keeps growing and advancing in the way it delivers music to the fans worldwide. Fans get to listen to their favourite musicians over the Internet through applications like YouTube.
Listening or watching music online can sometimes be very frustrating, especially when the Internet is not fast enough and buffering takes ages. The advance in technology has assisted in solving this problem. One of these solutions was created by the Spotify Company under Daniel EK, who is the founder of this popular technological innovation.
The service provided by this company also bears the name Spotify like the company itself. Spotify engages in the provision of a service that allows the streaming of music. This platform allows Internet users to listen to music on demand from their favourite artists without having to buy or own the albums (Gilmour, 2011).
Spotify is the most recent online music service that was launched in London by the Spotify company in 2006 (Miller, 2012). The service is designed to avail streaming music from internationally recognized labels like Warner Music Group, Sony, EMI, among others.
Therefore, the service gained popularity very fast across Europe and also internationally and by 2010, Spotify had about 10 million users, and the number was increasing by the day. This was an indication of how technological advancements can lead to the rapid development of an industry.
Spotify has been able to reach out to many customers through the technological advancement experienced in the global Internet connectivity. This paper provides a critical analysis of the Spotify Company in the way it has been carrying out its business.
The Spotify Company and its Resources
The music industry thrives in the presence of the Internet. Spotify is a company that is entirely depended on the Internet. For the company to survive, it needs to appeal to the users and give them services that will keep them hooked. This means that Spotify always has to anticipate the needs of its users and meet them.
Every business depends on its consumers to survive in the competitive market. For Spotify, it goes more than that. Its users are its own lifeline. This company literary cannot exist or grow without new account creations or new subscriptions from users.
This means that consumers are the biggest source of resources for Spotify. The company has shifted the notion of ownership from having the physical product to virtually possessing it. This also includes having accessibility to it irrespective of time and place (Jones & Dewing, 2010).
Spotify also depends on the content producers for its survival. The international recording label companies, which Spotify helps advertise and play their music directly to consumers, pay for promotion (Aigrain, 2012). The content also benefits at the end of the day. They get to have their music promoted and advertised without having to sign contracts with recording labels for advertisement (Zager, 2012).
Spotify is a major investor attraction due to its fast grasp of the market share. Shrewd investors, both local and international, have a canny ability to smell lucrative venture from far. Spotify has proven its high potential by capturing interested clients in such a short time.
According to Myers (2011), recording label companies like Merlin, Sony BGM, Warner Music, and EMI among others own about 18% of the Spotify company (Heimer, 2011). By June 2011, other investors of Spotify included Sean Parker, Li Ka-Shing, Northzone Ventures and Wellington Partners.
The Spotify Company’s Performance
For individuals who love music, Spotify is like a dream come true. This is because they get to listen to whichever track they want anytime and anywhere as long as the Internet is present. Although this is a good thing, it cannot be the only determining factor for success.
This is because there are other aspects that have to be considered. These factors include: is the company able to sustain itself? How efficient is it? Are the profits as high as they appear to be? Does it give back to investors who channel cash into it?
Efficiency
Efficiency of a company has to do with the quality of services it provides to its clients, speed of service and how well it meets the consumer needs of its clients. Spotify has gained such a high rating in growth of market share due to its ability to respond to the needs of consumers.
Spotify has in its collection music from different recording labels, which means that whichever song a consumer might want to hear Spotify will play.
Buskirk (2012) observes that Spotify is like one big database where a consumer can find all the play lists, ratings and artistes they want. It is like owning a modern, top notch technology radio that plays all the songs an individual may want.
Sustainability of the Spotify Company
Spotify is a company that has made such huge milestones in the market share and within such a short time. In as much as this is good or business, it may be its major down side. This is because the company might be growing in so fast a rate that it will not be able to sustain itself. Therefore, the company may be a victim of the great success it has made (Hepworth-Sawyer & Golding, 2011).
Spotify and Profits
Every business venture has the aim of making maximum profits and cutting down on its losses. Spotify has been under maximum scrutiny since its inception as critics try to analyse its operations and economic status. The company started off in a high note, which is still the current case.
This is a good sign of a business destined for great success in the future. Spotify may have undergone major rocking times in 2010, like the fact that it lost approximately $45 million, but it certainly headed for greatness (Peoples, 2011).
Therefore, Spotify is on the right track in regards to business. It started off on a high note, which is good for business since many followers ensures good marketing and promotion. The losses it has seemingly made are just a price it has to pay.
Spotify and Investors
Every investment is always a risk. In the music industry, and especially virtual industries, the risk is way higher. This is because such business ventures are totally depended on shifting focal points of resources like consumers.
Once consumer needs change; and the company is not flexible enough to meet these needs, it means that the company is sure to take a nose dive in its ultimate profits. At such a time, the company may not give back very much to its investors.
However, since the company has potential of growing even more and producing bigger profits in the future, it will be wise to invest. Some investors are shying away from investing in Spotify nevertheless. It is normally asserted that when the risks are high, the returns are also attractive.
Strategic Analysis of the External Environment
PESTEL Analysis
PESTEL analysis is a model that will be used to evaluate the risks that the Spotify company and also the external environment that have influence on the company with the emphasis on the social, economic, legal, technological, environmental and political aspects.
Opportunities
Social
This aspect has to do with the feelings and opinions of the community. The opinions can be reflected by how individuals react to the product. With the number of users going up on a daily basis, it is clear that the community thinks highly of the Spotify music streaming service.
This can be viewed as a great opportunity for the company since it is online based and its success depends on the number of users it has. The advantage of Spotify over other online music services is that the required music can be accessed instantly and played anywhere as long as the Internet was available.
Another advantage is that Spotify allows the user to store assorted music in libraries for future listening. Spotify is also available in different shapes and sizes, and it comes in models that are compatible with PCs, mobile phones, home audio systems and Macs (Spotify Ltd, 2012).
Threats
Economic
Spotify, like all other businesses, is not immune to the effects of the changes in the economic environment. Fluctuations in the economy will affect the stakeholders of Spotify which will in turn affect the company and threaten its very existence.
Environmental constraints will affect the company’s operations and advertising. Aigrain (2012) observes that, for some companies like Spotify, their business models are based on subscriptions by the users and advertising.
Technological
Technological factors in the external environment of the company affect the company in that the trends of technology keep changing by the day. Innovations in technology may pose a challenge to Spotify.
This is because these changes may happen at a frequency that any company might have difficulties in adapting to the changes. There is the threat of other companies introducing new products in the market that will compete with Spotify.
Legal
The controversies that have arisen with the advent of free music streaming could lead to copyright restrictions for Spotify by the music owners. If this should happen, Spotify would be left flat on its back.
Environmental
The environmental aspect has to do with issues such as global warming. Even though Spotify is an online company, it does not exist in a vacuum. Therefore, changes in the environment trigger a domino effect that gets to Spotify and influences its operations.
Political
The political aspect of the environment will affect Spotify in terms of change in the tax policy that will affect the company in a negative way.
Specific Environmental Analysis
Porter’s Five Model
The Porter Five model draws on a company’s economics to come up with five forces determining the intensity of the company and hence its attractiveness in the market.
Three of these forces have to do with the external environment and competition. They are; the threat of substitute products, the threat of new entrants, and the threat of established rivals. The remaining two forces that constitute the internal competition include the suppliers’ and consumers’ bargaining power.
The threat of substitute products
The music industry is large and diversified. This means that new products are coming up every other time. This is a threat that Spotify faces since the introduction of another music dispensing product means that some of its clients will move over to the other side. Such loss will cost Spotify a big deal.
The threat of new entrants
Spotify also faces threat of other music streaming companies that might come up in the future. These companies will take up part of the market share that is already owned by Spotify.
The threat of established rivals
There are also established rivals for Spotify. A very good example of such would be Pandora. This is the pioneer business in the online, streaming industry.
Pandora, which was founded in 2000, has been the lone music streaming business before Spotify. With the advent of Spotify, as the new kid in the block, there is no question about the competition for market share between the two (Taylor, 2011).
Bargaining Power of Suppliers
The suppliers of Spotify’s music are record labels. The fact that Spotify needs this music to survive can make the suppliers increase the prices of the product they provide to Spotify Company. This will cost Spotify more.
Bargaining Power of Customers
The users of Spotify service are the lifeline of the company. They are the main determinants as to whether the company will survive or not. Apart from that fact, they also determine the prices of the services provided by Spotify. Spotify has to determine their target group before they can set the prices for the upgraded service.
Boston Consulting Group Matrix (BCG)
BCG is a model based on categorizing a company’s components into four classes. This is made possible by merging the market growth and market share in relation to the major rival. In this case, Spotify’s market share and market growth is merged in comparison to its current biggest rival in the market.
Consequently, Spotify can increase its annual earnings and its continuous growth and development (Chitale & Gupta 2011). The BCG model takes into considerations two main variables. These include “the potential for attractive earning or relative market share and the potential for growth given by product sales growth” (Chitale & Gupta 2011, p. 56).
Spotify is viewed as a star actor since it has so far demonstrated a huge market share and steady growth in the music streaming industry. Despite the entry of more competitors in the market, Spotify has managed to maintain a large number of customers.
The growth rate of the company has been fast, and this makes the company to be described as a star. However, there are other companies which had a large market share even before Spotify entered into the market.
Apple Inc. has dominated the market, has a large market share and high growth rate. The iTune product of Apple dominated the market, and this makes Apple to be located at the question marks quadrant of the BCG Matrix.
Relative market share.
SWOT Analysis
This analysis stands for strengths, weaknesses, opportunities and threats. The strengths and weaknesses represent the internal environment while the opportunities and threats represent the external environment.
Strengths
Spotify has ventured into a partially exploited market and managed to scoop a large chunk of the market share within such a short time.
Spotify Company can provide any track to its users anytime, anywhere. However, this is for as long as the users have an internet connection. Also, the company can take care of the consumer needs and provide these services for free. In addition, the company has low overheads, which gives it the chance to provide real good service to its users.
Weaknesses
The company underwent major losses in its initial stages in 2010. For a company that is still trying to find its way around the market, that was a major blow. Investors were hesitant to put their money in Spotify Company due to these loses. This is also not good for business as Spotify relies on a big part on investors to be able to operate.
Opportunities
The Spotify business has a very large room for expansion, bearing in mind that it is online, and its services can be accessed globally. The company also has the potential to make big profits. Therefore, there is room for great investment, and big names in the industry will take great interest in the business.
Threats
Many companies might take notice of the lucrative nature of the music streaming business and start their own music streaming services.
This will bring about great competition for Spotify in the future. There is also the copyright threat that is hovering over Spotify. Content owners may put restrictions on the music that Spotify can and cannot play. These limitations will reflect on the services provided.
Value Chain Analysis
The value chain is a company’s chain of activities in its operations within a certain industry. The business unit of the company is the most suitable for the construction of a value chain. Spotify has applied technology to acquire a large market size.
The company has acquired online retail stores to market its products to the international market. In addition, the company has sufficient infrastructure to support the development and sale of music products. Spotify has also employed professionals to produce quality products.
Marketing and sales of the company are conducted by a professional team. The company sells its products to local and international markets. The diagram below shows the value chain of the company.
Source: Neilson & Pritchard (2009).
Operations
Spotify uses various applications that ensure the value of the music, which their clients listen to, is of a top notch quality. Top quality sound and videos are some of the reasons that the company has gained so much popularity worldwide.
Key Success factors of Spotify
The key success aspects endorsed by the company include simplicity, comprehensive catalogue, and smart marketing. In simplicity, there is the lack of sophistication and complexity. This has proved to be an asset to the Spotify Company. This has also contributed to its popularity.
In comprehensive catalogue, the ad-supported tire of the Spotify Company provides free access to a free, comprehensive catalogue. In smart marketing, Spotify makes use of shrewd marketing techniques which launches an invite-only mode. This creates scarcity, which makes the demand shoot.
Spotify’s Strategic position
Spotify understands the enthusiasm of individuals about the internet all over the world. Therefore, company understands its business will bloom. The company has also created a very user friendly interface in the web and has also made its services downloadable.
There is also the option for its users to save their favourite songs using the same application. The simplicity factor of the company has assisted push the company further up the competition ladder and also promoted the company’s services to potential market (Allen & Wray, 2009).
Implementation of the Policies and Strategies
It is also imperative that policies have to be established to make sure that the music streamed by Spotify improves the music industry rather than destroy it.
The presence of free streamed music over the Internet is two sides of the same coin, and if no policies are enforced to ensure its controlled exploitation, it will be more of harm than good to the industry. Laws governing and restricting the music streaming business should be enacted.
Biagi (2011) asserts that technology without some control is usually very destructive. It may seem all glossy at first, but the long term effects will be negative. Also, by the time this is acknowledged, it would be quite late to salvage the situation. The music industry could be totally killed by the overestimation or under estimation of the effects of technology.
It is important for the company to have a strong and firm management system that strategically plans the business of the company. This forms another platform that can enhance the performance of the Spotify Company. Technology is dynamic, in that it changes on a daily basis.
Spotify needs a team that ensures the company is flexible enough to make the necessary modifications in order to fit in the modern world (Aaker & McLoughlin, 2010). These changes are also critical in keeping up with market dynamics in respect to the consumer needs and desires.
Summary of the Threats to the Spotify Company and future strategies to counter the threats
This is the biggest threat since other companies are coming up to compete with Spotify for the market share. The online music streaming industry sure is lucrative, and other companies are getting interested. Spotify has to ensure that it delivers quality service to its consumers in order to stay on top of the game.
The advent of free, streaming music also raises very valid concerns in the music industry worldwide. In as much as it serves the consumer’s music needs, will it profit the other stakeholders in the music industry too in the long run? There emerges a pertinent question on whether its business model is sustainable, whether or not it will survive the harsh test of time and economy (Allen & Wray, 2009).
Fear of investment is also another issue. People tend to shy away from ventures that have such an easy way of rising to the top in their areas of expertise (Aaker & McLoughlin, 2010). Investors hesitate to invest in Spotify du to the past losses it has made. The company should work to improve its profits so as to attract a significant number of investors.
Viable Future Strategy for Spotify
Spotify Company should build the audience they receive sufficiently in order to attract established companies in the advertising industry. This strategy will work towards generating increased income for the company.
The company should also move its services to mobile phone in order to maximise its market share. This is because the mobile phones provide more portability than a PC. Spotify should also try to improve its relationship with its stakeholders as much as possible.
Conclusion
In summary, Spotify has the potential to grow and expand to unimaginable heights. The company has to take into account the internal and external environment that surrounds it.
It should take advantage of the strengths it has like its simplicity, which makes it very user friendly, in order for it to expand and try to minimise the threats it faces. Threats like competition from existent and potential rivals. The fact that Spotify is a star actor according to the BCG matrix proves that the company has the potential of expanding and growing to an international music streaming company.
Spotify also has to consider the way it deals with its stake holders as a strategy of survival in the future. In addition, the company should meet all the needs of the consumers, the investors, and the record labels too. This strategy will ensure that the internal environment, which is also crucial, is conducive for the company.
The external environment of Spotify will also have to remain balanced for it to survive. The management should form policies that guarantee survival in the environment. Balancing the internal and external environment will keep the stakeholders satisfied. This will also keep Spotify in business.
Reference List
Aaker, DA & McLoughlin, D 2010, Strategic market management global perspectives, Wiley, Chichester.
Aigrain, P 2012, Sharing: culture and the economy in the Internet age, Amsterdam University Press, Amsterdam.
Neilson, J., & Pritchard, B. (2009). Value chain struggles: Institutions and governance in the plantation districts of South India. Chichester, U.K: Wiley-Blackwell.
Peoples, G 2011, Business Matters: Why Spotify Shouldn’t Worry About Turning A profit Right Now. Web.
Spotify Ltd 2012, What is Spotify?.
Taylor, C 2011, Pandora: Spotify is Our Friend, Not a Competitor. Web.
Zager, M 2012, Music production: for producers, composers, arrangers, and students, Scarecrow Press, Lanham, Md.
