The Spotify Company Analysis & Recommendations

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Table of Contents

Introduction
Description of Industry
Spotify Competitors
Products
SWOT Analysis
Recommendations and Conclusion
References

Introduction

History of the Company

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.

References

Apple. (2022). Apple Music.

Kaimann, D., Tanneberg, I., & Cox, J. (2020). “I will survive”: Online streaming and the chart survival of music tracks. Managerial and Decision Economics, 42(1), 3–20.

Mankins, M., & Garton, E. (2017).How Spotify balances employee autonomy and accountability. Harvard Business Review.

Rahmasari, K., & Purwaningtyas, M. P. F. (2022). The extended self: Youth’s identity in the music consumption of Indonesian Spotify users. Jurnal Riset Komunikasi, 5(2), 187–206.

Spotify. (n.d.). Spotify Premium.

Spotify. Spotify – Events. (n.d.).

Statista. (2022). Subscriber share of music streaming services worldwide Q1 2021.

Tencent Music. Tencent Music Entertainment Group Announces First Quarter 2021 Unaudited Financial Results. (2021). Tencent Music.

Voigt, K. I., Buliga, O., & Michl, K. (2017). Business model pioneers. Management for Professionals.

Vonderau, P. (2017). The Spotify Effect: Digital Distribution and Financial Growth. Television &Amp; New Media, 20(1), 3–19.

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