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IAB UK, spotify, start up, venture capital

Spotify: Good adaptive strategy, not poor instant-gratifying tactics

I was explaining to one of my friends as to how this is the Punk Rock generation for new media technologies. A deep DIY culture amongst social technologies lends everyone a voice and I thought I should get my opinions out here as well. So there!

Spotify is in talks to raise another $100 Million over and above the $83 Million that is has raised so far http://tcrn.ch/ggjRJG. Now, I am a big fan of Spotify and I think this is great! Over the last year I was reading countless articles from industry consultants about whether Spotify will ever break even with their advertising revenues, what numbers will it take etc etc – the idea of which I thought was pretty ridiculuos.

I didnt ever think Spotify was looking to break even with advertising revenues. The analyst speculations embodies the nature of the high tech investment beast. I think many a times, this destroys the innovative spirit of technologies and most certainly, the user experience. I think some of the big boys in the space have a few lessons to learn from the growth of Spotify (and honestly speaking, I dont think Spotify had a masterplan, but they understood the dynamics of the industry very well and held their ground very well). Spotify’s strategy was simple – to gain marketshare rapidly. Revenues and profitability would follow

1. Investors – If you cant beat them, join them. I guess both Spotify and the music labels felt the same way. According to the IFPI – only 5% of music that is downloaded globally, is legal – This means labels are going out of business and the ecosystem to support musicians is faltering. Sweden and Korea have been cited as case-in-point for the success of streaming music services where new bands have had great success to reach out to fans they never thought could have existed.

2. Good technology solves problems, great technology creates value – I think Spotify is a great platform for new bands to promote their music. No matter how small a label you are, your catalog has an immediate distribution channel. I am certain more and more bands would begin to adopt this system to launch their projects.

more artists, less piracy, less middlemen

3. Collaborate – Perfect example of how building from the bottom up is not always the smart thing to do. Apple tried to create Ping for discussing music and it didnt succeed – Spotify got Facebook to say ’Spotify IS Facebook music’

4. The consumer experience – and this is where I think Spotify really differentiates itself from the rest of the pack.

a. Free, on demand music (The hook) – There are other US based services, but you can only do this for a limited period of time until you subscribe. With Spotify – you do your discovery every month until your library keeps growing beyond control – and then you want that library available at all times.

b. Very little advertisement, but ad’s are engaging – VW Jazz calculator for example. The quality needs to keep up though – I’m not sure the creatives have figured out how to deal with this. Spotify gives you a new and powerful dimension of targeting – based on the mood of the listener – why not use it?

Now, as a premium user –

c. Offline access – so that I do not have to always worry about bandwidth or wonder what I’m going to listen to on my long tube ride to work.

d. Ubiquitous music – any device in the house can play it. TV’s, Sonos receivers, iPod compatible devices

My big concern was – what happens when digital natives (the teenagers who will grow up with tablets and mobile devices around them – as a result, driven by the app economy, not laptops necessarily) are the ones Spotify needs to hook? -Well, Spotify has started addressing this problem by partnering with the telecom service providers to offer competitive services, you would say.

All eyes on the US expansion now – The firm has had massive growth in Europe in the last year and opening up the US markets would mean even stronger growth. Evidently, one of the top four labels is causing problems – but I dont think it can afford to keep doing that for long. Apple of course will combat this with it’s own music streaming service – it is then that we shall see whether Spotify’s partnering with Facebook, and the fact that it provides such excellent Bio’s and scrobbles to Last FM – is enough to take on the competition.

A good report I found on the IAB UK for those interested – http://bit.ly/dIW157

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About Surya

MBA. Technologist. Problem solver. Futurist. Collaborative interventionist. Back-of-the-envelope calculator, sketchbook artist, musician, animator, deconstructionist. Working with @transferwise

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  1. Pingback: Spotify: Expansion strategy and the next battlefronts « Converge. Disrupt. Repeat. - July 12, 2011

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