Introduction
The music industry was facing great challenges in early 2000’s, and revenues were plunging due to piracy and digital distribution growth. People were listening to plenty of music by downloading pirated copies. The market needed a better way for artists to monetize their music. Consumers needed a legal and more straightforward way to listen.
One company, revolutionized how people listen to and artists sell music. The company is none other than Spotify, a Swedish music streaming giant.
Spotify was founded in 2006 by Daniel Ek and Martin Lorentzon in Sweden. Spotify works on a two-sided marketplace with music lovers on one side and the artists who create the music on the other side. It provides music lovers an easy way to discover and enjoy music and artists an extra avenue to showcase their creative work.
Spotify was founded on the belief that music is universal and that streaming is a more robust and seamless access model that benefits both artists and music fans. It has provided a great way for both artists and consumers to benefit from the digital transformation of the music industry.
Millions worldwide have access to over 82 million tracks, including more than 3.6 million podcast titles, through Spotify whenever and wherever they want.
Spotify has transformed the music industry by allowing users to move from a “transaction-based” experience of buying and owning music to an “access-based” model, enabling users to stream music on demand.
Spotify Mission Statement
Our mission is to unlock the potential of human creativity by giving a million creative artists the opportunity to live off their art and billions of fans the opportunity to enjoy and be inspired by these creators.
As a two-sided marketplace, Spotify’s success depends on the ability to match a fan’s interest with artist’s music. The better the match, the better will be Spotify’s increase in userbase and sustainable growth in revenue.
Spotify’s Customer Segments
Spotify consists of the following Customer Segments.
Users: The users are the exclusive audience for Spotify. They make up the major chunk of the customer segment. They are also the target audience for the Advertisers.
Content Creators: Anyone who creates audio content and puts it on Spotify platform for the users to listen to are called content creators. They could be the artists, music companies or podcasters.
Advertisers: These are businesses which use Spotify’s platform to promote their brands.
Spotify’s Value Proposition
Value Proposition for Users
Legal Access to Music:
Prior to Spotify, people used to listen to pirated copies of music. Piracy is illegal and considered criminal offense in many countries. Spotify provides a platform for legal consumption of music for free or at affordable prices.
Convenient High Quality Music:
With Spotify, users don’t have to download the content. They can stream the music online and listen to high quality content. The audio quality is as high as 320kbps.
Personalisation:
Users can create a personalised profile by selecting their favorite artists and music and creating a playlist. Spotify’s algorithm starts suggesting music based on user’s previous selection.
Value Proposition for Content Creators
Spotify’s value proposition to content creators includes:
Audience:
Spotify is one of the largest music streaming service that allows artists to build their fan bases. Artists can reach millions of people worldwide with their music and podcasts.
Brand identity:
Spotify helps artists grow by providing them analytics on user’s interest and behavior. It helps them understand latest trend and know how to deliver content. They can also go live on the platform and interact with their audience.
Revenue:
Spotify pays royalty to the artists if they hold the rights for the content created on a per stream basis. This encourages them to upload self created content and earn additional revenue.
Value Proposition for Advertisers
Targeted Ads:
Advertisers will be able to publicize their brand to the large userbase. Spotify always ensures the ads always reach the right audience. Advertisers will be able to target their audience based on their demographics, interests, behavior etc. Spotify also provides free tools to create ads different types of ads from scratch.
Ad Tracking:
Spotify provides tools to track the performance of the ad. This helps advertisers to evaluate the performance of the ad and make necessary changes.
Spotify’s Channels
Website
Spotify acquires majority of its customers through its website. Its website contains communities for all its customer segments.
MobileApp
Spotify has Android as well as iOS app to cater to the needs of its different customer segments. It has a ‘Music & Podcasts’ app for its users. It also has a ‘Spotify for Podcasters’ & ‘Spotify for Artists’ for its content creators.
Spotify’s Customer Relationships
Spotify maintains customer relationship by means of
Spotify’s Key Resources
Software Platform
Recommended by LinkedIn
This refers to the website and various mobile apps through with the services are made available to its users.
Content Creators & Content
The artists, podcasters and record labels who own the rights who upload their content in Spotify.
Spotify’s Employees
Employees who are responsible for the various applications and its maintenance.
Spotify’s Key Activities
Spotify’s Key Partners
Spotify’s Cost Structure
Spotify’s Revenue Streams
Premium Revenue
Spotify charges monthly subscription fees for premium services. With premium service, users get an uninterrupted ad-free music.
Ad-based Revenue
Spotify also provides free services for its users. With free services, users will have ads between music streaming. These ads are sponsored by companies who want to promote their brand and pay Spotify to market their products and services.
What’s next for Spotify as a Business?
In 2022, Spotify had about 500 million users in total. Out of which there were 295 million free subscribers and 205 million premium subscribers. The free or ad-supported business has higher cost compared to premium business, especially due to the higher number of subscribers in it and they stream content for free. Eventhough the premium users are much lesser than the free users, they generate seven times more revenue compared to the free users.
This shows that the ad-supported business runs in tight margin and it mainly serves as a funnel to convert users into premium users by promoting the value of premium subscription. It also helps in amplifying company’s brand.
Eventhough most of their revenue comes from subscriptions, Spotify should make use of ad-tech and move into digital advertising space. They should also focus on advertising based business model on a longer run, especially since their free user base is higher than the paid users. Also as the free MAUs is increasing steadily, ad-based revenues could serve as their major revenue generator in the future.
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