Spotify: Face the Music
Although Spotify had first launched in 2008, it hadn’t gained steady recognition until a few years later. However, the launch wasn’t what was gaining the most attention. For instance, Spotify had just secured a $200 million credit facility. Although it was doing everything it could to avoid the issue, the media highly speculated that the company was still about to go public. Was Spotify really being smart about considering this initial public offering?
There was no reason, for Spotify, to not want to go public. It became one of the world’s top music streaming services. With over 24 million users, it was hard to pass over. Not only did it succeed in entering the difficult U.S. market, but it had already been present in 56 countries. It was growing into an international phenomenon.
However, Ek still had to be careful. Back in 2012, after posting a net loss of 58.7 million euros, Ek knew what he was getting himself into. He was willing to take the risk, but he also wanted to make sure that it, at least, paid off in the end. Most importantly, he had to also reconsider for another crucial reason — the troubled history of digital music (e.g. Napster, Rhapsody). As the scholar puts it, “If Spotify was going to IPO, Ek needed to convince potential investors that Spotify had a sound long-term business model. Many other music streaming services had failed before, and despite Spotify’s impressive growth, some believed it could go on to become yet another casualty in the troubled history of digital music” (1). Well, this time, it was probably going to be different. Spotify seemed adamant on changing this mindset around.
In 1999, digital music had generated a whopping $38 billion in global revenues. However, that amount fell down to $16.5 billion in 2013 — which is when digital was bringing in the majority of revenue. Due to the drastic drop, the industry blamed piracy for that reason. But, Daniel Ek thought otherwise — according to Ek, it’s not that people do not want to pay for music. Rather, music that’s illegally acquired has much more significance, and better quality than music that’s legally acquired. And, that is why he ended up in the music industry (through digital means) — he wanted to give people what they were looking for, but at a decent price. A one-month subscription, to Spotify, cost a lot less than a CD album would if it were purchased every month. So, as a matter of fact, as Ek put it, “convenience quite often wins” (2).
If it were not for the success of the iTunes model, then music streaming services would probably not have existed. The era of the Smartphone had gone hand-in-hand with the launch of music streaming services. Other streaming services, such as Pandora (which was launched in 2005), were soon appearing. Not only was there popularity among the streaming services, but definitely competition as well. In 2013, Pandora had claimed 70 million monthly users in the United States and Canada, beating out other subscription-based streaming services. Not surprisingly, Spotify was one of those streaming services — and it was quickly expanding in the U.S. market.
So, what made Spotify so different? what made it stand out? In 2006, Spotify was founded in Sweden by Daniel Ek and Martin Lorentzon. It wasn’t until 2008 that it was finally launched in Sweden and other Western European markets. In 2011, Spotify had launched in the United States and, by then, had already 10 million users throughout Europe. Within two years, it grew quickly — one million paid U.S. subscribers by March 2013, and six million worldwide. Spotify didn’t stop there, as it kept expanding internationally in the following years.
Spotify has all the great features, including simple functionality. It’s almost like a social media app — but, with music. Along with music being discovered, and playing automatically, “users could “follow” their friends to see what music they were listening to. They could also follow artists, bands, and other personalities in order to get news about them and be alerted if they released new songs on Spotify” (7). With this new discovery, comes greater performance — meaning more subscribers. “Spotify earned the most revenue after only two years in the U.S. market” (10). So, could the Swedish company be the solution to a shrinking industry? Of course it would. “Spotify’s rapid expansion required significant investment; however, the company didn’t have trouble raising capital. In 2014, it had successfully completed 6 funding rounds, reportedly raising a total of $537.8 million” (10).
Daniel Ek’s mind may have been pondered with several questions. Could Spotify turn into a sustainable business? Of course it can. It’s different from the rest of the failed streaming services from the past, and lives up to its own expectations. If its competitor, YouTube could remain a sustainable business, then so can Spotify. It has the capacity to live up to its own hype and help the music industry grow again, especially now that music gets discovered rapidly through digital means. Because of its smart usage of digital streaming, Spotify has indeed helped the music industry grow after more than a decade of continuous decline. And, could this possibly be replicated elsewhere? Sure, it can. However, Spotify will always be the leading competitor. No other company could turn out as prosperous as Spotify.
