Spotify new business model

Posted on 04. Apr, 2009 by Antonella Stellacci in Music Industry Trends

Since its launch in October 2008. Spotify has been getting lots of plaudits from users and bloggers.

From TorrentFreak to TechCrunch, the service seems to have impressed people who have tried it with its speed, usability, and depth of songs. Spotify seems to be the new European Mecca for music. Yes European only, since it isn’t officially available in the U.S. yet (though a Digg commenter did provide a way for people to try it out Stateside, at least temporarily). Right now it can be accessed in the UK, Germany, France, Italy, Spain, Finland, Norway, and Sweden.

What is Spotify? It is a downloadable application that lets users stream music instantly from its library. Once downloaded, the service allows users to search its music catalog by artist, genre, or title, and stream the tracks on-demand any number of times.

As with all new social media sites, Spotify offers its users the ability to create and share playlists (a la the now-defunct Muxtape). In December 2008, it also added the ability to scrobble the songs you listen to through Spotify on Last.fm.

The Spotify catalog is huge – notwithstanding some recent troubles – and built with the blessing of EMI Music, Sony BMG, Universal Music Group, Warner Music Group, and some smaller record labels, including most recently CD Baby.

That, of course, begs the question: how does it plan to make money?

Let’s put it in a temporary timeline

-Spotify started off by offering two ways to use its service, a free service sponsored by ads, and a paid subscription service.

-How is this playing out? In an interview to Robert Andrews from PaidContent UK, Spotify CEO Daniel Ek points at the difficulties of the advertising market and the not ready yet CRM platform as the reasons for a lukewarm start “We launched probably at the worst possible time in 70 years for advertising”.

-In less than 6 months, Spotify has certainly attracted an interesting crowd of followers. It has hit the million-user mark, but that’s across its ad-supported free option, £0.99-a-day service and £9.99 unlimited offering. However, according to Mark Mulligan, analyst at Forrester Research, Spotify has found that far fewer users then expected are handing over the cash for a monthly subscription.

Plans for the future?

-Mobile apps to stream and download songs – still in the works. But this is certainly a place to be today, for branding and marketing reasons.

-A celestial juke-box (a la Lala and PlayAnywhere). This is going to be huge and who wins this market, has the chance to be the next ITunes!

-Click to buy links. And that’s happened today thanks to a partnership with 7digital.

Initially only single songs and albums will be available to purchase but eventually users will be able to buy entire playlists from the store. The buying option will go live first in the UK and Germany, France, Italy and Spain. Sweden, Norway and Finland will follow in a few weeks time. No prices have been given for the price of each 320kbps MP3.

To quote Mark Mulligan again it appears that “The deal (with 7Digital) is happening now rather than at launch because Spotify is going through the process of re-learning its business”.

We’re all here to learn and re-learn!

James Heckman, former chief strategy officer at Fox Interactive, MySpace’s parent company, is quoted today by the Financial Times in a report on the status of the online music industry, saying .“A lot of these guys are going to be wiped out, but everything that is happening right now doesn’t matter in the long run.

“This is a transformation period and I think there will be some winners.”