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The Rise of Spotify: How the Swedish media provider became a billion dollar company

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Jai Pratap
A Mass Media Graduate who loves to write. Jai is also a sports enthusiast and a big movie buff. He loves to learn new things.

Swedish audio streaming platform Spotify was launched 13 years ago in 2006. As of now, it has 217 million active users, and 100 million paid subscribers.

So how has a Swedish music service, launched 13 years ago become the world’s largest audio streaming service?

Starting Days of Spotify

spotify-founders
Spotify Founders: Daniel Ek and Martin Lorentzon

Daniel Ek and Martin Lorentzon launched a small start-up in Stockholm, Sweden back in October 2006. Ek and Martin’s main objective was to fight the piracy problem that the music industry was facing. People were using websites like Napster and The Pirate Bay to get free music, which cost the music industry millions each year.

Ek and Martin realized that the only way to fight piracy dilemma would be to create a platform that would be easier for people to access and at the same time would compensate the music industry.
But they had no idea that one day this platform will become worth billions of dollars that it is today.

 

What makes Spotify different from other audio streaming services?

spotify app (1)
Spotify app screenshots

Spotify has a library of over 40 million songs with daily addition of over 20,000 songs. Spotify provides everything that its competitors do and more. There are a massive number of playlists available created by users and Spotify’s editorial team and to go with that users have access to different podcasts from stand up comedy to thriller-drama stories. Spotify stands out among their competitors when it comes to their algorithm, which they use to personalize and discover new music according to the listening habits of users. Spotify allows you to make your playlists and even share them. It also allows you to share what you are listening to your social media accounts. There are different features for free accounts and premium accounts, which we will discuss later in this article.

 

Curating Playlists Just For You.

With weekly discover feature, Spotify creates a playlist every week just for you, based on the songs you have listened to in past days. While other platforms provide a similar feature, but Spotify’s accuracy in curating a playlist based on your taste is considered best many critics and users.

 

Providing exposure to small artists.

While collaborating with big label record companies, Spotify is also known for supporting small artists by getting their music on the platform through third-party service. Spotify works with companies who handle licensing and distribution. If you are an independent artist, you can register with any of those companies and your music will be on Spotify. Usually, there’s a commission involved, and you will get royalties based on streams of your songs. With this feature, upcoming artists don’t have to worry about getting a big label record deal to get started. How Spotify decides to distribute royalties to rights holders is described in detail later in the blog.

Awal, CD Baby, Distrokid, Emu Bands, Record Union, Spinup and Tunecore are the companies you can register to get your music on Spotify.

 

The Social Connection

Spotify allows users to connect and share their playlists with each other. If you log in with Facebook, you can see what your friends are listening to in the “friend activity” section.
Spotify also allows you to create a public playlist, which anyone can listen to, with a feature similar to social network sites Spotify allows you to follow an artist or anyone who creates playlists, in a way Spotify is a social network in itself.

Even if you are not logged in through facebook or twitter, you can still share any song you are listening to through Whatsapp or any other social network website.

 

Early global launch

In early 2009, Spotify launched its free services to the United Kingdom. Registrations occurred in huge numbers when mobile service came into the country. Thus, Spotify stopped providing free services and came up with an invitation-only policy.

In 2011, Spotify started its services in the USA with a six month free ad-supported trial period, but in 2012 Spotify withdrew all limits on free ad-supported service indefinitely and allowed users in the United States to listen to unlimited music for free. As of 2019, Spotify has a large market in the USA and collects a considerable revenue share from there. In 2018 Spotify even got listed in New York Stock Exchange.

 

User Growth

By March 2011, Spotify had a base of over a million paying subscribers across Europe and went on double up its users in next six months, and by the end of 2012, it had over 15 million subscribers with 4 million paying users among them. As of now, 2019, Spotify has 217 million active users and 100 million paying subscribers. Regular updates in features and always keeping ahead of the competition has helped Spotify to reach such a massive user base, and it is only increasing.

 

How Spotify earns revenue?

Most of the revenue generated by Spotify comes from paid subscriptions and by third-party ad placements.

In 2013, Spotify launched a website “Spotify for Artists,” which explained the business model of the company. According to the website, 70% of the revenue earned goes to the artists and rights holders.

 

Fundings

In 2010, Spotify received a small investment from Founders Fund, a San Fransisco based capital venture firm, A year later, in 2011, Spotify received an investment of 100 million dollars which helped them in expanding their services in the United States.

In 2016 Spotify was able to raise funds worth of 500 million dollars through convertible bonds. According to numbers provided by the streaming organization, the current value of Spotify ranges from 6.3 billion dollars to 23 billion dollars.

Perks of being a premium user

Spotify earns most of its revenue by selling subscriptions, so that’s why they urge users to opt for subscriptions. There are some features which are available to premium users only.

Audio

For free users, the quality of the audio is lower, for phones, it is 68 kbps, and for systems 128 kbps, and on the other hand, premium users enjoy 320 kbps high-quality audio.

 

Downloads

Free users don’t have access to the offline option, whereas premium subscribers can download songs and podcasts and listen to them whenever they want.

 

Uninterrupted Music

Advertisements are also one the primary source for Spotify to earn revenue. Spotify runs ads after every 3 or 4 songs for free users, but premium users enjoy uninterrupted music.

 

Music Library

According to Spotify, users have access to over 40 million songs, be it premium or free, but new songs are available only to premium users, free users have to wait at least two weeks before they get access to newly released songs or albums.

 

Spotify Connect

Spotify also allows users to enjoy cross-platform streaming, and users can connect Spotify from their smartphones to smart tv, laptops, and computers, and enhance their streaming experience. Spotify stands out among its competitors when it comes to cross-platform service, and it is easy to connect as well, when you open Spotify it shows all the devices nearby that you can connect with, you have to log in with the same account.

Apple Music; the lone competitor?

Apple music app screenshots
Apple music app screenshots

No doubt Spotify has biggest user base across the globe, but Apple Music is catching up to it, these are the biggest two rivals in the music streaming market right now, and both have huge user base across the globe, but Spotify has its nose slightly ahead.

Currently, Apple Music has over 60 million subscribers all over the world. Apple Music was launched only four years ago, and in just this short period, it has skyrocketed its user base and is giving fierce competition to the Spotify.

 

Controversies over the years

Spotify founders, Daniel Ek, and Martin Lorentzon, have faced criticism and are no strangers to controversies, Spotify has faced criticism about its compensation policy, many critics believe it is unfair how they compensate the record labels, which is, how many times a song is streamed in accordance with the total songs streamed on the platform.

Other criticism that Spotify faces regularly is how they let users allow free access to new albums. In defense, CEO Daniel Ek pointed out that this platform enables easy access to songs and prevent piracy on a big scale.

In 2014, Taylor Swift withdrew her album 1989, and all her catalog from Spotify reason being inadequate payment, but after four years all her records were back on the platform.

 

Reaching to more people; A Global strategy

Currently, Spotify provides its services in 79 countries and are expanding their reach rapidly around the globe, in just last year Spotify has reached in the Middle East, Vietnam, South Africa, and Romania.

It may seem like Beyonce and Rihana are everywhere, but 80% of the world’s population doesn’t speak English. Spotify’s growth in the non-English speaking region has served them very well so far, just last year Spotify made a deal with T-series, the biggest music company in India with over 160,000 songs, so they stream their songs on the platform.

By 2023, Spotify hopes to have 53 million paid subscribers in Asia and Africa. It currently has around 15 million paid subscribers in that region.

CEO, Daniel Ek, believes Spotify will soon become a one-stop destination for all the people around the globe to share their music.

According to music industry experts, Spotify is spending a tremendous amount of money and time to make themselves globally available. In a statement CEO, Daniel Ek said we could have stopped by just being the best music streaming company in Sweden and still be very much profitable, but our decision to expand is to bring best music listening experience to people everywhere in the world and create a sense of unity.

 

What future looks like for Spotify?

With current expansion rate, Spotify is looking to make this platform a global hit, and their strategy so far has been successful, with already acquiring Indian market and looking to expand furthermore in remote locations will surely help them at wall street.

According to Musicbusinessworldwide.com, first quarterly report of Spotify shows that 40% of its premium users are in Europe, 30% in Northen America, 20% in Latin America and rest of the world has 10% of its premium users.

New features and ever-expanding library being the backbone of the platform, Spotify promises to provide the best music streaming experience among all other competitors.
Next few years will be critical in terms of global success for the platform as they look to spend a huge amount on expanding their reach, but how useful will it turn out to be is a thing to see.
Spotify has changed the way how people interact with music and has been successful in making the process more intimate and accessible.

Disclaimer: Coinnounce's views are not necessarily reflected in the articles published, and they are the sole representation of the author's opinions. Article's information should not be taken as investment advice. Risks are involved in cryptocurrency investments and trading. Readers are urged to carry out extensive research before making a decision.

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