Startup case study: Spotify

by Zach Losher

Spotify is a Swedish startup that was founded in 2006 and launched in 2008. In 2011 it was made available in the US. I’m sure most of you are at least somewhat familiar with it. For those who aren’t, Spotify is a music streaming service, much like Last.fm and Pandora radio. Spotify is available for free, but users who pay get better features. These generally include ad-free radio stations.

Where Spotify differs from many of music streaming services is that fact that they have a contract with multiple recording companies that allows these companies to recoup song royalties every time a song they own the licensing for is played.  On the surface, Spotify is wonderful because it theoretically allows users to listen to music for free while also paying major and independent label artists. Spotify makes its revenue through offering a premium account option that upgrades features users can use. They also make money through advertisements that are featured on the player and by commercials that run between songs for free users. In some countries Spotify offers an option where users can individually purchase songs.

It is readily evident why a company that does this is innovative. Since the development of Napster, peer-to-peer music sharing programs have been catastrophic for the music industry (at least that is what the labels claim). Whether this is true is beside the point. It is clear that services like Napster, Limewire, Morpheus, Kazza, and websites like the Pirate Bay have changed the business side of music. There has been a lot of criticism leveled at Spotify by musicians and labels claiming Spotify does not compensate artists fairly. While it is true that by and far the finical gains artists/labels see from song plays is minimal, that does not change the fact that what Spotify does is unique.

While the business side of Spotify is unique, the social side of the website is what is really interesting to me. Before registering for Spotify about six months ago, my main source of music library cataloging, playlist creating, and social interaction predicated on music was the website Last.fm. In its heyday, Last.fm was the absolute best place (outside of specialized internet forums and what not) to discover new music and connect with other fans interested artists you enjoy.  (For an example of what Last.fm looks like you can visit my page). It seems like Spotify has taken some cues from Last.fm when it comes to community engagement and providing tools for their users to better connect. This makes some sense considering Last.fm was one of Spotify’s launch partners in the US. There is even a beta program that allows you to control Spotify while surfing Last.fm charts and forums. L

ike Last.fm, Spotify gives users the ability to create playlists and share them with friends or anyone else using the service. They make it easy to streamline Spotify with other social media outlets like Facebook and Twitter. These allow Spotify users to actively and passively advertise Spotify to people connected with them on social media. Spotify has also become a way for online-based music magazines (think blogs like gorillavsbear and drowninsound or something more established like Pitchfork media) to link readers to tracks and playlists they make.

Over the past year or so, Spotify has been expanding to mobile, which is an interesting move. They joined the likes of Apple, Pandora, and others in an attempt to explore the world of mobile. This is a field I do not know much about, but am definitely interested in it. I’m not really prepared to comment on this beyond the fact that mobile has become an increasingly important area and Spotify is one of the entities exploring that space.

 

Side Notes:

 

  • Article on Forogtify, which is a service that mines Spotify for songs that have never been played and plays them for anyone interested. There is some amazingly weird stuff on there. I would recommend it to anyone that wants to explore strange, mostly terrible music.
  •  TLDR Podcast about a man who makes hundreds of albums for Spotify and collects the small amount of royalties that comes in.
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