Spotify in 2020: Can the Company Remain Competitive?*
Overview
Spotify was founded in 2006 by Daniel Ek and Martin Lorentzon in response to the growing piracy in the music industry. The company began as a small startup in Stockholm, Sweden, and within two years they were offering free music with advertising in hopes that music fans would upgrade to the £10 a month ad-free subscription. The initial launch as a streaming service was not successful; Spotify reported a loss of 4.4 million in 2008. The free and paid subscriptions were available only in the UK until 2009 when Spotify launched on the Apple App Store. This platform is what catapulted Spotify to the global competitive company it has become.
As of September 30, 2020, Spotify had 144 million subscribers, 320 million monthly active users (MAUs), 60 million + tracks, 1.9 million + podcast titles, 4 billion + playlists, and the platform is available in 92 markets.
Since the onset of the COVID-19 pandemic, Spotify has seen an increase in music and podcast listening across different devices, specifically themed-playlists. The company has responded to listener’s needs, in general, through special interest podcasts such as COVID-19 hub, Coronavirus: Fact vs. Fiction and Science Vs.
Spotify’s focus is on driving engagement with a dynamic customer service strategy. The company has found a place in our everyday lives through different social media platforms. They have an active presence on Facebook, Twitter, Instagram, YouTube, and LinkedIn and have been touted as the next social network. The company has revolutionized the world of music distribution by shifting how we consume audio content and ensuring that artists are paid royalties for their work. With nearly 250 million subscribers, Spotify has been dubbed the Netflix of the audio world.
The company’s initial business model included a freemium and subscription-based service where subscriptions accounted for around 91% of the revenues and freemium made up approximately 9%. In 2016, Spotify expanded the business model to include new advertising formats (branded moments, branded playlists, sponsored playlists, sponsored sessions, and traditional). Spotify’s brand strategy target all demographics through partnerships, engagement, and utilizing multi-channel marketing.
As with all industry disruptors, Spotify will continue to be challenged by established and new players in the industry.
Case instructions
The case should provoke a well-though out discussion of the appeal and future of streaming services, namely in the music industry, especially during COVID-19 and post-pandemic.
The case is intended to introduce students to a global company’s evolving strategy with a freemium and subscription business model. This case aligns with chapters 1–6. Students will be able to utilize concepts from chapters 1, 2 and 5 in evaluating the company’s business model and strategy, select tools from Chapter 3 in assessing industry attractiveness and competitive rivalry in the industry, Chapter 4 company situation analysis tools, and Chapter 6’s discussion of strategies for strengthening a company’s competitive position.
Videos for Use with the Spotify Case. There are two videos available for view. All videos are posted at YouTube and can be accessed through the following links:
A 8:43 minute video from 2019 entitled “Spotify CEO on Its Goal To Be the World’s Leading Audio Platform” that can be accessed at https://www.youtube.com/watch?v=0bDlj5eVMjw .
A 6:48 video from 2020 entitled “Spotify Chief Content Officer on Podcast Expansion, Growth and More” that can be accessed at https://www.youtube.com/watch?v=QuZlQnD7nY0 .
Written Case Analysis. Use the answers to the assignment questions to thoroughly write a written analysis to the following:
Spotify CEO Daniel Ek has employed you as a consultant to assess the company’s overall situation and recommend a set of actions to further improve the company’s future prospects and competitive position. Prepare a report to Mr. Ek that includes:
An evaluation of competitive forces in the market for the digital music platform
An assessment of Spotify’s strengths, weaknesses, opportunities and threats
An identification of the primary components of Spotify’s value chain, and
A set of action recommendations that Spotify’s top executive team should initiate in order to sustain the company’s growth and performance.
Your report should be 5+ pages and should include an assortment of original (not copied from the case!) charts, tables, and exhibits to support your analysis and recommendations.
Prepare a brief report to Spotify’s CEO Daniel Ek outlining the 2–3 top priority issues that the company management needs to address and the actions that need to be initiated to address these issues. Your report should contain detailed and convincing reasons to justify each of your recommendations. Each recommendation needs to be based on (a) conclusions drawn from the application of the concepts and analytical tools discussed in chapters 1–6 (those applicable).
Assignment Questions
1. What are the key elements of Spotify’s strategy? What keeps them competitive compared to other streaming platforms?
1. How would you describe Spotify’s business model considering their subscription tiers? What makes it different?
1. What are the value chain components of Spotify as a streaming music platform and how does the company deliver value?
1. What does a SWOT analysis reveal about the overall attractiveness of Spotify’ situation?
1. How do you characterize Spotify’s growth strategy? Have they achieved a stronger position?
1. What recommendations would you make to Daniel Ek to sustain the rate of growth at Spotify?