Spotify is everywhere
Chances are, you have heard of Spotify – the world’s largest audio and music streaming service provider. Having taken the world by storm since its launch in 2008, there are currently 365 million monthly active users, including 165 million paying subscribers in June 2021 (Spotify, 2021), dominating competitors such as Apple music. This ‘Financial Pill’ will explore how Spotify disrupted the music industry to become a household name, and how this Swedish music company revolutionised how people consume audio content forever.
Get to know the brand
Before its official launch in 2008, and before it was trading its stock publicly on the New York Stock Exchange, Spotify was founded in 2006 by Swedish Daniel Ek and Martin Lorentzon. Ambitious to change the music industry forever, and aware of the negative impact that illegal downloading had on music sales, Daniel realised the only way to prevent millions of dollars of lost revenue was to “create a service that was better than piracy and at the same time (compensated) the music industry.” (BBC, 2018). With that in mind, the Swedish founders disrupted the music industry forever, influencing huge audiences that were once using traditional terrestrial radio and illegal downloading bays to change their music habits: by moving to a fresh, chic website known as Spotify.
Everyone loves free stuff
So… How did they do it? Spotify’s worldwide success can be attributed to its simple business model, with ‘Freemium’ being the word leading to their immense success. As a freemium service, all Spotify users have two options to consume Spotify’s vast selection of audio content. They can either listen to music via limited, ad-supported free feature or otherwise opt into Spotify’s subscription-based premium features, giving subscribers unrestricted access to features such as ad-free music and on-demand music listening. Gone were the days where people sifted through hours of illegal websites pirating the latest tunes. Spotify made free music legal, readily available, on-demand to anyone and everyone in its 178 markets.
Personalised, Easy, New. Spotify kept up with the times.
One of Spotify’s flagship offerings is its custom-developed playlists feature. Each week, users receive new song recommendations tailored to their music tastes. For instance, “Discover Weekly” is one of Spotify’s popular personalised playlists that uses “three forms of recommendation models (machine learning algorithms)” to work (Tambekar, 2020). Namely: 1) Collaborative Filtering, which combs through similar user activities and recommends songs based on similar users’ activity 2) Natural Language Processing, an ability possessed by algorithms to understand speech and text in real-time 3) Convolutional Neural Networks, software to ensure that non-mainstream songs are considered in new song suggestions. These three models work together to create successful song recommendations based on a person’s listening history. It is clear how Spotify’s machine-learning changed music listening forever, encouraging users to add new songs to their library frequently.
Benefits for Artists
With refreshing, new music constantly being suggested to users, non-mainstream artists and independent artists are more likely to experience organic growth and benefit from algorithmic-based exposure. Nowadays, lesser-known Independent musicians can quickly gain notoriety through Spotify’s algorithmic suggestions. Underground artists can quickly become viral superstars overnight.
bumps in the road
Reaching the top of the industry did not come easy for Spotify. The company had to withstand a lot of harsh criticism from many industry ‘traditionalists’. Artists such as Taylor Swift have publicly shamed the company for how much it paid musicians – calling the whole platform an “experiment” (BBC,2018). In comparison to physical CD sales, where artists would get paid with each song or album sold, Spotify implemented a royalties system that introduced elements of economics’ Supply and Demand. The idea was simple, the greater ‘Demand’ a song had (greater number of streams), the more an artist would get paid. However, this quickly incentivized fraudulent streaming methods, such as ‘click farms’. These Click Farms would artificially increase a song’s streams and market share and thus artificially increase an artist’s revenue.
Trailblazing, Trendsetting, Innovating
I trust that this article has provided an insight into what features Spotify has intertwined with its business model to create an unstoppable force in the music streaming industry. I am eager to see what the future holds for Spotify, and you should be too.
Jeremy Wong, King’s College London
BBC. (2018, March 1). How Spotify came to be worth billions. BBC News. https://www.bbc.com/news/newsbeat-43240886
Spotify. (2021, April 28). Spotify — Company info. https://newsroom.spotify.com/company-info/
Tambekar, A. (2020, May 11). How Spotify uses machine learning models to recommend you the music you like. GreatLearning Blog: Free Resources what Matters to shape your Career!. https://www.mygreatlearning.com/blog/3-machine-learning-models-spotify-uses-to-recommend-music-youll-like/