Music: 6 strategies that have allowed Spotify to become a leader in streaming

Posted Jan. 31, 2023, 4:32 p.m

With half a billion monthly active users as of early 2023, Spotify comfortably sits in the first place of the world’s most used music streaming platform, far ahead of its first competitor Apple Music. Despite teetering net profits and recent layoffs, mainly due to heavy investment and acquisition spending, Spotify projects ambitious profitability and $100 billion in revenue within 10 years.

This success story has been orchestrated since 2006 by the founder and current manager of the Swedish company, Daniel Ek. Named “the music industry’s most powerful personality” by Billboard in 2017, the businessman-turned-geek often has the right idea at the right time to keep Spotify one step ahead of the competitive music platform ecosystem. It risks, at times, scratching the music industry.

1. The first streaming site that was not born from piracy

For more than a century, CDs and their ancestors were the only way to listen to music offline. The system was then established: producers financed the records, then reimbursed themselves thanks to record sales. But in the late 90’s, a new kind of distributor emerged with the arrival of the Internet. The first “pirate sites”, such as Napster launched in 1999 or Pirate Bay in 2003, distributed catalogs of music without paying producers and artists compensation.

Lawsuits for trying to bend the illegal streaming sites that abound on the web are multiplying, without success. A death that will not take long for Daniel Ek to assimilate. “I realized that we cannot legislate on piracy […]. The only way to solve the problem is to create a service that is better than piracy while paying the music industry” (as quoted by The Telegraph in 2010).

The Swede wasn’t the only one with the idea to make streaming legal; a year earlier, on August 22, 2007, the French launched the Deezer platform. But unlike others, the company does not suffer from “pirate site” liability. “Spotify has been able to demonstrate its credentials to music professionals, who at the time were very wary of streaming platforms. Deezer (formerly BlogMusik), Rhapsody… Everything was built on the illegal download model,” says Sophian Fanen, co-founder of media Les Jours and author of Boulevard du Stream.

2. A business model to gain the trust of majors

To establish themselves in the market, founders Daniel Ek and Martin Lorentzon took the opposite path from their competitors by starting meetings with players in the music world to explain, with pedagogy, their economic model. “In contrast, Daniel Marhely, the founder of Deezer, is a geek who doesn’t know how to handle copyright issues,” explains Sophian Fanen.

By launching their platform slightly after their competitors at the time, Spotify’s executives could learn from negotiating their predecessors. Ek and Lorentzon then tried a new strategy by proposing major (a multinational record producing and distributing group) to become a shareholder, to involve these players in the success of their business.

But according to Sophian Fanen, Spotify’s success is primarily based on its business model. “Initially, they spoke to the paid subscription majors, where Deezer was relying on a free, ad-supported model. However, producers traumatized by the piracy era did not want this free music.”

3. Technological success

Daniel Ek wanted his website platform to be a technological revolution, based on BitTorrent (a “peer-to-peer” (P2P) data transfer protocol over computer networks, widely used by pirated sites). He then asked the company’s CTO, young programmer Andreas Ehn, to adapt this coding technique to make music triggering almost instantaneous. “There was a real “wow” effect when Spotify was released, music was launched very quickly compared to other platforms,” recalls Sophian Fanen.

For the rest, Spotify found nothing. Daniel Ek has taken over Deezer’s economic model, it’s almost identical. Ditto for the model of artist remuneration, known as “flow”, which is controversial these days. On its “Loud and Clear” website, launched in 2021 following a huge outcry, Spotify makes clear that it doesn’t pay artists directly, but through labels, distributors, and other intermediaries.

4. Well-trained marketing strategy

“Spotify has always relied on marketing focused on hype, youth and social networks. Instead, Deezer has shifted to a simpler, family-friendly brand image,” analyzes Sophian Fanen. In 2006, the Beta version of the app wasn’t open to everyone: you had to be invited by the user. “There is a “VIP” operation, a kind of “influencer club” which is working very well”, the journalist continued. “They surf on scarcity marketing”.

Keen to maintain this image, the platform has multiplied partnerships with social networks over the years. The latest communication innovation to date, which is “wrapped” with great success. This individual annual retrospective, with a colorful design, is shared en masse at the end of the year on social networks by users who are happy to be able to present their musical preferences to their friends. “This retrospective is an absolute free publicity stunt,” analyzes Sophian Fanen. “Communications agencies need to look at this with dreamy eyes.”

5. The playlist revolution

At first, in the 2010s, the platform was not much different from a record store located in the city center. The home page offers users the latest hit album releases, with the most popular ones displayed at the top of the site. For Sophian Fanen, this model only attracts music fans. “For others, it is unlimited tyranny: having passed the hits, they no longer know what to listen to. So for them, streaming is not very attractive.”

Leaders Spotify quickly understood that this segment of their clientele would listen more to music compilations than full albums. To develop this song, the streaming company bought The Echo Nest. The company, which was founded in 2005 by engineers from MIT, has created technology using artificial intelligence to identify the habits and tastes of internet users in terms of music. It’s the initial playlist that will quickly build the app’s reputation. “They have revolutionized the way of listening to music”, the authors of Boulevard du Stream concluded.

6. Podcast integration

If Apple is the historic leader in podcast distribution, Spotify has established itself in recent years as a formidable competitor. Daniel Ek’s app now has a 30% market share and has invested over $800 million in two years to acquire specialty companies and exclusive rights to successful podcasts (eg from Meghan Markle).

The Swedish streaming site has developed a very different strategy from its American competitors to establish itself in the market, by integrating podcasts directly into the app’s ergonomics. In contrast, Apple is currently still separating the two universes, with two different applications. Spotify has even created a “Daily” playlist, a mix of music and podcasts curated according to users’ tastes.

The company seeks to attract more customers, by diversifying its catalog, sometimes at the risk of losing its wings. Last year, American star Joe Rogan’s podcast, which earned $100 million and is one of the most streamed on Spotify, was accused of spreading false information about the Covid epidemic. Singer Neil Young later called for a boycott of the platform.

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