Strategic Analysis of the E-Business Model and System of Spotify - Report Example

Strategic Analysis of the E-Business Model and System of Spotify TM Executive Summary The report utilizes three main concepts to diagnose the internal, external and competitive environments of Spotify. It was discovered that Spotify has its core strengths in their ability to conveniently attract customers, market their products and take in customers. The main limitation of Spotify is that they are obscure and they pay very little to artistes whose songs are downloaded. They are also very limited in scope of operations. In the environmental analysis, it was discovered that the easy of new entrants and the threats of subsidies are high. Globalization, the liberalization of copyright laws, the advent of smartphones as well as the recovery from the credit crunch makes it easy for firms like Spotify to expand into different nations and markets around the world. However, it also makes it easy for competitors to enter the markets. It is recommended that the company pursues a strategic mix of diversification, market expansion and cost leadership. Introduction This is a report discussing Spotifys Strategy and its use of information systems as a tool for the execution of its business strategy. The report would evaluate the theoretical framework and examine important ideas and concepts that define strategic management and strategic analysis. The concepts and ideas would be applied to the case of Spotify and how it is used to formulate and undertake its strategic activities. The paper would culminate in the delivery of a set of recommendations as a result of the conclusions and major findings that would be made. Theoretical Perspectives E-Business is a popular branch of business that has evolved over the year. Chaffey defines e-business as all electronically mediated information exchanges both within an organization and with external stakeholders supporting the range of business process (Garbade, 2011). Another angle of viewing e-business is that it is an advanced use of information systems and IT connectivity tools like the internet to conduct business (Smith and Chaffey, 2012). “E-Business Architecture refers to the methods of bringing together systems, processes and applications from across the business” (Smith and Chaffey, 2012: p288). An e-business strategy is referred to as the “....definition of the approach by which applications of internal and external electronic communications can support and influence corporate strategy”(p27). This means that e-business strategy provides a system through which all the elements of an e-business architecture works with other strategies of a given business to attain the overall corporate strategy. Johnson, Scholes and Whittington (2010) identify three main elements of corporate strategy: 1. Corporate strategy affects all the units of a company. 2. It is formulated by the top-level management of the company. 3. It is a long-term plan for the company. Figure 1 below shows the typical connection between e-business strategy and the other units of a given companys corporate strategy. Figure 1: Relationship between Corporate Strategy and E-Business Strategy (Chaffey, 2011) From the diagram, it is apparent that the organization would have its corporate objectives and other systems. However, the E-business Strategy is formulated with the view of using information systems and communication technology to create marketing and CRM strategy as well as information systems and supply chain strategy. The kind of strategy that is formulated and used by a given e-business entity is influenced by some elements of the entity. Scott identifies that there are three distinct elements and units that influence the strategic plan of a given entity (2010). These are: 1. The internal environment. 2. The competitive environment. 3. The external environment (Scott, 2010). There are tools used by the top level management of an entity to diagnose the elements of the business environment and these are used to critique the circumstances of a given entity and provide important guidance on how things should proceed and how activities should be carried out. SWOT Analysis SWOT Analysis is the examining of the strengths, weaknesses opportunities and threats of a given entity (Perry, 2009). This involves examining the core competencies and the immediate threats to those competencies. This is done to appraise the internal structures and components of a given business. Porters Five Forces Porters Five Forces indicates that every industry is influenced by five interactive forces which defines the competitive environment and this include: 1. Threat of New Entrants 2. Threat of Buyer Agglomeration 3. The threat of Supplier Integration 4. Threat of Substitute 5. Competitive Rivalry (Porter, 2008). These five forces provide an indication of what is going on in the environment and it is used to assess threats to the operation of a given industry. Through the five forces, one can identify the need for change in order to position itself in the rightful direction and area. PESTEL Analysis PESTEL Analysis is a tool for the evaluation of the external environment. It is used to ascertain the factors in the external environment that are relevant to a firm and this can be used to examine the components that can give the firm the best chance for survival and growth (Johnson, Scholes and Whittington, 2010). Findings & Analysis This section discusses the concepts and ideas that are used by Spotify to provide the service it provides to its customers. It would begin by examining the e-business strategy and then look at the e-business architecture and then do the SWOT analysis and other analyses. E-Business Strategy The vision of Spotify is to provide “the right music for the right moment on every device” (Spotify Website, 2013). This means that it aims at providing music for different people and for different occasions in order to meet the specific goals and aspirations of the various consumers around the world. Spotify began in Sweden but has a presence in the United States and other European Union member states. Spotifys mission is to provide millions of soundtracks through an easily downloadable portal for consumers around the world (Spotify Website, 2013). This means that the company has a major plan and agenda to use its stock of songs and other activities to cause more people to be interested in their operations and sell it to consumers. Currently, Spotify has 20 million songs and these songs are available to consumers and over 5 million paying subscribers (The Next Web, 2012). The strategy is to use a simple method to promote their products. They try to get consumers to attain their services as easily as possible without going through any difficulties and challenges. This is successfully executed for the company to attain positive results. E-Business Architecture Figure 2: E-Business Architecture of Spotify E-Capabilities From figure 2, the company advertise through affiliate marketing or online marketing. They also advertise through word of mouth. Through this customers come onto their website and they log into the system. They proceed to either choose a short term trial or complete subscription which gives the the right to either download a group of songs or create a playlist on Last FM or use the social media outlets. Downloading is possible into almost all smartphones, devices and computers. The Functionalities are being expanded as new products are added to the wide range of phones and other systems. Internal Analysis: SWOT Strengths Weaknesses 1. A strong advertising system that brings in clients. 2. A free trial for skeptical customers. 3. Ease of receiving revenues from clients. 4. Convenient way of downloading information. 5. High geographical reach. 1. Criticisms of low payments to artistes 2. A relatively obscure brand when compared to other companies in the industry. 3. Extremely focused business Opportunities Threats 1. Can expand global reach. 2. Can expand focus and go into other lines of business. 3. Can improve offerings to consumers 1. High competition 2. Presence of substitutes 3. Legal threats Industry Analysis From Porters force field analysis, there following risks were identified in the audit: New Entrants: There is a high risk that new entrants might enter the system and compete. This is because it is very easy for any company to set up a portal and begin to sell to consumers that they target. Buyer Integration: There is a low chance that buyers can form their own systems Supplier Integration: This is fairly high because the producers of services to Spotify can easily go into their sector. Substitute Threat: There are many substitutes like many mp3 downloading companies online and other online music outlets. This risk is very high. Competitive Rivalry: There are many rivals like Amazon who are seeking to sell downloading rights to companies. This is a very high risk to Spotify. The implication is that Spotify has a major risk from new entrants and substitutes. This is because the music industry is very easy for competitors to enter. Hence, they would have to position themselves in a way and manner that would make them stronger. Also, the paid music industry has some key players which are fast growing and gaining grounds. Hence, Spotify has a major challenge that makes it imperative for them to expand their grounds and cover different geographical areas. External Analysis Externally, there are some factors that provide different opportunities and threats to Spotify. These helps the company to get a better view of how to improve their operations and enhance their position in the market. Political: Generally, the trend of globalization and regional integration is high around the world and it is likely to remain high over the coming years. This is because more and more nations are merging with other nations and laws are being passed that makes it easy and convenient for business to be done across borders. To this end, it is apparent that new markets are likely to open up in the coming year and Spotify can expand its scope to the developing world in order to compete in those new and emerging markets around the world. Economic: As the nations around the world recover from the effects of the credit crunch, there is a general tendency for people to get more disposable income. This creates a strong case for people to spend more money on products and services. This means that Spotify can expand its offerings and provide a more stratified service that would charge more money to consumers. This is not likely to affect demand because people are not in hard economic times as they were a few years ago. Sociological: Smartphone is becoming a part of the daily lives of people. Most people have smartpohones in the world today. And it looks like the numbers would continue to increase. Due to this, there is an opportunity for businesses and other entities like Spotify to concentrate on providing services to consumers on these smartphones. Also, advertising could focus on that branch of phone devices. This would enable a business to capture and control market share. Technology: Technology is advancing. Each and every day, consumers look for new offerings and new services that would help them to attain their goals and objectives of living a convenient and better life. Thus, the competition between different companies on the market is to be won by the entity that undertakes research and improves its products. Environmental: Basically, the music downloading industry is seen as positive in the light of the fact that they use less materials in providing their services. Thus, the industry can be presented positively to consumers around the world. Legal: Liberalization of the legal system around the world has caused changes and rapid development in the electronic industry, there is a better opportunity for a firm like Spotify. Thus, the company would have to find ways and means of expanding its scope to nations around the world who are on the verge of liberalization. Conclusion and Recommendations Spotifys strength is in its ability to use a flexible and convenient system to improve the lot of its consumers. The company is operating in a very competitive market. The main threats are the threat of new entrants as well as the threat of substitutes. Externally, there are new markets that are emerging because of globalization and lax copyright laws. The credit recovery makes it easy for customers to spend more and the growth in the use of smartphones makes the market grow further. In order to survive and acquire a large and significant share of the market, Spotify needs to enhance its products and its offerings. It would have to pursue three different strategies: 1. Diversification: There is the need for Spotify to vary its product offerings and include different products and services in its range. This would enable the company to provide other services which would balance the risk and the costs of operation. 2. Market Expansion: Spotify would have to find different markets and different countries to expand into. Through this, they can expand their geographical scope and gain roots in foreign companies before their competitors do. This way, they would increase their income channels and enhance their economic position around the world. 3. Cost Leadership: Spotify would need to find ways and means of providing her services at a relatively lower cost than the competitors. This would make the brand popular and enhance their economic position. References Chaffey, D. (2011) E-Business and E-Commerce Management: Strategy, Implementation and Practice London: Pearson Education. Garbade, M. J. (2011) Differences in Venture Capital Financing Berlin: GRIN Verlag. Johnson, G, Scholes, K. and Whittington, R. (2010) Exploring Corporate Strategy London: Prentice Hall Perry, M. (2009) Strategic Management London: FT Press. Porter, M. E. (2008) Competitive Advantage New York: Free Press. Scott, A. (2011) Strategic Planning. Edinburgh: Edinburgh Business School Publication. Smith, P. R. and Chaffey, D. (2012) E-Marketing Excellence London: Routledge Spotify Website (2013) About Page [Online] Available at: https://www.spotify.com/int/about-us/contact/ Accessed: March 24, 2013. The Next Web (2012) Spotify Announces 5 million paying subscribers [Online] Available at: http://thenextweb.com/insider/2012/12/06/spotify-announces/ Accessed: March 24, 2013. Read More