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Spotify - Essay Example

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Spotify Name: Instructor: Course: Date: Introduction Spotify is a London based company founded by Swedish entrepreneurs Daniel Ek and Martin Lorentzon in October 2008. Ek was former chief technology officer of Stardoll, and Lorentzon had cofounded digital advertising network TradeDoubler…
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Spotify

Download file to see previous pages... The premium version was free of advertisements and allowed users to customize playlists as well as gain sneak previews. After downloading Spotify’s application to their computers, listeners could select genres, create playlists, or listen to music “streamed” over the Internet. Users were not allowed to download or copy songs. Initially, the company was intent on controlling their customer base. To achieve this, Spotify was offered on an invitation basis only. In the first three years of operation, Spotify had spent $7500 on marketing, leveraging instead word of mouth and its members-only model to build a buzz in the press and the on-line blogosphere. The audience was growing by about 25% a month since its launch in March 2009, reaching the 1 million mark on August the same year. Critical to its business model was the cooperation of major music labels, which Ek secured following extensive negotiations. Under these agreements, Spoify committed to paying royalty for every song played, regardless of advertising revenue earned (Aaker & McLoughlin .p.122). It was evident from the collapse of competitors that an ad-supported model was not sustainable in an uncertain economic climate. Furthermore, with revenues from advertising underperforming, Spotify realized that, in order to grow and fund that growth, it needed to secure relationships with suppliers and other business network partners. By the end of summer 2009, an equity deal was agreed with one major music label, and a partnership had been formed with another company to sell tracks alongside its ad-supported and subscription based services (Aaker & McLoughlin .p.123). Management was confident that the next phase of their strategy could be implemented. Within the first three years of operation the company had reached a total user base of 20 million with 5 million of these users paying the monthly subscription fee of $4.99 or $9.99. In its short history, the company had grown and changed rapidly. In terms of the future directions, it was faced with a number of complementary opportunities; entering the US market, launching a mobile-phone-friendly version of its software, and partnering with investors like Li Ka-Shing to develop new business opportunities (Aaker & McLoughlin .p.124). Digital music industry The digital music industry can be split into two segments: the streaming market with so many competitors and the digital download whose main players are Amazon and iTunes. The industry has demonstrated potential with an 8% growth in revenues in 2011, in the same year the overall industry was valued at $5.2 billion. Presently, the streaming market is only responsible for 10% of the total revenues generated by the digital music industry. Optimistically, the market holds the biggest growth potential as compared to the download market. The numerous competitors in the streaming industry apply very similar business models. They rely on slight differentiations based on packaging, licensed music libraries, operating regions, and features to cut an alternate niche (Hartley et al 2003.p.243). There are high switching costs for customers as there is less compatibility making transfers difficult. Additionally, streaming companies are continually investing in new network effects across their service by incorporating social components. A number of streaming companies allow individuals to follow what their friends are listening and also accord them a chance to create collaborative playlists. This network effect can ...Download file to see next pagesRead More
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