Analysis Spotifys Strategies - Case Study Example

Report discussing Spotify’s strategy Table of Contents Table of Contents 2 Executive summary 3 Introduction 3 Competition andFeatures 5 Analysis Spotify’s Strategies 6 Risks and Weaknesses 8 Future Strategies 9 Conclusion and Recommendations 10 References 11 Executive Summary Spotify is a commercial music streaming service which provides content from various record labels. The record labels are both independent and radical; for example Universal, Warmer Music Group, Sony, and EMI. The music industry provides services through all the operating systems to satisfy the customers. The competition is stiff because some companies are upcoming and they are fighting for the customers. Spotify should use current technology to be stable and compete with the other companies. Introduction Spotify is a Swedish online streaming company offering online music service to the user that they can stream up to 15 million tracks on demand by using unique technology. It still lags behind after Pandora as a market leader. Spotify also introduced lightweight software, which allows an instant listening to albums and tracks without buffering delay. Consumers subscribe monthly premium to access the service. Spotify paid free subscriptions to everyone in order to expand the rate of service (Gammons, 2012). The company offered free accounts and opened free registration in United Kingdom. Spotify closed opened registration when Spotify mobile service was released. Technology is a growing necessity in all types of businesses. As time goes, people learn the importance of technology one by one. This make it impossible to separate technology from the people as it is necessary in day-to-day activities. Technology in Spotify has brought tremendous growth in the company through advertising. Sporty can post their new services online to create new revenue streams and new markets. Technology is also important in decision-making process leading business managers and chief executive officers to focus on innovation in business (Marshall, 2012). Spotify has divided the digital music industry into two submarkets; digital download market consisting of Amazon and iTunes and streaming market which has many competitors. According to the study conducted in 2011, the revenue of digital music industry has grown by 8%. The growth rate of streaming market is greater than that of the download market. Streaming market generates 10% of the revenue of digital music industry (Marshall, 2012). Many companies with similar business models operate in streaming industry leading to strong competition in the market. Companies can only be differentiated from each other by; features regions of operations, variations in packaging and licensing of music libraries. The costs of switching from one streaming service to another are very high. This has created a limited compatibility and transfer between the streaming services. The streaming companies are trying to include network effects in their services by introducing social components. Users are granted permissions to create collaborative playlists, they can follow what other people, and friends are listening on the network (Daft, 2011). Network effect adds value to the services leading to attraction of more clients. Streaming companies has essential partners and record labels are natural which creates ready market with strong indirect network effects. Availability of content is important to attraction of customers. When there is large music in the library, the streaming service will be much popular. The streaming industry is a two-sided market where companies should create virtuous circle between customers and record labels. When the subscribers and users are more in a service, there should be more labels having their music recorded on the services. This will lead to attraction of more customers to the larger library available. On the other hand, it is expensive to obtain streaming rights to a large library for successful streaming of services. The primary tactic on how to gain market share is implementing different features. Competition and Features Spotify started music streaming service that offers licensed music in Sweden. It currently has more than 18 million users rise from 10 million users after they launched their services in United States. The service is split in to three categories; Premium, free and unlimited. The service also requires the users to have a facebook account to use. Unlimited users can stream music without restrictions or advertisement and can listen to music offline in their computers only. Free users are given free trial period of 6 months for the initial registrants for their evaluation of their service (Daft, 2011). After 6 months, the free users are restricted to listening to music for 10 hours per month. The premium service extends more privileges of the unlimited users to mobile devices like Smart phones and ipods. The users can set up radio stations based on their music libraries and Spotify choose songs they think users enjoy most. Users also, have the privilege to see what their friends are listening to through facebook integration. They can generate playlists with them, which are more collaborative. There is no standardised web-interface in Spotify but users are required to download a Spotify application to their devices or computers. Now days Spotify is available in various nations like Finland, France, Denmark, Spain, Austria, United Kingdom, Germany, Norway and United States. The markets for online music are becoming more competitive and congested while those of physical music market are rapidly deteriorating (Tschmuck, 2012). Although there is stiff competition in large internet music companies, many small companies are attempting and fighting to be among the players in the industry. Every company has fragmented music licenses and segmented region support in common. Spotify is trying to fight against this challenge with recent launch of the company in United States and they receive large support from other European nations. It is difficult for competing firms to differentiate each other because of easy adaptation of features. Incorporation of social interaction with music through playlist sharing and facebook integration is tools used by Spotify to differentiate themselves from those of other companies. Facebook integration has worked well with Spotify, as there is no other music company requiring facebook account. Spotify use this as their sword against its competitors because of incorporation of social media benefits. The only disadvantage to users from this service is that Spotify shut down users without facebook accounts. As mentioned earlier in the discussion, Spotify has a two-sided market dealing with music providers in one side and consumers on the other side. Analysis Spotify’s Strategies Spotify has a task to solve the coordination problem of the two sided market. It is of no use to customers to have a streaming platform without enough amount of quality music. Spotify solved the problem of coordination by subsidizing artists and music labels through provision of contracts to provide their music on Spotify (Jones, 2012). After the artists and music labels have provided their music on Spotify, Spotify attracted many customers to platform. Spotify charge customers subscription fee when they listen to music on Spotify to collect revenue. Spotify used a trick of allowing users to have chances to experience Spotify to be locked in the service then they will subscribe to the new streaming platform. Limited free version service was provided based on the unlimited subscription. Smaller artists and labels contributed more than 15 millions tracks to Spotify in addition; 18 million users were attracted by huge collection of music on the easy to use platform. According to the strategies of Spotify, it shows that the company has been bundling and versioning carefully on the product to maximise profits. Spotify provided free version services along with premium versions only. It allowed only 10 hours every month on free music streaming in the free version. Unlimited music streaming was provided on portable devices and computers through premium version. Premium was seen as a bundled product, which brought together portable and computer, based users. Spotify introduced unlimited version, which, provided the same services as premium but only on the computers. This enabled Spotify to provide both unlimited and premium versions at the same time. Spotify has been providing mixed bundles and identifying different markets segment with pure products with the view of increasing profits. Spotify also, attracted the new customers who are currently locked in to competitors products to increase its revenue. He did this by increasing the value of its own products and reducing switching costs to Spotify. Spotify provided applications that emulate the working of the competitors crucial features by reducing the costs spend to switch from its competitors’ product (Marshall, 2012). Spotify made it simple for user to switch to Spotify by providing similar products and features to those provided by competitors. Spotify developed robust application for particular platforms like Windows, Android and iOS by reducing switching costs for users. Due to various online music streamers, Spotify developed applications for various platforms to reduce huge switching costs faced by users. The product was made attractive by introduction of robust applications, which reduce switching costs. The attempts of reducing switching costs have enabled Spotify to fight against competitors and increase profits. Spotify signed an agreement with facebook making it a must for everyone accessing Spotify to have facebook account leading to an increase in user subscription base (Gazi, & Starkey, 2011). This move could have made many users to shy away but it proved highly lucrative in some other aspects. Collaborating with facebook increased a new direct network to the use of Spotify to increase the value of the product. Spotify worked tactfully on versioning products, making products valuable and reducing switching costs through interaction with social media. The sound strategies made Spotify to rise sharply and become key player in the online streaming industry. Spotify should not relax but to keep on formulating more strategies to expand its markets and consolidate. Risks and Weaknesses Challenges facing Spotify include; hacking, copyrights and privacy. Spotify does not have strict rules and policies of copyright. This made Spotify to be unable to prevent competitors from imitating and copying their business and operation model. This deters Spotify from being the best competitor in the market because it allowed competitors to enter into the market with low innovative costs. In addition, music streaming does not provide for variety of products in the market thus threatening its success. When facebook integration was introduced, it raised the problem of privacy on the users. This is because the information and anything the users watch or listen to was shared among his friends on facebook (Lieb, 2013). There are ways to prevent this problem of privacy on facebook by customization, but it is hard for some users to understand. In addition, the problem of negative externality came in. as popularity of Spotify increases, hackers made several attempts to introduce viruses through Spotify. This could damage the user devices like smartphones, ipads and computers. When the users experience such destruction, they shy away from the streaming industry leading to reduction on the number of users, which reduces profits. The problem of hacking was minor in other companies but it increases rapidly in Spotify because of peer-to-peer connections. Spotify should either disable the peer-to-peer supplemented bandwidth or preserve the reputation of the clients (Shuker, 2012). Future Strategies There are many options for future strategies in Spotify. It can decide to leverage its network effects, improve radio stations, collaborate with other distribution channels and open up the services. It should maintain the strategies of lowering switch costs from competitors and bundling. In the point of collaborating with other distribution channels, Spotify should collaborate with car companies. This is because almost all car users listen to music when driving. Another possible strategy is to open other platform beyond facebook. This is because some key users do not use facebook because of security reasons and other private reasons. Spotify should look for other expansions to capture these users and prevent them from switching to other companies but to remain in Spotify. It should also allow its mobile networks to all users to access them and later locks them in the user service. The situation in Spotify where you cannot use mobile phones to access services without subscription give room to other companies who offer free mobile applications to sway away users. Most of these strategies may be much risk as it might be hard for Spotify to realise the trick and forecast on the change before being too late. It might take time for premium users to adapt them; this will make Spotify to do a feasibility study in advance. When implementing the strategies Spotify should increase its network and user base. This will make more producers and artists to enjoy their content in Spotify leading to expansion of catalogue and attraction of more users (Gammons, 2012). Conclusion and Recommendations Digital music streaming industry is a growing company. Spotify should increase advertisement to make the industry known to many leading to attraction of many users. This will increase the turnout, which will automatically increase profits. In addition, Spotify should consider the reduction of switching costs. This will make users to switch from one platform to another easily without moving to another company of the competitor. It should introduce various operating systems to serve all users. If one operating system is used in the industry, users who are using different operating systems will move to other companies. Spotify should maintain collaborated networks like facebook and many other advantages which are much difficult for the competitors to adapt (Miller, 2012). Due to problem of coordination and attraction of users, Spotify proved that he could be an industry leader. Spotify should use two sided market and network effects to fight against competitors to get user of instrumental importance. Spotify should watch and fight to reduce or even eliminate the risks like privacy and hacking. As per the stand now, Spotify is at a competitive point in the company, which should fight to retain the spirit and remain successful in the coming future. References Tschmuck, P. 2012, Creativity and Innovation in the Music Industry, Spring, 2012, Vienna. Daft, L. 2011, Management, Cengage Learning, 2011, United States. Jones, M. L., 2012, The Music Industries: From Conception to Consumption, Palgrave Macmillan, 2012, United Kingdom. Marshall, L. 2012, The International Recording Industries, Routledge, 2012, Bristol. Gazi, A., & Starkey, G., 2011, Radio Content in the Digital Age: The Evolution of a Sound Medium, Intellect Books, 2011, Sunderland. Wikstrom, P., 2010, The Music Industry: Music in the Cloud, Polity, 2010, Sweden. Lieb, K., 2013, Gender, Branding, and the Modern Music Industry: The Social Construction of Female Popular Music Stars, Routledge, 2013, Harvard. Shuker, R., 2012, Understanding Popular Music Culture, Routledge, 2012, New Zealand. Gammons, H., 2012, The Art of Music Publishing: An entrepreneurial guide to publishing and copyright for the music, film, and media industries, CRC Press, 2012, United Kingdom. Miller, M., 2012, The Ultimate Digital Music Guide: The Best Way to Store, Organize, and Play Digital Music, Que Publishing, 2012, United States. Read More