Sunday, October 3, 2010

Spotify’s Magic Spell: Sustainable or Fragile?

Last Tuesday, September 28, 2010, Stockholm School of Economics received the visit of Anders Svensson, Sales Director (Sweden), Spotify AB, to deliver a seminar to inspire students. Students at Handels were psyched and looked up to the prospect. And why wouldn’t students behave in such a way or everyone else, for that matter? Spotify's uprising reputation and the way they have made an impact in the music industry in totally in line with the position they have earned themselves today. The guys down there have not only made a substantial impact in the way they have produced a service that has combated illegal music sharing but its image is still very much buzzed. The latter impression is likely to maintain the status-quo. It seems Spotify’s emergence to the limelight and its sharp rise to stardom is only going to rise. Just recently, they launched operations in the Netherlands which bears witness to the Spotify upsurge. Though Anders only shared information in bits and pieces regarding how they undertook the entire situation from conception, it was still very insightful. So, let’s talk the talk!

Inception of the Spotify idea dates back to 2005. Anders and Co. realized that music could be a prospective source of revenues. At that moment, music distribution was in chaos. Lots and lots of sites gave the consumer the probability to download music for free. This really concerned artists and different record labels. On the other hand, the consumers enjoyed the prospect of listening to free music. The guys at Spotify understood that unless they keep on providing music for free, no one would really care about their idea. At the beginning, Spotify comprised of good schools of thought that had a far-reaching vision. The way they went ahead with the venture was to promote their brand by building a product that is appreciated by the consumer. It was a huge challenge! Ander said they were lucky to have people who were really enthusiastic about the idea and decided to go ahead with the idea at all costs. It was hard work at the beginning. Anders depicted that it took half a year to construct the heart of Spotify which was one of the many obstacles they had to face. It was also important to convince record labels. It took Spotify 18 months to fabricate a business model that worked profitable on a mutual basis. And what a business model! Today, Spotify works with 80,000 record companies with a song catalogue that approaches 10 million hits.

As it is widely known that initially Spotify offered both the premium version and the free version of the service, there was reluctance to engage music consumers who were ready to pay. By looking at the number of subscribers Spotify has today, a mere 500,000, many would describe it as very small. This perception is contradicted by the fact that despite the small number of subscriptions, it is by far the biggest music subscription service in Europe. Anders asserted that one of the big grounds behind the success of Spotify is the surfacing of mobile devices. With these portable devices, people carry their music with them everywhere. As the buzz grew, Spotify executives forecasted that it would be extremely inconsiderate if they were to limit themselves to a product that provides the consumer with a streaming service only. The decided that they will correlate the service with something that is easy to manage and is user friendly, an excellent mode of attracting more consumers. Anders went on to discuss the role of social media in building the Spotify brand. Facebook emerged with roars and it was pivotal in building the Spotify brand. It allowed people to share content with their friends and disseminate it further. While the service reached the masses and gained appeal, it became a symbol of fashion within the young generation. Anders et al. understood the importance of sharing content over social networks. It was significant that the service should not hold technical facets but instead it should be easy to use which was also very advantageous for advertisers. Producing a combo that encloses music and ads was awesome. As Anders advocated, it was “FANTASTIC” for an advertiser. Music activates the sense of hearing which is very, very important in attracting consent and thus in building a brand in the online arena. Anders acquainted us with the concept that brands are not just about products anymore. A transition has taken place in the way brands are perceived, interpreted and positioned. Consequently, brands are more of an experience as we promote them online. To reach a point of critical mass, it is important that the brand experience canvasses around three other features as well namely emotions, exclusivity of the service provided to the consumer and the consequential engagement of the consent of the consumer. Once these four features are culminated together and are intertwined at each layer, it will ascertain the conquest of the consumer’s assent.

Anders concluded by saying that if you want to convince, Spotify is the way to go! I agreed on many aspects of his speech which contained humor, hard facts, entrepreneurship, branding and marketing. I would presume these traits should be enough to keep on growing and remain competitively advantageous as they plan to launch operations in the US. Will Spotify enter the US market with an alternating business model? Will it be able to cast its magic spell and reach the mainstream audience in the US the way it has done in Europe? Only time will tell!

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