Spotify is a music streaming service developed in April, 2006 and launched in October, 2008 by 2 Swedish entrepreneurs who successfully managed other startups previously. It operates in Europe and it offers a new way of listening to music from major and independent record labels. Its value preposition is the access to millions of songs (currently 10million and growing) with virtually no buffering delay. It is accessible through computers as well as through mobile devices and there is the chance to listen to music even though the user is offline. Users can browse by artist, album, record label, playlist as well as by direct searches. They can also set up their own playlists and share them (via social networks) or even build playlists withother users. Spotify offers three different type of accounts, which can be classified into free accounts and paid subscriptions. Free accounts generate revenues through advertising material between songs and on the site. Additionally they offer monthly paid subscriptions defined as unlimited and premium. Unlimited offers unlimited streaming of music with no ads. On top of these benefits, Premiumsubscriptions offer a range of extra features such as offline access to music and mobile services for a higher fee (Annex #1). A third source of revenue is music download purchase through a Spotify’s partner.
2. Customers -what do they value?
Spotify has around 10 million customers in 2010 (+40% compared to 2009), of which approx. 750 k customers (+100% compared to 2009) are paying customersrepresenting respectively approx. 4.0% and 7.5% of the total number of users. Customers can be segmented as internet users that love music, that are up to date on technologies and that wish to discover, share and play music. Each type of subscription is addressing the needs of these consumers based on their level of involvement with music. Premium and Unlimited subscriptions will tend to address theneeds of higher involved consumers (time spent, knowledge of music, value on music sharing, ad-free listening) while the free option suits for lower involved customers. The customers especially value the large catalogue of music tracks, the possibility of sharing playlists between users and listening to the streaming service while offline or on the mobile phone. Customer value tends to increaseover time as they have playlists and preferences on Spotify. An industry trend is that users won't pay for music, but for convenience and this is addressed by Spotify.
3. Internet based business model according to Michael Rappa’s Framework
Spotify combines several different models as part of its overall Internet business strategy. The most relevant are the advertising model and thesubscription model, responsible for almost all revenues and allow a mixed offer made of free service and paid premium service, called freemium. Subcategories of the advertising model are a) user registration as it is required to open an account and to provide consumer data (personal and habits) used for targeted advertising and b) contextual and content targeted advertising, providing relevant advertisingfor the customers based on their profile, place and searches. On the other hand, the subcategory of the subscription model is Content Services being audio (music) content what is delivered.
Spotify can be additionally classified in two more Internet business model categories: the affiliate model and the community model. Affiliate model as Spotify offers its users to buy and download music tracksdirectly using its software. When a user clicks the “buy” option, the request is directed to partner site- 7digital.com. The subcategories are pay-per-click and revenue sharing, when the user is redirected to 7digital and buys a song, Spotify (the affiliate) is paid by 7digital (the merchant) a sales commission. Concerning community model, the subcategory that applies is Social Network Service by...