Spotify Business Model: 5 Valuable Lessons You Have to Learn
As technological progress is in blossom now, the range of social media that can help you in business is widening. And the business model that is built on social platform promotion is embracing a bigger range of industries. For example, one of the niches to develop is music. Along with networks that are built on visual content and texting, audio format is catching up quickly. And one of the headliners in this area is Spotify. Oh yes, you can easily get a fine number of followers with the help of the right Spotify playlist.
This network is basically a music streaming service that also offers other media content, related to the music industry. It was launched in 2008 by a company from Sweden that bears the same name as their product. The service is described as freemium:
- basic features are free to use, with limited control and ads.
- The platform offers subscription plans that include options like offline listening and ads-free usage.
By now, Spotify holds an audience of over 320 million users, and almost half of them are on paid subscription plans.
Unlike the majority of music-sharing platforms, this app is paying royalties that are based on the number of streams that an artist gets, and the estimated proportion of the most streamed songs. Spotify collaborates with established record labels as well as with independent ones, and in most cases, the royalty is paid to the label, and the label is paying the artist later, according to the individual agreement that they have. This company was often criticized for its business model: for example, Thom Yorke, vocalist and songwriter from Radiohead, is one of many celebrities who claim that Spotify’s compensation is not fair for the artist. However, the model of business that is used for this streaming service has something worth considering and in this article, we will discover what are the five lessons that we can get from it.
Lesson 1. Big variety of advertising offers
By 2020, Spotify offers ten different formats of ads. These are:
- Branded Moments. A short vertical video that has to be watched by a user to unlock the next 30 minutes of music.
- Sponsored playlists. The option that has to be renewed once a week to keep the campaign running. The advertising is placed within top playlists.
- Sponsored Session. Limited format. This one unlocks uninterrupted listening to the session after the video is viewed.
- Video Takeover. Appears in the commercial breaks between songs. This feature is available on computers only.
- Display Ads. The clickable image that pops up on the screen for 30 seconds. It is displayed at the bottom of the app interface.
- A big greeting banner, that is not skippable. It meets users on the screen as they return to the app.
- Homepage takeover. The ads are displayed on the background area of the homepage.
- Branded Playlists. Such playlists contain branded cover images and texts. The cover is applied to 1 of at least 20 tracks in the playlist.
- Advertiser Page. The opportunity for brands to create a sort of landing page within Spotify, where they can place any kind of content that they want.
As it is obvious from the list, the vast choice of advertising formats attracts more brands and thus provide better revenue.
Lesson 2. Strong social position
Two years ago, Spotify has turned their attention to the issue of hateful content that is available on its service. Songs of such artists as R.Kelly and XXXTentacion were removed from the prominent editorial playlists as the policy of the company considered those artists as disturbing elements that should not be associated with Spotify. R.Kelly’s accusation was sexual abuse, and XXXTentacion, before his death in June, was supposed to go to the trial about domestic violence. And even though later, Spotify recalled that policy, realizing that they are not the ones who should judge artists, some creators that are making controversial content, are harder to find on the platform and are not displayed in radio stations and search results.
This lesson teaches us that even if your opinion is not too popular, you have a right to manifest it. You can be wrong, and the criticism that you receive can help you to get better, and learn to adjust.
Lesson 3. The relationship with customers
Spotify is hitting a wide audience, yet the main target group of this platform is millennials. The most pleasing to users is the pricing system, that covers:
- Premium subscription – ads-free usage of the network and unlimited features that it offers
- Student subscription – this is the same premium, but with a discount. To use it, the user has to be enrolled in a university in the USA or other significant alma mater in different countries (the list is limited)
- Family plan – up to six people are connected to the same subscription, paying for each with a discount. The features are unlimited for all members.
Thus, we can see that Spotify covers its main target audience with smart discounts. The clever way to grope the most engaged part of the users – youngsters and family people.
Lesson 4. Things go global
Spotify co-works with famous recording labels and independent artists. This variety creates an enormous reach for this platform. If the company concentrated on their local production only, they would have remained a simple stream service, and never could’ve become a popular social media. This is a common beginner's mistake – thinking that you have borders of any kind.
You should explore the potential of your product and its impact on the industry in worldwide terms.
Another error that happened with Spotify, as well as other music platforms is the homogenization of music. Popular artists and genres are prevailing the smaller local ones, and due to the imperfections of the algorithm are even harming them. Another factor that impacts this problem is the general lack of knowledge about rare types of music.
The solution to it is the corporate culture that involves educational initiatives for the employees.
Lesson 5. Adaptation is key
Ever since the launch, Spotify continuously meets criticism about many things, and some people can wonder how it is successful with that many attacks?
Well, the company learned to adjust quickly and effectively. Any kind of feedback that they receive, they turn into another spiral of adaptation and changes. Those can be minor, but if they are comforting the audience – it’s a definite win. Acceptance is one of the must-do’s for any business. As tolerance and fraternity are the prominent trends of the latest years, even established and monumental brands must reconsider what is not actually in their policies and corporate culture. Modern users will not appreciate something that is too off-limit. The situation that formed around Spotify and controversial artists is a good example that illustrates modern value systems.
To Sum Up
Spotify is a company that has a complicated history of the establishment. There are benefits for users and advertisers that cannot be doubted. But their business model, as many other examples of Swedish companies, like IKEA, or Volvo, gives a lot to learn. Use these lessons to build your own company and reach your first results faster and in a more fruitful way.