Spotify – The Story So Far
Spotify, the revolutionary force providing our ears with free tuneage, is about to step up its potential reach. It’s creating an API – basically an interface for accessing Web-based software. The technology will open up Spotify’s insides to third-party developers, who will be able to create apps for anything from television, game consoles and mobile phones; which in turn means convenient free music access from pretty much anywhere. There’s already a glimpse of the iPhone app on this YouTube video.
Daniel Ek, Spotify’s co-founder said:”This is the first step towards becoming more of a platform. There are lots of services that have APIs, but this is different because it lets anyone build a Spotify client.”
Ek was the former CTO of Stardoll (a teeny bopper website) and Martin Lorentzon, co-founder of TradeDoubler (an Internet marketing company), and together they gave birth to Spotify in 2006. The company was launched for paid public access in October 2008, then in February 2009 Spotify opened free registration within the United Kingdom. Spotify currently has around one million users, and more than 40,000 people signing up to listen to the virtual jukebox daily; it can be blamed for the recent price wars going on between iTunes and Amazon.
So how does Spotify generate any cash if they offer their product for free? Here’s the catch: you have to deal with listening to an advertisement every 20 minutes or so, but there are subscriptions a user can purchase to access the site ad free. It’s gaining popularity with consumers – a report from KPMG this week said that 60% of people were happy to put up with advertising to get content or services for free, and just 16% would go for a paid-for, ad-free service.
So that’s the basic way that Spotify’s making the green, but things get a bit more complex as they begin to monetize other outlets. With YouTube facing troubles over royalty deals, it seems like this would be a difficult market to crack and would anger quiet a few people, for instance the The Performing Rights Society; recently US ad-generated music sites SpiralFrog and Ruckus failed thanks to lack of revenue and having to pay out royalties.
Tony Wadsworth, chairman of the BPI, the record industry trade body said: “You have to question any company based on an ad-funded model at the moment. Is it actually going to be possible to make it pay and produce the type of revenue that the creators and investors needs?”
To combat this Spotify is trying not to be the one trick pony the other music sites were by is tapping into multiple revenue streams. They made a deal with 7digital, the fresh-faced downloading site. If you listen to a song via Spotify you will now be given the option to pay to download songs from 7digital, which gives Spotify a percentage of each download. In another attempt to not go the way of SpiralFrog, last month they signed a deal with Condé Nast to promote the re-launch of Wired magazine. They also has retail relationships with Amazon and iTunes, but they currently apply to only a small selection of the site.
Spotify’s keeping their marketing up too – it’s to offer ‘play safe’ playlists compiled by artists like The Saturdays and Starsailor as part of an MTV and Body Shop campaign to promote safe sex. Good idea: just 30 seconds of Starsailor is enough to get anyone out of the mood for friskiness, and that’s before the advert kicks in.
As Spotify secures more and more music for its service, the question is whether it can keep persuading advertisers that the premiums are worth it, and getting those premiums to fund an increasing royalties cheque. Looking at KPMG’s findings, Spotify may find the £10-a-month premium service doesn’t generate as much cash as they thought it would. And its arguable how engaged someone is with an advert they’re desperately waiting to end. But surely now with consoles and smartphones ready to pump out music and adverts to ears and eyeballs on a massive scale, Spotify can really start gaining traction in a market that’s still very much living hand-to-mouth.
Posted by Trista Orchard in Sci-tech | April 8, 2009 2:14PM |