Spotify Technology S.A. applies a business model, generic strategy, and intensive growth strategies that interdependently support multinational expansion. In its business model design, the music streaming company integrates a revenue model with a general business model type that suits operations in providing a marketplace platform for music creators and music consumers. In relation, Spotify’s generic competitive strategy and intensive strategies are directly based on its business model, leading to a system of model aspects and business strategies that ensure organizational growth and expansion in the international on-demand digital content market. The result of this synergy among the generic strategy, intensive growth strategies, and the business model brings operations into alignment with Spotify’s corporate vision and mission statements, and helps deal with competitors, such as Apple, Google, Pandora, and Amazon. Thus, Spotify’s competitive position remains strong for a foreseeable future of continuing global expansion and potential business diversification.
Spotify Technology S.A.’s business model, generic competitive strategy, and intensive growth strategies permeate its organizational design. The business model fundamentally defines how the music streaming company operates. For instance, Spotify’s corporate culture and related human resource management strategies are built upon the requirements and definitions from the business model and the generic and intensive growth strategies described in this business analysis.
Each person is also allowed 1 month free of a spotify premium account. Place: Spotify allows users to use the app on a computer, tablet or mobile phone on any android or Iphone, which is beneficial and gives the opportunity for Spotify to have a larger target market. ITunes only allows apple users to use iTunes, which could be an advantage or a.
Spotify’s Business Model Design
From atop-level perspective of its business, Spotify Technology S.A. has a platform business model, which is a major category ofbusiness models. Aplatform business exploits the advantages of network effects for organizationaldevelopment and strategic management, especially in implementing generic strategies forcompetitive advantage and intensivestrategies for growing the streaming music marketplace. For example, Spotify benefits from moreartists and music consumers using its online service as the business expandsglobally. Still, theory and practice show that a company can have one or more business models or acombination of different designs for business modeling. Spotify playlist app iphone. Thus, from a more specific perspective of theon-demand digital content streaming business operations, Spotify’s business model design has thecharacteristics of the following business models:
- Network effects business model and network orchestrator business model
- Freemium business model
- Unlimited subscription business model
Network Effects & Network Orchestrator Business Models. The application of network effects in Spotify’s business design is observable in the value of increasing the company’s user base. Network effects refer to the positive value and benefit of each additional user, who in this case may be an artist (content creator), or a subscriber (content consumer). For example, the benefit of Spotify’s value chain, resources, and capabilities is increased when more artists and consumers join the platform. The company applies the network orchestrator business model by administering its platform as a marketplace where artists and fans meet. The network effects and network orchestrator business models maximize the music streaming user base and, consequently, economies of scale, which is necessary to support Spotify’s generic strategy for competitive advantage. These business models depend on the effectiveness of the company’s intensive strategies for growth by attracting and retaining more artists and music consumers. The two business models are a major factor in the business strengths enumerated in the SWOT analysis of Spotify Technology S.A.
Freemium Business Model. The freemium businessmodel is typically considered as a revenue model because, in this case,the model defines how Spotify’srevenues are generated from its user base. The company’s streaming service isavailable in two tiers: the advertisement-supported free tier and the premiumtier. For example, Spotify’susers can access songs for free, but with intermittent advertising integrated intotheir listening experience. In contrast, subscribers who pay for the company’s premiumservice can enjoy music without advertisements, along with other premiumfunctions and features that are not available to free-tier users. This business model relates to Spotify’s generic competitive strategyby making the streaming music service available to practically every onlineperson, regardless of intent or capacity to pay for the service. The freemium business model also relatesto the company’s intensivegrowth strategies by enabling competencies in penetrating and developingmarkets. These growth strategies are supported through the easy and wideaccessibility and availability of Spotify’s free and premium online services.
Unlimited Subscription Business Model. This business model involves two main factors: subscription to Spotify’s premium service andunlimited access to the service. The business design emphasis of this model ison customers’ recurring payments to access value-added services. For example, suchvalue is in the form of Spotify’spremium features, starting with the removal of advertising. The company’s costleadership generic strategysupports this business modelby ensuring attractive affordable subscription prices. Also, the intensive strategies ofmarket penetration and market development support Spotify’s unlimited subscription business model by growing thenumber of artists and subscribers to keep the business model feasible and profitable.
Spotify’s Generic Competitive Strategy and Intensive Growth Strategies
Generic Strategy for Competitive Advantage. Spotify applies the cost-leadership generic competitive strategy,which in Michael E. Porter’s framework involves a low cost position forstrategic advantage, and a broad scope for strategic targeting. A low costposition creates strategic advantage for the music streaming business in termsof making the service’s price attractive in the international market. On theother hand, a broad scope is strategically targeted for the purpose of buildingSpotify’s network ofonline users. Both of these characteristics of the generic strategy support the networkeffects business model andthe network orchestrator businessmodel by attracting music artists and subscribers worldwide. As Spotify’s user base grows,the online digital content distribution platform becomes more attractive toartists and fans through network effects. This generic strategy requires that the business apply intensive strategiesfor rapidly growing the market reach of Spotify’s platform operations.
Intensive Strategies for Growth. Spotify’s main intensive growth strategies are market development and market penetration. These two strategies are simultaneously applied in order to strengthen the company’s competitive position as the biggest and leading music streaming business in the global market. Based on the Igor Ansoff Matrix, market development aims to further expand Spotify’s service availability to more countries and regions. On the other hand, market penetration is an intensive strategy that aims to grow the number of users of the on-demand music streaming service in existing markets where the company already has operations. Market development and market penetration provide competitive advantage to Spotify’s operations based on economies of scale, while also supporting the network effects business model and the network orchestrator business model: as the population of artists and subscribers grow, the music-streaming platform becomes even more beneficial and valuable to the artists and subscribers. In addition, these intensive growth strategies increase the cost leadership generic strategy’s effectiveness via economies of scale. The application of these intensive growth strategies requires related changes in Spotify’s organizational structure, as more business offices or locations are added. Product development is also applied as an intensive strategy for Spotify’s growth. For example, the company develops and introduces new products, such as new apps and music-related services, sometimes with the involvement of business partners via new alliances.
Implications of Spotify’s Business Model and Generic & Intensive Strategies
Spotify Technology S.A.’s successful multinational expansion, organizational growth, and strategic positioning are attributable to the effective implementation of a business model, intensive growth strategies, and generic competitive strategy suited to the operational objectives of the music platform enterprise. The company’s business model characteristics may change as the organization and music streaming service evolve. For instance, further acquisitions and expansion with new online services in addition to curated playlists and related programs is realistically expectable in Spotify’s future. These future changes may lead to additional business models or design characteristics added to the overall platform business model. Also, Spotify could adjust the relative significance and prioritization levels of its intensive growth strategies, with some modifications of the cost leadership generic strategy for the competitive advantage and growth of the streaming music business.
References
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In many ways, Spotify enjoyed a spectacular end to 2018.
The company finished the year with its first ever quarterly operating profit – €94m ($107 million) — something that challenged many of the long-term naysayers about its business model. In addition, amid its year-end financial-results announcement, Spotify confirmed that it was set to spend between $400 million and $500 million on acquisitions throughout 2019, including the recent buyouts of podcasting content company Gimlet Media and distribution platform Anchor.
What’s more, Spotify could now hit more than 100 million paying subscribers worldwide by the end of March, having topped 96 million at the end of December, and its day-end share price this week (February 14th) reached its highest point ($146.87) since late October last year.
Things are looking up for Daniel Ek and his green machine — but Spotify still faces a few stark challenges. Here are a few of them.
Its advertising revenues remain unspectacular.
In Q4, Spotify’s revenues from its ad-supported tier reached €175m ($200 million). That represented just 11.7 percent of its total revenue haul of €1.495 billion ($1.7 billion) in the three months.
This was a slight improvement over the percentage of overall revenue that ad-supported sales achieved in Q4 of the prior year (11.3 percent). Yet Spotify continues to make a measly amount from advertising versus the subscriptions paid for by its Premium users, who contributed €1.32 billion ($1.5 billion) in Q4. That’s more than seven times the cash generated by ads.
One way Spotify hopes to accelerate growth in advertising is podcasts (which we’ll come back to). That’s partly because the company believes it can double-dip: It’s already embedding audio ads in podcasts listened to by both its “free” users and its paying subscribers (the latter group typically avoids marketing content).
Furthermore, Spotify CFO Barry McCarthy told investors on February 6th that self-serve advertising, whereby clients upload their own ads and target audiences themselves, is now “our fastest-growing [ad] channel.” Spotify Ad Studio, the firm’s self-serve platform, is currently available to varying degrees in markets including the U.S., U.K. and Canada, ahead of an expected wider global rollout.
“[We] continue to invest aggressively from an R&D perspective in growing [self-serve],” said McCarthy on Spotify’s Q4 earnings call. “We need that channel to be successful for us over time in order to right-size our cost structure, but we’re starting off a very small base.”
Cracks are beginning to show in Spotify’s relationship with the record labels.
There have long been whispers in the background from record companies that they are unhappy with some of Spotify’s moves. The major labels’ biggest bugbears have included Spotify’s declining Average Revenue Per User (ARPU), in addition to the platform striking direct licensing and distribution deals with artists. Now, though, these concerns are really starting to bubble to the surface.
Speaking to investors on an earnings call on February 5th, Warner Music Group CEO Steve Cooper stopped short at mentioning Spotify by name — but his growing frustration with some of the service’s practices was seemingly apparent.
First, Cooper (pictured) tackled the growing trend for Spotify (and other services) to ink direct deals with artists, cutting out labels. “It’s important to remember that [streaming services] are not organized to create value for artists, they are not organized to create artist careers,” said Cooper.
“Presumably [streaming services] will not steer [the popularity of cheaper music], which I’m sure you’ve seen complaints of already — where music is popping up in people’s playlists and they don’t know how it got there.”
Steve Cooper, WMG
“If you look at what we invest in our artists’ careers, A&R, marketing and promotion, it is a meaningful high-nine or low-ten-figure number [quarterly].”
He also accused such platforms of “utilizing sources of music outside of the major [labels] in the hope of lowering [the overall royalty rate paid out to rightsholders].” He called on Spotify et. al not to deliberately steer customers to this cut-price independent music via first-party playlists.
Said Cooper, “I think we will continue to see streaming services try to move to lower-margin products. . . . Presumably [streaming services] will not steer [this], which I’m sure you’ve seen complaints of already — where music is popping up in people’s playlists and they don’t know how it got there.”
That was a blatant reference to recent reports of mysterious plays of suspicious tracks appearing in Spotify user play-counts, despite these users saying they’ve never heard these songs before. Did Steve Cooper just suggest Spotify itself could be to blame?
A potential struggle to keep up momentum.
Spotify’s 2018 saw the company add 25 million paying subscribers around the world. That was up on 2017, when it added 23 million paying subs.
Spotify Free Premium Advantages Marketing Strategy Examples
Spotify appears likely to have bested Apple Music, globally speaking, in the year. Apple’s Spotify rival counted 40 million paying subscribers last April, according to the Cupertino giant’s Eddy Cue. And, according to Apple CEO Tim Cook, speaking on the firm’s earnings call last month, the platform counted “over 50 million paid subscribers” as of January 28th.
Spotify’s bold prediction for 2019 is that it can repeat the trick: It’s projecting that it will add anywhere between 21 million and 31 million subscribers by the end of this year. Its biggest challenge, however, is exactly where these subscribers are going to come from.
Spotify’s fiscal reports show the percentage breakdown of where its paying subs reside. In terms of the year-end of 2018, that went like this: Europe, 38.4 million; North America, 28.8 million; Latin America, 19.2 million; and the rest of the world (ROW), 9.6 million.
Judging by prior financial reports, Spotify added just 2.1 million subs in ROW in the last six months of 2018, or around 350,000 per month. In a region housing billions of potential customers, that was . . . unspectacular.
Analysts at MIDiA Research have predicted that 2019 will likely be the year that streaming subscription growth slows in the North America and Europe — meaning that Spotify will really need to up its game in the Middle East and North Africa (MENA) region, where it launched in November.
It will also need to launch successfully in India, where 1.3 billion potential customers reside, but where Spotify’s arrival is currently being delayed by major labels refusing to grant it vital licensing permissions.
Its less-than-positive economics.
Spotify might have posted an unusual operating profit in Q4, but across the full year of 2018, it was a loss-maker yet again. In fact, in a year-end SEC filing, Spotify revealed that, since its inception, in April 2006, it has incurred “significant operating losses,” which, as of December 31st, 2018, amounted to an accumulated deficit of €2.51 billion ($2.8 billion).
The firm’s FY operating loss in 2018 stood at €43 million, narrowing considerably on the €378 million it suffered in 2017. Yet in its forecast for 2019 — partly due to that acquisition budget of $400 million-$500 million — Spotify is projecting another annual operating loss of €200 million to €360 million.
Daniel Ek will hope that Wall Street continues to buy his reasoning for this loss-heavy trend: that Spotify must now perpetually invest heavily in global expansion, marketing and product quality in order to consolidate its number-one market position, and lay the pathway for future profits.
Some investors, however, may point to Spotify’s own SEC filings, which warn, “[We] cannot assure you that the growth in revenue we have experienced over the past few years will continue at the same rate or even continue to grow at all. We expect that, in the future, our revenue growth rate may decline because of a variety of factors, including increased competition and the maturation of our business.”
Its untested reliance on podcasts.
Spotify has reportedly just paid more than $200 million to acquire New York-based podcasting production company Gimlet Media, in addition to podcasting distribution house Anchor. If this wasn’t indication enough that Spotify is banking its future on the spoken word, Ek told investors this month that his company expects more than 20 percent of listening on Spotify will be dedicated to podcasts, rather than music, in years to come.
Spotify Business Strategy
One key factor to achieving this objective, said Ek, is exclusivity, although he acknowledged only future Gimlet Media productions will be exclusive to Spotify — existing content from shows such as StartUp, Reply All, Homecoming and Mogul will remain widely available. So how can Spotify use podcasts to improve its financial numbers as time wears on? Ek was asked this precise question on the Spotify Q4 earnings call.
“If I could draw a Netflix analogy, when we launched [original content creation] at Netflix, first year, we spent [$50 million on it], and then every year after that we doubled it… There are many similar analogies that have the opportunity to play out here as well.”
Barry McCarthy, Spotify (pictured, main)
“Having great content is the long and the short of it,” he replied. “If we can drive a virtuous cycle, we’ll win; if we can’t, we won’t. And virtuous cycle [here] means investing in content that people engage in [and] seeing overall engagement increase. . . . Because [people are] excited, they tell more friends about the service, so your mix of paid versus free acquisition shifts in favor of free [and] your subscriber acquisition cost goes down.”
It’s interesting to note that both Ek and Barry McCarthy made Netflix analogies about Spotify’s podcasting potential in the wake of the Gimlet and Anchor deal, referencing the financial advantages of being a streaming service that is also a content creator. That’s a comparison Ek has tended to avoid in the past, presumably for fear of upsetting major music rights-holders.
Said ex-Netflix exec McCarthy, “If I could draw a Netflix analogy, when we launched [original content creation] at Netflix, first year, we spent [$50 million on it], and then every year after that we doubled it. . . . [This] greatly enhanced the value proposition for users, and over time it shifted the [company’s] cost structure from variable to fixed. There are many similar analogies that have the opportunity to play out here as well.”
Spotify, needs to get this an integration for the myLink! I realize the market share is small now but this new myLink is a very global platform now for GM. An integration App would get SOOO much safer for Spotify fans to use in-car, would encourage sales for both Spotify and Chevy. Chevy malibu spotify app. Android Auto™ † capability is available through a compatible smartphone using the Android Auto icon on the Homepage of the infotainment system. Download the Android Auto app to your phone from the. App Store is a service mark of Apple Inc., registered in the U.S. And other countries. The Manufacturer's Suggested Retail Price excludes destination freight charge, tax, title, license, dealer fees and optional equipment. Click here to see all Chevrolet. Spotify is a digital music service that gives you access to millions of songs. With the Chevrolet Shop, you can browse and install apps for things like music and audiobooks directly onto your Chevrolet MyLink. Teen Driver technology Chevrolet offers a built-in system to help.
Spotify Global Marketing Strategy
The above article originally appeared on RollingStone.com through here. MBW has entered into an ongoing global content partnership with Rolling Stone and Penske Media Corporation.Music Business Worldwide