How Spotify revolutionised the Music Industry.
In the late 2000s, piracy was plaguing the music industry; artists were suing streaming services and banning fans from listening to their music. Fast-forward more than a decade and this all seems like ancient history. What happened?
Background
Before streaming services came around file sharing sites like Napster, LimeWire and The Pirate Bay were the go-to places to get your music fix. However there was one slight issue, you weren’t paying for the songs.
Musicians didn’t take well to having their songs pirated. At the turn of the millennia, Metallica infamously sued Napster for “facilitating piracy, and trying to build a business on the backs of artists and copyright owners”. The heavy metal band went as far as to request ~335,000 users, fans of Metallica that illegally streamed their music, be banned from Napster’s controversial site. The judge ruled in Metallica’s favour. Approximately 230,000 users were banned from Napster, most of whom were believed to be college students on a low-income. Metallica’s image went from counterculture outsiders to boardroom power players almost overnight. Napster would file for bankruptcy only a year later.
Birth
Starting as a small start-up in Sweden, Spotify was built as a response to this growing piracy epidemic. Founded in 2006 by Daniel Ek and Martin Lorentzon, the journey began by signing licensing deals with record companies. Success was slow but steady with Daniel going as far as sleeping outside of offices just to get a meeting with record label executives.
After 2 years of licensing deals, Spotify was finally ready to launch in 2008 to a few select countries in Europe. The streaming service started gaining traction and was endorsed in 2009 by Mark Zuckerburg. A further 2 years later in 2011, Spotify had its long-awaited US release.
Competition
The once small, scrappy, Swedish streaming service was no longer a little fish in the industry; Spotify commanded 75 million active users.
On June 18th, 2015, Apple Music was announced: Apple’s very own music streaming service. Alternative options like Pandora, Deezer and SoundCloud had existed since the 2000s and Spotify had fended them off with relative ease. Spotify was no stranger to competition. Yet reputable news sources, including the Financial Times, reported on the danger Apple Music posed to Spotify.
Why did Apple Music pose such a threat?
When companies with gargantuan-sized user bases such as Facebook, Google or Apple show interest in a new space it threatens entire industries and puts the market leaders on high alert. Here’s why…
Let’s assume Apple had 800 million active users (a significant underestimate as The Verge reported 1 billion apple product users in early 2016) across all their devices when Apple Music was launched. If Apple could convince just 10% (~80 million) of its user base to use Apple Music they would surpass Spotify’s 75 million users and become the market leader seemingly overnight.
Spotify was in trouble.
Fight or Flight
One of the main problems music streaming services face is that their product (or service) at its core is essentially a commodity. It’s like buying eggs, you can buy them from a supermarket or your local corner shop, the eggs will pretty much taste the same. Similarly, streaming services can add music videos or increase sound quality but as the core product is a commodity there’s no definitive way to differentiate yourself from a competitor, or so we thought.
Throughout the years Spotify has managed to find clever ways to differentiate itself, engaging its users through personalisation and using their users’ data as a whole to improve individual service. Spotify released two features (among others) in 2015 to beat out Apple Music and keep its crown as king of the music streaming industry.
1. Discover Weekly: Every week Spotify generates a playlist of 30 songs that fit a user’s music tastes.
Spotify does this by looking at two pieces of information. Firstly, it takes songs you’ve listened to and liked enough to add to your playlists and library, discarding any songs you skip within the first 30 seconds or so. Secondly, it takes playlists other people have made and uses this to give you informed recommendations.
So let’s say you liked 10 specific songs this week. Another user may have a playlist with 12 songs, 10 of which are the same as yours. Spotify would recommend the other 2 songs to you in your discover weekly playlist. This method gets exponentially better as the user base grows, songs can be checked against multiple user’s data resulting in a discover weekly playlist with a very high chance of the user liking most of the 30 ‘new’ songs. Spotify already had 75 million active users, as a result, they were able to leverage their larger user base to further their lead over Apple.
Discover Weekly launched in July 2015. It was an instant hit with 1.7 billion streams in less than 6 months. On average each Spotify user listened to Discover Weekly 23 times in the first 6 months!
2. Wrapped: An annual story containing personalised statistics for each of their users.
Technology doesn’t need to be complicated. It just needs to be effective.
Spotify certainly had this philosophy in mind when designing wrapped. Wrapped contains statistics from the whole year, including your favourite artists, most played song and how many genres you listened to. It even includes how many hours you spent listening to music all year! Spotify Wrapped delivers these tidbits and more in a gorgeous, animated story (think Snapchat stories).
Launched in 2015, wrapped (originally known as ‘Year in Music’) developed an almost cult-like following. News articles detail which new statistics will be shown in the next wrapped and old statistics that didn’t make the cut for the story this year. Spotify iterated on their product and even released a special edition: Your Decade Wrapped (a summary of your usage in the 2010’s decade at the end of 2019).
Wrapped is widely considered a massive success. Apple Music followed Spotify’s footsteps and released their very own wrapped feature called ‘replay’ which launched in late 2019.
Staying On Top
Discover Weekly and Wrapped both launched in 2015 and helped fend off technology giant Apple but almost 6 years on and Spotify is still consistently updating its product.
Last year in February Spotify released the brand new “You are one of X artist’s top fans worldwide” notification if you’re in their top 1% of listeners. Recent updates enable users to categorise all of their liked songs by genres to suit different moods. The newest feature ‘recently played’ allows you to check all the songs you may have played in the last few weeks (mine showed every song I played in the last 3 months!).
You may be thinking who cares about these little features?
User’s care.
Features such as being able to build a playlist with friends are effective. On a night out? Make a playlist with friends. Hosting a game night? Make a playlist with friends. Going on a road trip? Make a playlist with friends.
Having song suggestions at the end of a playlist or even a welcome email when you subscribe for a premium membership may sound small but it’s what keeps users subscribed and happy. Spotify has created an almost social-network like platform for the music industry. You can see what your friends are listening to, make private and public playlists and you can even gain followers.
These methods work.
Spotify has a fiercely loyal customer base, and it shows; churn rates (the rate at which a customer stops subscribing to a service) that are reportedly half that of Apple’s. Spotify currently sits pretty atop the music streaming industry with a share of 34%; Apple follows with 19%.
Closing Thoughts
It’s no mystery that Spotify’s ability to leverage the data of their large user base to improve user experience has been the key to the company’s success for more than a decade.
13 years from launching, Spotify is projecting to be available in 178 countries by the end of this year. Their latest quarterly report shows the service now boasts ~345 million active users. Their user base is larger than the population of the United States or more than 34 times the population of Sweden!
