Co-Founders: Daniel Ek and Martin Lorentzon (in 2006)
Industry: Digital Audio Streaming
Type of Business: B2C
Description:
Spotify is a digital music streaming platform that gives users access to a large catalogue of music (and podcasts). With a freemium business model, it provides a limited, ad-supported service and an unrestricted service in exchange for a premium membership. Users of the digital platform can create and share custom playlists, establish their profiles, choose their favourite artists, and learn about a wide range of music and podcasts. It significantly decreased piracy and offered an alternative to purchasing tunes on iTunes. It offers a wonderful user experience on all linked devices and offers tailored recommendations. Spotify gives its users a remarkable experience and makes it apparent by offering "Music for Everyone." Due to its large user base, it is advantageous for advertisers to focus their advertisements and target the right audience. Spotify helps content creators build their brands and receive fantastic visibility.
Revenue Streams:
Spotify has two major revenue streams - Subscriptions and Advertising
1. Spotify Premium: It has multiple premium subscription plans to suit the listeners - Individual, Duo, Family, Mini (newly added plan) with features like unlimited Ad-free music listening, unlimited skips, Offline playback, Play everywhere (TV, mobile and other devices) and with some additional features across these plans. The majority of its revenue is generated through premium subscriptions only.
2. Advertising: Spotify generates revenues through native banner advertisements and uses cutting-edge technology to target its audience with audio, video, podcast and multi-format ads. It allows different kinds of advertisements that differ in type, size and user engagement. And all of these deliver differentiated customer experiences. Some of them are -
Display Ads - They are clickable banners that are visible for a 30-second period at the bottom of the page.
Branded moments - Vertical video ads run after 30-minutes of free streaming
Overlay ad - It is displayed when the user returns to the Spotify app
Sponsored session - They are horizontal video and banner ads that precede an uninterrupted listening session for 30 minutes.
Sponsored playlists - Brands sponsor the most popular playlists
There are a few more types of ads which are targeted at a specific segment of the audience.
USP:
Spotify effectively addresses the pain points of its people and provides value to each of its three target audiences—listeners, advertisers, and content creators
Target: Students and young professionals
Competitors (In India): Gaana, Jio-Saavn, Youtube music, Amazon Prime Music, Apple Music, Hungama
Cost Structure:
The majority of Spotify's expenses come from royalties or licencing fees, and business expenses. Spotify pays royalty fees in exchange for the right to stream particular content(song/music) on its platform. It pays two types of royalties to own two types of licenses:
1. Recording Royalty: It has recording license agreements with big music labels like Sony Music Entertainment Group, etc. The sum paid as compensation for Spotify's ability to stream the actual recordings of these record labels on its platform is known as a recording royalty. The musicians or singers who originally perform and record the track are then paid directly by these record labels.
2. Composition Royalty: Spotify has composition license agreements with the original songwriters and composers as well. As a result, the payment for the right to stream a song's composition, known as composition royalty, is made to the composers of the song's lyrics and melody of the tracks.
There are other costs incurred by the company like R&D, Sales and Marketing, General and Administrative expenses
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