Imagine sitting in a train. Take a look at the person on your left hand side. Meet Bob. You don’t know Bob, and you will never get to know Bob, as Bob is staring out of the window with his headphones on. Look straight ahead again. There is a couple sitting opposite of you, sharing a set of earphones and head-banging on music you cannot hear. At the back of the train, you suddenly see your friend Denise, and you call out her name; unfortunately, she does not seem to hear you as she is fully engaged in a new Spotify playlist she just discovered. You decide to pull out your headphones and put on the new album of Mumford & Sons.
Music is everywhere. Music has been everywhere for decades, yet recently, a new technological development disrupted the entire industry; streaming services. Companies such as Spotify, Rdio, Apple Music, Pandora and Tidal are all engaged in fierce competition to attract most paying customers. However, these companies face two problems. Firstly, although customers seem to grow very fond of music streaming services – almost 15 billion numbers were streamed in the United Kingdom in 2014 (The Guardian 2015), and United States music streaming revenues surged to over 1 billion dollars in the first half of 2015 (Statista 2015) -, these services still do not make enough revenue to become profitable. Secondly, artists do not love streaming services as much as users do. We all can recall the moment that Taylor Swift decided to withdraw her music from Spotify, and other artists as Beyonce and Ed Sheeran have also attempted to get around the influence of these streaming services. As can be derived from the ongoing discussion regarding streaming royalties, it seems that artists do not feel treated fairly by these businesses (The Economist 2015).
However, yesterday Pandora announced a takeover that might mark a change in the relationship between artists and streaming services. With its takeover of Ticketfly, an online concert ticketing service similar to Ticketmaster, Pandora will soon be able to directly sell concert tickets to music listeners. Whilst services as Pandora and Spotify were already promoting the sales of tickets through ads leading the listener to third-party websites, Pandora has now decided to move the entire purchase process to within its own ecosystem.
Pandora can use its experience in data collection to specifically target customers that might be interested in concert tickets from a certain artist. Apart from strengthening the ties between listening to music and visiting a concert hence increasing the music experience for users, Pandora also strengthens bonding with artists by this takeover. As concert tickets sales is still booming business (Techcrunch 2015) and has even become the main source of income for artists (Forbes 2015), artists will eventually be able to leverage the enormous user database of Pandora and even specifically target their ideal customer, without having to pay any additional promotion costs.
For Pandora itself, the acquisition of Ticketfly might also create more opportunities to generate revenue, and perhaps turn into a profitable business on the long-run. Pandora seems to have found a unique way to use its massive amounts of data to increase value for both parties simultaneously in its two-sided market, therefore increasing pressure on competitors such as Spotify and Apple Music.
Do you think that with this step, Pandora has revolutionised the music streaming service industry once again, ensuring that Bob can get involved even further with his favourite bands? Do other music streaming services have to follow? Or do you think there is another answer to low profits and weak bonds with artists?
The Economist 2015, The dry stream of musicians’ royalties. Viewed 9 October 2015. Accessible via <http://www.economist.com/blogs/prospero/2015/09/music-business>.
Forbes 2015, Pandora’s purchase of Ticketfly finally good news for shareholders. Viewed 9 October 2015. Accessible via <http://www.forbes.com/sites/bobbyowsinski/2015/10/08/pandoras-purchase-of-ticketfly-finally-good-news-for-shareholders/>.
The Guardian 2015, Streaming: the future of the music industry, or its nightmare? Viewed 9 October 2015. Accessible via <http://www.theguardian.com/technology/2015/jan/02/streaming-music-industry-apple-google>.
Statista 2015, Music streaming revenues surpass physical format sales. Viewed 9 October 2015. Accessible via <http://www.statista.com/chart/3852/us-music-industry-revenues/>.
Techcrunch 2015, Pandora Acquires Ticketfly for $450m to sell concert tickets. Viewed 9 October 2015. Accessible via <http://techcrunch.com/2015/10/07/pandora-acquires-ticketfly-for-450m-in-a-bid-to-sell-tickets-to-live-music-shows/#.db6ey8:pyx4>.
It´s not the first time that the German based company Aldi is tackling an industry with a low competitive price. This time it is the fast growing music streaming industry. What sounds like a curious sideline business could be a central element for changing the brand in the next years.
Two weeks ago Aldi launched on own music streaming platform in cooperation with Napster. For only 7.99€ per month, Aldi offers more than 34 million songs and audio books. At first it seems to be nonsensical to enter a highly competitive market in which already big competitors such as Spotify, Apple Music, Deezer or Ampya exist. And even that Aldi is cooperating with Napster has only limited benefits, as this brand is only partly known by the young target group.
However, Aldi has a good timing for this launch. The pioneer Spotify has demonstrated that music streaming in a performing and lucrative market. And Apple Music and Deezer are currently highly investing in advertisement and thereby keeping this topic continuously at customer awareness. This enables an opportunity for a low-cost provider.
Aldi has already proven in the past that they provide good multimedia products. In the hardware market they have a very fruitful cooperation with Medion, and in the mobile communication market AldiTalk is very successful as well. These two examples have shown that selling products or service at a low price but with high sales number can be profitable. Additionally, Aldi can use synergies and offer bundles, as mobile services as music streaming are closely connected. For example they can exclude the data volume for Aldi Life from the monthly data volume. Furthermore, they already have an existing customer (data) base. Therefore, the success prospects for Aldi Life are high and it is very likely that this discount strategy will be successful for music streaming as well.
This new tender is strengthening the retail competence within the field of digital and virtual products, a topic that is becoming more and more important in the future. Currently price and quality are the crucial factor which grocery story the customers favor. But, especially in the e-commerce these boarders are diminishing. Amazon Fresh is a good example: It is very likely that customers that had a good (service) experience are getting to know Amazon as a retailer much better then Aldi & Co.
For traditional retail companies the only counter strategy is the development of digital products and thereby getting contact to young customers who have high potential for their core business. And nevertheless, soon or later e-commerce is becoming a non-negligible topic for every stationary distributor.
Additional note: Aldi Life is currently not available in the Netherlands, but it is very likely that is will be available here so pay attention.
- Aldi Life (20159. Aldi Life. Available at: https://www.aldilife.de
- Campillo-Lundbeck. S. (2015). Warum sich der Discounter in der digitalen Welt so wohl fühlt. Horizont. Available at: http://www.horizont.net/marketing/kommentare/Aldi-life-Musik-Wo-die-Musik-bei-Aldi-wirklich-spielt-136540
- Kerksmann, C. (2015). Aldi wird zum Musik-Discounter. Handelsblatt. Available at: ewww.handelsblatt.com/unternehmen/it-medien/streamingdienst-gegen-spotify-und-apple-aldi-wird-zum-musik-discounter/12358744.html
- Vincent, P. (2015). Aldi teams with Napster to launch music streaming service. The Sydney Morning Herald. Available le at: http://www.smh.com.au/entertainment/music/aldi-teams-with-napster-to-launch-music-streaming-service-20150929-gjwwtp.html#ixzz3nV7aeukv Follow us: @smh on Twitter | sydneymorningherald on Facebook http://www.smh.com.au/entertainment/music/aldi-teams-with-napster-to-launch-music-streaming-service-20150929-gjwwtp.html
Apple Music vs Spotify
With the advance of technology, the world has entered a digital society. The inevitable shift to digital music forced the industry to seek new business models. Legal downloads became available with the launch of iTunes in 2003 and a decade later subscription-based “pay-to-stream” services emerged. The streaming services made a large impact on the industry. With Spotify being the current market leader with 75 million users and Apple Music the latest entrant and a serious competitor, a new battle for market share developed. This article will provide an analysis and future prediction of both companies.
Spotify uses the so called freemium model, which offers free service with additional features that can only be utilized once someone has subscribed to a premium account. In order to also generate revenue from its free users, Spotify occasionally inserts audio advertisements that cannot be skipped. Unlike Spotify’s freemium model, Apple Music uses a free-trial model, meaning that after the free-trial period users are required to pay a monthly subscription fee to make use of the service. Apple Music is trying to offer an all-in-one solution to music lovers and therefore tries to make the monthly cost seem negligible.
SWOT & future prediction
The defining key trend in early 2015 in the global music market is the continued surge in consumer uptake of streaming services. This uptake of streaming services drives subscription to listen to music. On top of this, there is a substantial untapped potential for growth within the paid-for category. So we can say that Spotify and Apple Music are competing in the right market.
At the same time, the streaming market entered a new phase of growth. In a few years a lot of big players entered the market (e.g. Google, Apple, Amazon and Tidal). The near future of this market will cause intense competition between those companies. For Spotify and Apple music to win this fierce battle, a few key trends are extremely important:
– Revenue model and artist royalties. People will choose the service with the most and the best artists. One important factor to attract the most and the best artists is to have a revenue model that is considered to be fair according to the artists. Due to Apple’s subscription model, we expect that they will be more successful in attracting artists than Spotify.
– Partnerships. In order to accelerate the growth of their customer base, they have to form bundled offers with telecom companies and make exclusive deals with artists and labels. It is hard to predict who will be most successful in this area.
– Competition on curation. Surfacing songs and editor recommendations that are tailored to the listener’s taste is key to customer retention. We expect Apple Music to have the best tech team to be able to outperform Spotify in the future on curation.
Another factor that can’t be left unmentioned and can play an important role in gaining market share in this rapidly developing market is the brand community of Apple.
After the analysis of both companies and taking into account their future potential, we believe, that Apple Music will be the most profitable on the long term.
Sjaak Meeuwsen – 437156
Claude Zwicker – 437277
Yinuo Jin – 373227
Hidde van Heijst – 436800
Ruud Schippers – 441698
The Internet strongly disrupted both the music and education industries, giving rise to new companies with innovative business models, and forcing old companies to rethink their own in order to survive their new competitive landscape. In this article we discuss and compare the business models of Spotify and Coursera with the goal of showing the effects of IT in shaping global business.
Spotify’s Business Model
In 2006, the music-streaming platform Spotify was launched in response to the changing landscape produced by information technologies. Today Spotify is one of the leading music streaming platforms and counts with over 75 million active users1.
Spotify serves two different customer segments; on one-hand music fans, and on the other advertisers2. Spotify’s value proposition to music fans is “get all the music you want, whenever you want it”2. To fulfill its promise, Spotify requires massive Data Centers and Cloud Services3. Data is another key resource for Spotify, since it uses all data collected on user listening habits to develop “taste profiles” to deliver the “right music listening experience”4.
Spotify builds relationships with key partners in order to provide its services. First, with music labels, which allow access to their catalogues; royalty payments to these partners are one of Spotify’s main cost drivers. Second, with brands such as Facebook, which serve as channels to reach their customers 2.
Spotify uses a freemium revenue model1. Users that opt for the free version are financed by brands, which in exchange are allowed to advertise to users using several ad-formats. Premium users pay 9.99 euros for unlimited music streaming.
Coursera’s Business Model
Coursera also serves two customer segments; first students and second employers and universities5. It provides value to students by providing access to top-quality education from prestigious universities, and to companies and universities by sharing the data and insights it collects from students. It builds strong customer relationships with students by providing personalized services like course recommendations, and promoting interaction within its online communities.
A key success factor for Coursera is developing relationships with key partners such as Universities, which deliver the content that attracts users to the platform. Similarly to Spotify, fees to universities and are a large cost driver for Coursera. Coursera primarily communication channel is its own platform.
Similarly to Spotify Coursera uses a freemium revenue model. Users can attend to courses for free, but if they wish to get a verified certificate they need to pay. Coursera also makes revenue by selling companies and universities the data it collects.
Comparison between both business models
The following table provides a comparison between the strengths and weaknesses of the business model of each platform.
Both platforms have several similarities when it comes to strengths; differences lay mainly in their weaknesses. Both companies are extremely good at providing valuable content for free, using data to engage users, and they have both build strong partnerships with well-established brands.
Authors (BIM2015 – Team 6):
- Stéphanie Visser – 407153
- Job Deibel – 407756
- Dirk Breeuwer – 329445
- Colin van Lieshout – 414788
- Jord Sips – 421144
- Spotify, (2013). Spotify Explained. [online] Available at: http://www.Spotifyartists.com/Spotify-explained/ [Accessed 12 Sep. 2015].
- Chaffey, D. (2015). How Spotify built a $5 billion business with more than 50 million subscribers. [online] smartinsights.com. Available at: http://www.smartinsights.com/digital-marketing-strategy/online- business-revenue-models/Spotify-case-study/ [Accessed 12 Sep. 2015].
- Garcia, D. (2013). Spotify: Data center & Backend buildout. [online] Slideshare.net. Available at: http:// http://www.slideshare.net/davidpoblador/Spotify-bcn2013slideshare [Accessed 12 Sep. 2015].
- Heath, A. (2015). Spotify is getting unbelievably good at picking music â€” hereâ€TMs an inside look at how. [online] techinsider.com. Available at: http://www.techinsider.io/inside-Spotify-and-the-future-of-music- streaming [Accessed 12 Sep. 2015].
- TED, (2012). What we’re learning from online education.
Available at: http://www.ted.com/talks/ daphne_koller_what_we_re_learning_from_online_education [Accessed 12 Sep. 2015].
When Spotify was launched back in 2008, it marked the rebirth of the music industry. The long slump in revenue growth was halted thanks to the smart new service that allowed people to enjoy the benefits of unlimited music access.
The main reason people download music illegally is not because it is free. It is because one is able get instant access to all the music in the world. In the old days, purchasing music meant going to the record shop and buying an album, and even then you only have access to the songs on that particular CD. Services like iTunes made access easier, but the product was basically the same as the one offered for free by the illegal alternatives.
The founders of Spotify understood this, and developed a product/platform that was more user-friendly than any downloading alternative. Streaming the music means that one doesn’t have to download anything, and you have unlimited access as long as you have got an internet connection. Spotify charged for access instead of ownership, and it worked. The user base has grown ever bigger, meaning that more and more artists and record labels have wanted to offer their content on the platform. Spotify is thus a huge success!
Or is it? Sure, the consumer is better of, and so are the record labels. However, as Spotify has grown, so have the losses. In 2012, the company more than doubled its revenue, to 434 million Euro. Unfortunately, the losses also grew by 50%, to 59 million Euro (http://www.dn.se/ekonomi/spotifys-svenska-bolag-gor-forlust, http://computersweden.idg.se/2.2683/1.516763/okade-forluster-for-spotify). Spotify has serious troubles turning a profit. An article in the Swedish business magazine Affärsvärlden (Affärsvärlden, 14th February 2013, Volymen räcker inte för Spotify) discusses what the company itself sees as its main problem: there are still too few users that prefer the ad-sponsored version to paying the full monthly fee.
It is also possible to analyze Spotify’s situation from a platform theory perspective. Most of the world’s music is in the hand of three big record labels: Sony, Universal and Warner. Early on, Spotify had to subsidize these major record labels, who were “magnets” that could provide strong cross-side network effects, attracting a large user base. This meant that Spotify would have to charge more from the music consumers. However, music consumers were used to not paying anything at all (high price elasticity), which meant that Spotify had to subsidize them too, basically giving the content away for nothing. As consumers, over time, have come to accept paying a small monthly fee, Spotify has been able to charge more. However, it is still far from the amount needed to cover the heavy royalty rates that Spotify has to pay to the record labels.
As more companies are now getting in to the music streaming business (Google, for example (http://crave.cnet.co.uk/software/google-will-launch-a-free-music-streaming-service-ft-says-50010505/)), Spotify will face price competition on both the consumer and content provider side, limiting its options even more.
I know that this question has been asked before, but in light of the interesting lecture on platforms we attended this Friday, what advice would you give to Spotify? Is it time to throw in the towel, or is there a way out?
My tip is that Spotify will either go bust, or be bought by another, financially stronger actor.
We all know that online music streaming platforms like Spotify and Pandora are currently all struggling to translate their huge popularity from the customer side into a well functioning business model.
Spotify is trying to achieve that with ads and and monthly subscription fees which vary from US5-10$. However the incentive to actually subscribe to its paid service is kept rather low, as Spotify equips each user with a substantial amount of ten hours of free music a month, and well, let’s face it, it’s not impossible to set up a second account, if you run out of these ten hours. In contrast to my initial intuition however, an impressive number of approximately six million users are currently subscribed to one of Spotify’s paid options. To put that in relation to the total number of active users the platform attracts at the moment, 20% out of the 24 million users worldwide choose for one of these paid options.
Unfortunately, these numbers are not enough for Spotify to make profits at the end of the year given the vast amount of money that is spent on licences needed for its long-tail music portfolio. The company’s losses grew from US60$ million in 2011 to a disappointing number of US77$ million, despite the company’s growing popularity and its geographic expansion.
The problem for Spotify and its competitors is quite obvious: The music industry is sort of blaming them for their decreasing losses and charging rather high royalties when users are listening to a song on Spotify. However, what is being ignored here is the fact that Spotify sees itself more as an online radio platform more than anything else. Its emphasis on users discovering new artists couldn’t be clearer with its latest updates including application that let users listen to similar artists, songs and playlists. Now, if a record label was to compare the money they get from actual radio stations when their song is being played to the money Spotify pays them when users listen to their music, they would find that Spotify is paying significantly more: A song listened to by a user in the UK on Spotify pays about £0.01. A single play on a radio station in the UK will earn an artist an average of £60 in royalties, then divide that number by an average of say 2 million listeners to get a ‘per listener royalty rate’ and come to a number that, umm, well, I don’t know how to phrase it nicely, so I’ll just tell you: £0.00003. The fact that Spotify is paying £0.01 then seems a little ridiculous.
What is also being ignored by the music industry at the moment is the huge potential Spotify offers its artists. Imagine all the data Spotify has over its users. They know who we are, what we listen to, when we’re listening to it, they might even know why we’re listening to it and what we’re doing while we’re listening to it (I’m just thinking of an awkward moment when I was going through a friend’s Spotify and found a playlist called ‘Stripping’…). This is information that could be of massive value to the music labels. Moreover, this is information that was never ever available before, as radio stations and previous music platforms simply had no way of acquiring this information. Following up on this knowledge through targeted marketing, the right links to other music, concerts and merchandise – that could be the future of the record label companies.
Instead of working against the success of Spotify, I would strongly suggest to open up towards streaming platforms for music.
Braga, M. 2012. Future of music streaming sounds big on popularity, but not profits. [online] Available at: http://business.financialpost.com/2013/08/10/future-of-music-streaming-sounds-big-on-popularity-but-not-profits/?__lsa=d983-cdf5 [Accessed: 11 Oct 2013].
Cannon, C. 2013. Spotify – The Good, the Bad and the Future. [online] Available at: http://www.huffingtonpost.co.uk/chris-cannon/spotify—the-good-the-bad-and-the-future_b_3721851.html [Accessed: 11 Oct 2013].
Spotify Press. 2013. Information. [online] Available at: http://press.spotify.com/us/information/ [Accessed: 11 Oct 2013].
If you are living in The Netherlands and want to legally enjoy your digital music, there are plenty of solutions available. However, there is a good reason why so many people have not embraced one platform to fulfill all their music needs. Either the legal music platforms are not very user-friendly (e.g. restrict the user with DRM, unclear pricing, dramatic UI, insufficient music database, strange recommendations, advertisement policy) or divide the profits between them and the record labels as opposed to the artists.
In 2010 Spotify tried to fill this gap for Dutch users. With a rapidly growing global market share of 9.1% in 2010 and a market share of almost 20% of the global market for streaming services in 2011, it was bound to become the leading service provider in the industry in a few years.
But, as Elise Zonneveld pointed out, Spotify has trouble achieving profitability, despite its ever growing user base due to high royalty costs. Sound quality, limited supported formats and DRM are also not encouraging new users to convert to a premium account.
Do you remember Kim Dotcom? While this media mogul awaits the outcome of the increasingly scandalous efforts by the US and New Zealand governments to extradite him to face charges of copyright infringement, the founder of Megaupload is preparing to launch a new business line soon—a cloud music service called Megabox. Put top-notch programmers and designers in their natural habitat, feed them bacon and over-sugared energy drinks and something good has to come out.
Did you notice the sentiment analysis features and tight integration with all kinds of webservices? Looks promising doesn’t it?
Megabox: Music service or malware?
“These new solutions will allow content creators to keep 90% of all earnings and generate significant income from the untapped market of free downloads,” Dotcom told TorrentFreak. “I created an innovation that could solve the piracy problem.”
At first it looks like a promising new business model but the technical aspect gives it a sinister taste.
Technically, since users are made aware of what Megakey is doing and are willingly allowing the software to be installed on their computers, Megakey falls into the same legal realm as ad blockers. But once it is installed, users won’t necessarily know which ads are hosted on the sites they are visiting, and which are injected by Megakey. The ad injection mechanism of Megakey could also pose a major security risk to users.
If that isn’t enough to give the music industry and media companies a case of indigestion, Dotcom has also announced that he’ll be re-launching Megaupload later this year.