Businessmodel of Spotify

Customer Segments

Spotify has a multi-sided business model, with two interdependent customer segments that are both needed in order to operate: music artists who supply music and consumers who stream it.

Value Proposition

Spotify offers five primary value propositions: accessibility, pricing, customization, performance, and brand/status.

The company creates accessibility by providing music artists with a means to earn money through their music. It gives them the option of streaming their work so they do not have to rely solely on revenue from downloads through services such as iTunes. The firm also provides access to consumers by making this music available in a streaming format.

The company offers a pricing value proposition. It provides a free version of its service. Its premium version costs only $9.99 a month, and it offers a 30-day free trial so customers can try it out. There is also a premium version for students that costs only $4.99 a month.

The company enables customization by allowing customers to search for songs and create playlists for their music based on artist, genre, album, record label, and other categories.

The company has demonstrated strong performance through tangible results. Specifically, it has partnered with a number of brands to increase their awareness and sales. High-profile examples of positive outcomes for these partners include the following:

• BMW used Spotify’s solution to launch a branded app that created music experiences for road trips, resulting in the creation of over 14,000 playlists and a 30% completion rate
• Reebok used Spotfiy’s solution to launch a branded app that enabled users to create fitness playlists, resulting in 365,000 visits, 150,000+ downloads, and over one million page views
• Hello Bank! Used Spotify to create a custom crowd-sponsored platform enabling customers to sponsor music projects, resulting 12,792 active users and 110 out of 120 sponsored projects
• Volvo used Spotify’s solution to create a marketing campaign with a music connection, resulting in over 2 million YouTube views and over 6,000 shares of the promotional video
• Online fashion retailer Iconic used Spotify’s solution to run an ad campaign, resulting in increased awareness of the brand among customers (48% said it increased their interest) The company has established a powerful brand due to its success. It has half a billion registered users, more than 100 million active users, and 40 million paying subscribers globally. It provides access to more than 30 million songs with thousands of curated playlists. Lastly, its average cross-platform user spends 148 minutes a day listening to its offerings.

Channels

Spotify’s main channel for consumers is its website, through which it acquires most customers. Its main channel for music artists is its business development staff, which contacts record labels. The company promotes its offering through its social media pages, advertising, and conferences.

Customer Relationships

Spotify’s customer relationship is primarily of a self-service, automated nature. Customers utilize the service through the main platform while having limited interaction with employees. The company’s website provides answers to frequently asked questions.

That said, there is a personal assistance component in the form of phone, e-mail, and social media support and a community element in the form of a forum.

Key Activities

Spotify’s business model entails maintaining a robust common platform between two parties:  music artists and consumers. The platform includes its website and mobile app.

Key Partners

Spotify maintains partnerships with brands through which it helps them promote their offerings through the creation of music-related apps. Specific partners include Coca-Cola, Uber, and Starbucks. The company also offers APIs and software development kits to developers so they can build apps.

Key Resources

Spotify’s main resource is its proprietary software platform, which serves over 100 million active users.

It depends on its technology employees to maintain and update the platform and its customer service staff to provide support.

As a relatively new startup it has relied heavily on funding from outside parties, raising $2.56 billion from 27 investors as of March 2016.

Cost Structure

Spotify has a cost-driven structure, aiming to minimize expenses through significant automation and low-price value propositions.

Its biggest cost driver is likely transaction expenses, a fixed expense. Other major drivers are in the areas of sales/marketing and customers support/operations, both fixed costs.

Revenue Streams

Spotify has two revenue streams:

• Subscription Revenues – Revenues generated from subscription fees paid for monthly access to the streaming service through the premium option. The cost is $9.99 per month.
• Advertising Revenues – Revenues generated from fees charged to third-parties to advertise their offerings on the company’s platform. The company offers seven types of ads: Display Ads, Audio Ads, Billboard Ads, Branded Playlists, Homepage Takeovers, Advertiser Pages, and Lightbox. They vary in terms of size, type, and user engagement – for example, Audio Ads run between songs.