Spotify is #1 in music streaming. It and other similar services have revolutionized the way people listen to music over the past decade, continuing the shift from physical media to digital files to streaming libraries. Spotify has taken advantage of this continuing trend and innovated in new ways to keep ahead of the competition.
Here are some key strengths, weaknesses, opportunities, and threats that Spotify should address to capitalize on its popularity and market share.
1. It carries a strong brand reputation.
Spotify is the leader in music streaming. It holds a majority of the current market share and the highest share of music streaming subscribers in the world due to its longevity, stability, a vast selection of music content as well as audiobooks and podcasts. Until other competitors establish and differentiate themselves, Spotify will likely remain king of the hill.
Spotify was #1 in music streaming and the second most reputable brand among all brands in 2019. (Prophet, Statista)
2. Spotify has the early mover advantage and a significant lead over its competitors.
Spotify launched early in the “streaming wars,” and cemented itself as a force to be reckoned with. It has continued to grow its music library, as well as its international reach into new markets. Early adopters helped create a strong brand reputation that has continued to thrive in the face of competition, owing to the simplicity of its business model, extensive content library including podcasts, high quality, user interface, and high visibility.
Spotify launched in 2008, and had 138 million and 144 million paid subscribers in the second and third quarters of 2020, respectively. By comparison, Apple Music launched in 2015, and its most recent data shows 72 million paid subscribers in the second quarter of 2020. (Spotify)
3. Spotify boasts an expansive music library.
Spotify wasn’t the first to market with a music streaming service, but it quickly gained market share in the U.S. because it was the best quality streaming service. If your internet connection is unreliable, its variable streaming quality options are helpful to get an uninterrupted playback experience. It spends heavily on licensing music, and in 2019 spent well over EUR650 million (USD795.5 million) on research and development. (Statista)
Spotify offers over 60 million tracks and more than 1.9 million podcast titles, with 40,000 songs being added every day. It has paid rightsholders EUR19 billion, or approximately USD23.3 billion, since Spotify’s launch. (Spotify, SoundGuys)
4. Its app is among the most popular music streaming apps in the U.S. and is available on most devices.
Listeners can access Spotify on a variety of devices. Many people use a mobile phone or a personal computer, but Spotify can also be accessed through gaming consoles, Bluetooth speakers, smartwatches, and more.
Over 20% of Americans listen to Spotify on a weekly basis. (Statista)
5. Spotify’s technology does a great job of personalizing your music selection.
Spotify’s selection algorithm used mobile machine-learning, artificial intelligence, and data sifting technology to recommend new artists and tracks based on your past listening history, gaining valuable insights into your tastes and preferences. These algorithmic recommendations also help users discover new artists. Users can save their customized playlists to their accounts.
Spotify drives 16 billion artist “discoveries” every month, and listeners spend one-third of their time listening to Spotify-curated playlists. (Spotify, KommandoTech)
6. Spotify offers the incredibly popular “Discover Weekly” and “Release Radar” playlists.
Every Monday, Spotify offers you Discover Weekly, which is 30 new songs its technology thinks you will like based on what you have been listening to. Then, every Friday, it offers you Release Radar, which is a set of songs it thinks you will like that were released in the past week. At the end of the year, it gives you a “Wrapped” playlist of your favorite songs of the year. Spotify allows you to share playlists with friends and invite friends to add songs to playlists.
Spotify has no limit on the number of songs that can be added to a user’s library, but individual playlists are limited to 10,000 titles, and users are limited to a maximum of 10,000 songs on up to five devices. (The Verge)
7. The pricing structure is simple and provides easy entry.
The entry tier for Spotify users is free, which is typical of many streaming services. Listeners who want an ad-free experience can upgrade to a paid subscription and then can also get unlimited access to the full music library, the downloading of songs onto local devices, and more.
Spotify had over 130 million paid subscribers worldwide in early 2020. (Spotify)
8. It provides the “on-demand” access that listeners are increasingly consuming and expecting.
Media consumption has shifted to an on-demand model. Services like Netflix and Hulu have moved consumers away from traditional cable subscriptions and disc ownership (like DVD and Blu-ray), and Spotify has done the same for music (away from CDs and MP3 files). Over the past few years, artists have recognized the audience reached by streaming services, sometimes even releasing their content exclusively to such platforms.
Streaming music services account for 80% of music revenues in the United States, and Spotify has a 36% share of the global music streaming market. (KommandoTech)
9. The more subscribers it has, the more influence it has to set listener expectations and shape the music streaming experience.
With users being added each day, Spotify has the market share to influence how users listen to music and what features are available. This enviable position as a market leader means that they can help determine what trends will be popular next.
Spotify has 320 million users, 144 million subscribers and 4 billion playlists across 92 markets, with 55% of the user base being Millenials. (Spotify, KommandoTech)
1. Licensing fees result in high royalty costs for Spotify.
In addition to its own operating costs, Spotify must pay to be allowed to feature songs on its platform, and those payments are made to a variety of entities. The artists themselves receive a portion, but more ends up going to their label, their producers, the writers, the copyright holders, and more.
In 2019, 74.54% of Spotify’s revenues were spent on royalty payments. (Statista)
2. Streaming requires an Internet connection.
As a streaming service, it shares a fundamental flaw with others operating under this model: it requires an Internet connection. By definition, content must be “streamed” from somewhere, and while some subscribers can download and play songs on their devices, the content must be first downloaded from the library. For those outside of Wi-Fi range, streaming can be a hassle.
In 2019, 4.13 billion people around the globe had access to the Internet, which is about 54% of the world’s population of approximately 7.67 billion. (Statista)
3. It is very similar to other music streaming apps.
At its core, Spotify does not differ that much from other similar services. They all have a library of content that they make available to their users, who pay a certain amount in order to access it. The difference is in the premium features and brand reputation, and while Spotify seems to have mastered the recipe for user loyalty, that trend may shift over time.
Spotify has spent nearly $271.4 million investing in the Podcast industry as a point of differentiation. (This Is Glance)
4. Spotify pays music owners less than the majority of its competitors.
Streaming music platforms offer a tiny fraction of a cent every time a song is streamed, which means that thousands of streams are needed to equal any substantial payout. Spotify pays less than many of its competitors, resulting in some artists, like Taylor Swift, pulling their music off the platform.
Amazon Music Unlimited ($0.01196), Napster ($0.01064), Tidal ($0.00989), YouTube Red ($0.00802), Google Music ($0.00551), Deezer ($0.00436), and Amazon Prime ($0.00339) all pay more than Spotify, at $0.00318. (Soundcharts Blog)
5. It is constantly pushing its paid subscriptions on its listeners.
Ad revenues can cover a significant portion of its operating costs, but Spotify will only thrive if its paid subscriber base continues to increase. For cost-conscious listeners who are satisfied with the free member tier, this means that Spotify has to work harder to convert those users, or be content with lower revenues from that portion of their audience.
Each Spotify listener spends an average of 25 hours per month listening, and all Spotify listeners cumulatively spend 40.3 billion hours per year. (Statista)
1. New markets are ripe for expansion.
Spotify already has a worldwide presence, and, like many streaming companies, is constantly negotiating access to even more corners of the globe. Untapped markets will be the key to its continued growth as current markets reach their saturation point, or the cost of winning new users becomes too high to maintain profit margins.
2. A big investment in video streaming could be the next step.
In July 2020, Spotify began experimenting with video podcasts. A stronger push into this form of media could provide a whole new avenue for service and revenue. Video streaming is already a competitive market, but Spotify could rely on its brand and reputation to gain access to this coveted spot.
The video streaming market is projected to be $71,237 million in 2021, with user penetration at 14.3%, hitting 29.0% by 2025. (Statista)
3. Spotify could continue to push hard to corner the podcasting market.
Spotify has Spotify for Podcasters, which provides analytics to podcasters who are on Spotify, marketing promo cards, tools for podcasting, and advanced tips. Spotify’s podcasts experienced a 200% increase in listening in 2019 year-over-year. (Spotify)
Spotify was the most popular app for listening to podcasts in the U.S. in 2020; there were about 88 million podcast listeners in the U.S. in 2019, and listeners are forecasted to be over 160 million in 2023. (Statista)
4. It could forge partnerships across the globe to increase paid subscription users.
Many services offer partnerships with providers of cell phones, Internet, or other technologies – typically in the form of free or discounted access to their premium tiers for a limited time. Spotify already has partnerships with Samsung, Facebook, Xbox, Bouygues Telecom, Magazine Luiza, and Vodafone, among others, and would do well to continue forming these alliances.
As of 2018, Samsung was the world’s most popular smartphone in the world, with 893 million active devices and 27% of the phone smartphone market share. (Forbes)
5. Artist endorsements are an opportunity for Spotify to increase its market share and customer loyalty.
Justin Bieber and Britney Spears have endorsed Spotify, and it gained a lot of publicity by partnering with Barack Obama to create his own personal playlist for the public to enjoy on Spotify. With tech giants now in competition with Spotify, now would be a good time to crank up the celebrity advocacy.
A celebrity endorsement can be expected to increase sales by 4% on average, and stock value by 0.25%. (USA Today)
1. Spotify still has not made a profit.
The company has prioritized growth over profits and has had losses year over year. While it briefly turned a profit at one point in 2019, it ended the year with a loss.
Spotify’s net losses were EUR539 million (USD 660 million), EUR1,235 million (USD 1,513 million), EUR78 million (USD 96 million), and EUR186 million (USD 228 million) in 2016 through 2019, respectively. (Statista)
2. It has a number of competitors, some of which are tech giants.
As with any streaming market, competitors come and go. Companies previously focused on other areas have entered the music streaming space, like Apple Music and YouTube Music. Spotify’s other competitors also include Pandora, TIDAL, Google Play Music, SoundCloud and Deezer.
Pandora often generates over $15 million per month in revenue, the most of any music app in the Apple app store. (Statista)
3. There are continued legal disputes over streaming rights.
Streaming rights frequently change, with permissions changing hands at every new contract signing, which can affect access by dozens of parties. There have been significant disputes over who Spotify is allowed to stream from, depending on the copyright holder, music label, or market.
4. Some artists have criticized Spotify and pulled their music from the platform over payouts.
Artists like Prince, Neil Young, Taylor Swift, Beck, and Radiohead have ended licensing agreements with Spotify over the amount of their payouts. This can cause backlash from users who, despite their preference for Spotify’s other artists and features, may see this as an unfair business practice.
Spotify licenses 87% of its titles from just three record labels: Universal, Sony and Warner Music, and Merlin. (LoveMoney)
5. Some prefer “old school” methods, like using local playing devices.
Some users still prefer “owning” the music or downloading it and playing it on a dedicated music player. Spotify allows for some features like downloading songs and podcasts for use offline, but it still requires an account to access that media.
40% of Millennials had an active music streaming subscription in 2017. (Statista)
6. Spotify’s security is under consistent attack.
Spotify has had numerous problems with security. Between November and December 2020 alone, some of its pages were taken over by “Daniel” who hijacked pages to declare his love for Trump and Taylor Swift, and it was a victim to a credential-stuffing operation where people used stolen passwords to get access to user accounts.
20% of the 88 billion credential-stuffing attacks in 2020 were targeted at media companies, and 13% of the accounts available for sale on the black market are for streaming services. (Threatpost)
7. Spotify is vulnerable to piracy.
Media piracy is also rampant, and Spotify is one of the most pirated content websites on the Internet, second only to YouTube. (Music Business Worldwide) If music is pirated, the user is then listening to music outside of the licensed system, and the rightsholder of the music does not receive royalties for that usage. If a platform has a high piracy rate, it may affect rightsholders’ decisions to allow their music to be played on Spotify.
Streaming royalties are over 20% of the income that rightsholders receive. (Music Business Worldwide)
Spotify is a power player in music streaming, boasting a vast array of content and user features that support a massive audience. However, issues over streaming rights, artist compensation, data security, and competitors could weaken its position as the leader in music streaming. There is always the threat that the next innovation in content consumption could send Spotify the way of the 8-track. It needs to continue to improve and grow itself to continue to hold onto its market share.
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