Subscription POV #36
By Morten Suhr Hansen
Last week, Netflix premiered the mini-series ‘The Playlist’ which follows the story of how Spotify became one of the world’s largest subscription companies. In six episodes, we follow founders Daniel Ek and Martin Lorentzen and the team around them since the creation of the company in 2006 and to becoming the world’s leading music service.
Naturally, ‘The Playlist’ is a dramatization of how Spotify came to be and it is a mix of fiction and reality. But that doesn’t change the amazing entrepreneurial story that lies behind the series. The title has been showered with good reviews and I will recommend it to you and any other subscription geeks. And from the story comes some important points on how Spotify became a success. Points that any subscription business can learn from!
Spotify’s user count is approaching half a billion people
But let’s start with some facts about Spotify that was founded in 2006 and launched its first service in 2008. In 2011, Spotify hit two million subscribers across free and premium services and now, 10 years after, Spotify has around 450 million monthly users with 188 million of them being premium subscribers.
Spotify’s revenue in 2021 was around 21 billion dollars and the company has a global market share of 32% in a market that is expected to grow with 17.8% every year until 2027.
På indholdssiden har Spotify nu 70 millioner sange fordelt på omkring 7 millioner kunstnere. Podcasts er i øvrigt et nyt stort satsningsområde for Spotify. Omkring 3 millioner podcasts kan man nu finde på tjenesten, der har som erklæret mål at være verdens førende platform for lydbaseret indhold.
When it comes to content, Spotify now has 70 million songs across 7 million artists. Also, podcasts is a massive new area for the company. Around 3 million podcasts are available on the service that has a clear goal of becoming the world’s leading platform for audio-based content.
Let’s dig deeper into the three success factors that allowed Spotify to take such a dominant position.
Factor 1: Create an amazing product
When watching ‘The Playlist’, you get an insight into the uncompromising dedication to the product that has characterized Spotify from the start. The focus has been on creating a user experience and making listening to music as easy as turning on the water. Music is the core of the business and right from the start, it was important to Spotify that they could present their users for all music. It seems logical and natural today, but it was a revolution in 2008 (just think of the content catalogues that the first movie streaming services presented to us).
On top of the music, Spotify built a wide range of value-adding features like playlists, recommendation engines, and sharing integrations with social media. Many of the features that Spotify subscribers know and love today.
I know that a lot of people, especially audiophiles don’t fancy the compressed audio quality and find it to be superior on other services. But for the common music consumer, Spotify’s product is still ‘Second to None’.
Factor 2: Choose the right business model
The business model behind Spotify is a so-called Freemium-model. A model, where users are invited to use the service for free with the option to upgrade to a paid subscription with additional features (Premium). This is a model that is well-known in subscription country and which is applied by many. The idea is that by giving users access to trying out the product creates a desire to pay for more.
However, Daniel Ek’s starting point was the opposite! His original idea was that Spotify should be 100% free to use. The music should be free to everyone. It was a democratic project and ads should finance the payment for artists who produced the music – (actually, the idea was for Spotify to eliminate record companies by giving artists direct access to their audience. It really didn’t end that way!)
This starting point also meant that Spotify was convinced that ALL music should be available, even in the free version. In other words, you get a lot for the money you didn’t even pay! It is just the freedom from ads and some special features around the music that you pay for. There is no doubt that this has pushed Spotify’s enormous growth and dominant position and it should be a memo for anyone who wants to be succesful with a Freemium-model: Be generous!
Factor 3: Have a constant user focus
A third success factor for Spotify is the strong focus on users – both the ones who use the service for free and those, who pay for it. It’s very rare that I encounter subscription services who are able to create such a strong relationship and loyalty with users.
Spotify is always at the very top, when we ask about people’s favourite subscription and the subscriptions that people will most likely have one year from now. There is a reason for this. Spotify is focused on spoiling their users with great content and good communication. If you’re a happy Spotify subscriber, you probably enjoy the recommendations that the service gives you, your personal mix and the yearly Spotify Wrapped round-up of your music year.
That’s three important factors of success that has helped Spotify to where they are today. Hopefully, you can find inspiration for your own subscription business.
Enjoy watching The Playlist!