Spotify’s bold claim

Recently, in New Zealand, Spotify increased its monthly subscription price from $12.99 to $14.99 in response to the New Zealand Government’s change to GST. The Goods and Services Tax (GST) has been extended to cover services purchased online and is applied to the likes of Spotify, Netflix and YouTube Red. Like many other companies*, Spotify elected that passing the cost onto customers was a better choice than eating the cost themselves. Seems fair enough. It probably is. However, it becomes less clear cut when you consider Spotify next to other music streaming services in what is becoming an ever increasingly competitive arms race in the music streaming industry.

Now let’s be clear. Personally, I think that Spotify is the best all round music streaming service. They excel in providing a huge music catalogue, awesome mobile and desktop apps (I’m looking at you iTunes) and a unique social aspect which brings what you listen to and what your friends listen to closer. Spotify Connect is probably one of my favourite features and I find myself using it every day. Discovering new music is an industry standard and Spotify has defined what consumers come to expect when finding new music. I’m an extremely happy Spotify customer and have been since late 2011. I doubt that that is going to change. For alot of Spotify customers, a two dollar price increase isn’t going to break the bank. It certainly provides no real incentive to change and it’s just too inconvenient anyway.

My real concern however, isn’t with established Spotify customers, but instead with new customers who are looking for a music streaming service for the first time. These days consumers are spoilt with a plethora of quality options. Should I use Apple Music? Google Play Music? Spotify? A big part of any consumers decision when purchaisng a product is price*. Compared to both Apple Music and Google Play Music, Spotify is now the most expensive choice at $14.99. Apple Music and Google Play Music both cost $12.99, with Apple offering a free three month trial compared to Spotify’s and Google’s one month. On top of Google Play Music, Google also bundles YouTube Red into their subscription so you also get YouTube’s premium offerings. The situtaion get’s worse for Spotify when, like me, you are a student. If you live outside of the United States, unlike Spotify, Apple is still happy to recognise you as a student and offer you a 50 percent discount on your Apple Music subscription, bringing the price to just $6.49; that’s almost two and a half times (around 230%) cheaper than Spotify!

The claim that Spotify is worth two dollars more than Apple Music and Google Play Music isn’t a huge one. Two dollars really isn’t a great deal of money (just $24 a year or as we Uni students would imagine it: one box of beer), however it does create an incentive for new customers to choose an alternative. The claim grows significantly though, when you consider Apple’s student discount pricing and Google’s inclusion of YouTube Red. The claim then becomes that Spotify is worth more than two times Apple Music and worth more than Google Play Music and YouTube Red put together. Consequently, Spotify implies that their service is twice as good. This is unlikely to be true and becomes increasingly difficult for Spotify to convince new customers that they should choose them. Add the fact that Apple Music is baked right into iOS and sits natively, right in front of iPhone users and Google has one of the webs largest advertising platforms to push its product and you can see that Spotify really has a battle on its hands.

From an observer standpoint, I think it’ll be interesting to see the impact that the price change will have, if any at all. Perhaps it’ll be a lesson that passing additional costs striaght onto customers isn’t always the best idea. Time will tell.