Daniel Ek’s leadership at Spotify
Daniel Ek, a 39-year-old Swedish entrepreneur has often been widely regarded as one of the most influential CEOs of the 21st century. Ek was credited with Co-founding Spotify with a unique management approach in 2006. In this article, we examine the scope of Ek’s management style as well as some of the issues and problems that were faced and created.
We will initially focus on the complicated characteristics of his management style, with a primary look at the problems that were created with this specific style. This includes the risks faced when managing a company of this size such as those brought about by lawsuits and internal conflict.
We will then dive deeper into Spotify’s decision to choose business-scale sizing vs. a more revenue-focused approach. We will also look at how Spotify’s disputes with entities threaten its net neutrality, and also a glimpse of what this means for the future.
As a Brief Introduction to the subject of our analysis, we have Daniel Ek, a 39-year-old Swedish entrepreneur, the co-founder, and CEO of Spotify, a service that streams music.
When Ek was just 13 years old, he took his initial step into the corporate world by starting a residence company that built websites for customers. He requested $100 for his first client and $200 for the second. He ultimately increased his website charges to $5,000. Ek persuaded students in his class to develop websites at the school computer lab in return for video games to advance the business. At the time of 18, he was overseeing a 25-person team and earning $50,000 every month.
Ek later worked as a senior executive at Tradera, a Nordic auction startup that was purchased in 2006 by eBay. Ek previously worked as the Chief Technology Officer of Stardoll, a community for online gaming and fashion. He went on to found Advertigo, a company that specializes in online advertising. In 2006, Advertigo was acquired by TradeDoubler. Following the sale of Advertigo, Ek and Torrent co-founder Ludvig Strigeus acted as interim CEOs. When Torrent was sold to BitTorrent on December 7, 2006, this came to an end.
Ek was affluent enough to retire following the purchase of Advertigo as well as his past job. After a few months, he realized he needed a new venture, which inspired the establishment of Spotify. In 2002, the participant music service Napster shut down, and another illicit site, Kazaa, took its place, Ek conceived the concept for Spotify.”Piracy cannot be stopped by legislation, according to Ek. Laws can be effective, but they cannot resolve the issue. The only solution was to provide a service that was superior to piracy while still paying the music industry.– and that is how Spotify came to be.
Ek and Martin Lorentzon launched Spotify AB in Stockholm, Sweden, in 2006. Lorentzon co-founded and managed TradeDoubler, which had acquired Ek’s earlier business, Advertigo. The business’s authorized music streaming service, Spotify, debuted in October 2008. Initially, Spotify used a mentoring distribution strategy like to uTorrent, but in 2014 it switched to a server-client model. The owner and CEO of Spotify are Daniel Ek. Martin Lorentzon, a co-founder of Spotify, said in October 2015 that he would step down from office and that Daniel Ek would replace over in addition to his current position as CEO. As of June 2017, Spotify had received over $2.5 billion in venture funding and had 217 million monthly customers. Ek was selected by Billboard as the world’s most powerful person.
Spotify is essentially a middleman between consumers of music and the record labels that produce the music. As a result of this relationship, there exist 40 pages of risk in Spotify’s SEC filing (Gutierrez 1933). From their “reliance on third-party licensing for sound recordings” to “lack of control over [their] content providers and effect on [they're] access to music and other content,” they’ve got it all. The passage is fascinating to read since it exemplifies the ridiculously intricate architecture of the recorded music industry. We can examine this closer and analyze the specific risks associated with this industry but also, we can conclude that The future of Spotify is barely in its hands. A lot of its success can be attributed to this current, innovation-focused ecosystem. We can say that the minimal commitments imposed by their licensing terms are the cause of the restrictions on their operational freedom.
The issue that Spotify has with this is that its capacity to find reliable and thorough information about musical works must also be subject to obligations related to intellectual property rights. As we see, this section is wrought with risks that are particularly concentrated on the issues dealt with by the Supreme Court. This is a startling glimpse of the dichotomy produced by the policies of our lawmakers in this so-called “innovation-focused atmosphere.” It doesn’t make any sense when the ecosystem requires so many outdated laws that loophole-finding lawyers can take advantage of.
This is the most obvious observation we can make with the first look at Spotify and the issues associated with a modern, scaled company. It seems disheartening at first to learn that such a prominent commandment written in Fayol’s Fourteen Principles (Fayol 1916) of management would be broken within the political environment in which Spotify is situated. Additionally, and to an indirect extent, we also find that the initiative found within Fayol’s Fourteen Principles of Management would be missing since the staff that is responsible for the delivery of plans would be exerting levels of effort. Still, the lack of reform is a clear example of the void left by the initiative.
Another issue faced by Spotify is the publishing lawsuits that seemed to never end. Rights holders of the music publishers, composers, and other groups made the decision not to have their concerns addressed by gathering groups. This resulted in a negative hit on the impact that Spotify had with its potential to connect with musical works while obtaining advantageous license agreements. These owners of the rights also have the power to alter license fees for things like musical compositions or make Spotify responsible for serious copyright violations.
NPR Music, which recently reported on Spotify’s licensing conflicts, was also included in this. There was a new bill that was introduced in Congress that stated that the action of publishers bringing a lawsuit against Spotify for using songs with no payment made, was now illegal. Spotify was charged with this issue continuously, and a $43 million settlement was reached in a court case. (NPR 2017). All of this evidence just shows Spotify and its continual struggle against these lawsuits. It is an unfortunate reality in the ecosystem that multimedia infrastructures are constantly limited by rules and regulations. Ironically, just a few days before the Music Modernization Act rendered it unlawful, a small publishing business by the name of Wixen sued Spotify for $1.6 billion on December 29 (NPR 2018). Fortunately, innovation-focused laws like this are starting to step in the right direction with a more future-thinking approach, in contrast to outdated laws and rules that made this atrocity legal in the first place. One could say that Daniel Ek was lucky that he dodged a barrage of lawsuits after this act, however, we could also conclude that Daniel Ek’s management style was what ultimately facilitated this switch. According to Exhibit S1A-3 of Fayol’s Fourteen Principles of Management (Fayol 1916), Daniel Ek showcased his clear-cut following of unity of direction within the company. Due to his foresight, Spotify was able to envision a world in which innovation was much more deeply ingrained, and was able to unify the company and direct it to a beneficial future for the organization.
Another problem that Ek faced with his management thesis was the conflict between offering free and paid music. According to the SEC filing, “the restrictions of some of their licensing agreements may need the approval to deploy improvements to or alter, [their] Ad-Supported Service. They are basically at odds over whether or not users should be able to listen to music on the site for free, in a nutshell. Daniel Ek and Lucian Grainge, the CEO of Universal Music Group, the biggest record label in the world, both revealed it in public. We can see in this butting of heads between two corporate giants, that Grainge intended to make people pay, mostly because of the way the music performs. streaming would be less influential after the showcasing of free music. Additionally, he believed that this would be managerially more effective, as it would increase the company’s revenue, especially since 90% of Spotify’s revenue came from paid users. However, Ek stated that Spotify wanted to focus on scale, rather than revenue. By building up such an influential image and focusing on marketing and design, Ek would propel Spotify to the top of all the online stores for multiple years. It was because of this managerial decision to focus on a particularly effective business model, which drove Ek was to the top. Another example of a company that follows this business model is Apple. With Steve Jobs at the helm, the company placed its focus on the marketing model and designs of the first iMacs. It was only later on that Apple started competing with other computer systems in terms of raw power, but it was their attractive designs and widespread marketing that brought them the users in the first place.
Although Spotify focused on design and marketing with their budget, it turns out that this created an issue for Ek and Spotify. According to the SEC Filing (Gutierrez 1933), Spotify is increasingly reliant on Google for its Cloud Services. As it happens, the Google Cloud Platform is essential to the storage of their data, operating results, and financial condition. This is a highly risky play as, like other startup companies, rely heavily on Google, a potential competitor, for their necessary services and needs.
Even though Spotify could be in a potential conflict with Google, they also have issues with net neutrality. To put things in perspective, “the result of ‘open internet rules,’ provided by broadband providers in the United States decreased access to certain content, start entering into arrangements with specific content providers for faster or better access over their data networks, or otherwise unfairly discriminate against content providers like us, this could increase our cost of doing business and put us at a competitive disadvantage relative to larger corporations.”
This, in essence, means that Spotify may stand to gain from the loss of net neutrality for the very same causes outlined. Collaborating with service suppliers on data is similar to the deals that are described.
The last set of managerial issues that were faced as a result of Ek’s leadership was the internal crises within the company. We found that there were a large number of interpersonal conflicts within the company (Backlander 2019). It was to the point where Spotify’s management system required a revamp.
The managerial system of Spotify was focused on creating a supportive ecosystem from the junior level to the C-suite. This collaborative and nurturing atmosphere was what led to Spotify’s success in multiple aspects at both technical and marketing levels. Essentially, this refactoring of internal systems was the catalyst for the forward-thinking, innovative structure of Spotify.
Nowadays, Spotify is credited with being one of the most forward-thinking tech organizations. They have implemented coaches working as part of an agile, iterative, tech ecosystem. In one of their examples with leadership coaches we see the quote;
“AC helping CL conflict resolve: “We had a case where two squad members disagreed over something and it was pretty heated and it came up in the retrospective, so I did a retrospective that sort of aired it. And then I worked pretty closely with their CL, to support him in conversations that he had with the two individuals.” (Backlander 2019)
By bringing conflicts to the surface, and holding spaces for constructive dialogue, Spotify shapes newer, more important practices of enabling leadership.
Well, what does this mean for the future of Spotify and the tech industry? We already know that this cannot be easily replicated. In an environment where originality, aesthetics, and high technical prowess will achieve success, simply focusing on marketing and design will not cut it. Does this mean that Spotify is an unattainable tech giant?
If we consider the reality of the situation, it does seem that one must showcase unique managerial skills that are original and can sway the general public as never before. Again, by revisiting Apple’s business model which we have already compared with Spotify’s, this company only attained greatness by using a unique, client-focused managerial model.
To remain competitive, companies are starting to recognize the requirements for developing new digital products. They are dependent on large conglomerates, such as the example we outlined with Spotify being reliant on Google for their Cloud Services. Companies also need to remain ahead of the curve by continuously adopting new managerial principles, specifically ones that empower teams to own and manage their internal components. This is the overarching theme that presents itself throughout our analysis of Daniel Ek and his managerial qualities. It is certainly an inspirational story that lends itself to the innocence of startups making it big in the tech industry.
When referencing Management, by Mary Coulter, Ed Leach, and Mary Kilfoil. We find that in the General Administrative Theory that is introduced with Henri Fayol’s Principles of Management, Ek follows the vast majority of these principles to a T.
From a classical approach to behavioral, from quantitative, all the way to contemporary approaches, we get a CEO, who is a once-in-a-lifetime opportunity, takes advantage of the current ecosystem, and develops his startup into a multi-billion dollar conglomerate. Navigating from legal issues, all the way to internal conflicts, we carefully analyzed Ek’s elegant steering through this difficult time. By also taking advantage of the music industry’s unique take on intellectual property, Ek was able to shift his company’s stance so that it may take advantage of the rulings from Congress.
Nowadays, it would be difficult to reproduce Ek’s success in today’s societal landscape. With anti-trust laws and a higher amount of government constraint on tech company growth, Daniel Ek managed to take advantage of a particular atmosphere and grow his company. We could attribute this to luck but in this complex system surrounding tech companies, it is evident that this unique approach was successful.
It is rare to find someone as talented as Daniel Ek in the history of contemporary management, he has managed to find light in a bleak era of anti-trust, and anti-innovation laws. Since the advent of globalization, Ek also managed to touch upon the ethical and global environment in which he was situated. By embracing a more modern form of management, the agile ecosystem was redefined and evolved into one of the most beloved work cultures in the Western World today.
