Spotify Beware: TikTok Births SoundCloud 2.0

In recent years Spotify has dominated the paid music subscription market, last reporting 130 million paid subscribers, gaining six million new paying users in the first quarter of this year despite the ongoing COVID-19 crisis.

However, this positive news ignores an undercurrent threatening to hack away at its growth. In a climate where the music subscription market is projected to grow from $8.9 billion in 2019 to $17.3 billion by 2024, Spotify could play less of a role in this rise than you may think.

The reasons for this are twofold — one being Spotify’s decision to become increasingly anti-social, the other being the rapid rise of an indirect competitor, TikTok.

While Spotify could never be described as being a social butterfly, the moves the company has made in the past few years would indicate a strong desire to bear no hallmarks of a social media platform.

In 2016 Spotify bought three startups focused on social music experiences — Soundwave, Cord Project, and CrowdAlbum — then subsequently proceeded to shut them all down immediately after acquisition. The following year the company shut down its own in-app direct messaging system. Looking at the platform now, outside of a “follow” button and vanity metrics, Spotify looks like social media never happened. Its users experience music in an optimized silo.

Instead of taking the opportunity to drive new behaviors around music consumption, Spotify stopped at digitally streamlining old consumption patterns. They have pushed the envelope of playlisting, but even that is only an update to what people did in prior formats like CDs and tape cassettes.

However, in the past year Spotify has seemingly made a u-turn on its anti-social stance with the launch of “Storylines”, influencer playlists, and prototyping of social listening feature “Tastebuds”, but it all feels like too little, too late due to the staggering rise of one particular video-sharing social network.

TikTok generated a record 315 million downloads in Q1 and has recently surpassed 2 billion downloads on mobile devices. With many trying the app for the first time during this COVID-19 outbreak these figures are set to rise significantly. TikTok is the new social media powerhouse.

TikTok initially caused many to compare it to the Instagrams of the world, but its commitment to music can’t be overstated. After all, the company’s logo bears resemblance to a musical note.

Still, heavy coverage of breakout successes like Lil Nas X, Arizona Zervas, and even Drake’s obviously made-for-TikTok “Toosie Slide” has seemed to slow the process of understanding TikTok’s value as more than a viral hit slot machine. TikTok is a legitimate music discovery platform that can fuel steady growth for artists and this should deeply concern Spotify.

Although many users on TikTok look through its music library, most new music discovery is integrated into its social media experience. While this would appear to be dismissed as advertising on most platforms, it is welcomed as a part of the experience of TikTok. Users expect to hear music in most of the videos they watch. On the other hand, for new music to be discovered on streaming platforms, consumers have to first decide that they are in the mood for music.

Spotify still touts music discovery as one of its greatest value propositions, but TikTok is building the largest music discovery engine in the world. The influence can’t be ignored considering the fact that there are already hundreds, if not thousands, of playlists on Spotify with some version of “TikTok Songs” as a title.

What happens when TikTok finally decides to take full control of the user’s journey from discovery to consumption?

ByteDance, TikTok’s parent company, has officially launched a music streaming service of its own called Resso. The company describes Resso as a “social music streaming app”, making it clear that it is looking to capitalize on its learnings from TikTok and become everything that Spotify neglected.

It would make sense for ByteDance’s children to converge at some point. Since discovery on TikTok proceeds the choice to listen to music they could easily redirect attention anywhere. In the most aggressive scenario, TikTok would only direct people to stream on a free tier of Resso to help build its user-base.

For various reasons, it is likely that the two platforms’ benefits to each other will never become that monopolistic. However, regardless of how integrated TikTok and Resso become, the research and development alone that TikTok provides for ByteDance should give Spotify a healthy fear of Resso.

If SoundCloud gave us an early glimpse of what a social music streaming platform could look like, then TikTok is a highly musical social network. It has taken Soundcloud’s rabid music-hungry youth and given them an easy way to interact with the app where they can take artists’ music and become stars themselves. Social media created the foundation for new consumption patterns around music and TikTok leaned into it.

For years, the music industry has looked for ways to turn people on social media into listeners. TikTok users are socially incentivized to become promoters. It forged a new relationship with fans, where marketing music and becoming famous is almost one and the same.

As a result, just like we have “Soundcloud rappers”, there are now “TikTok songs” that have been driven by the app. Although not everyone is Lil Pump, there are a lot of careers that have been fueled by Soundcloud. Similarly, not everyone is Lil Nas X, but there have already been many careers fueled by TikTok and now Resso is now positioned to be Soundcloud 2.0.

For Spotify to compete in this social music discovery space the company will have to acknowledge that success will require more than new features.

For example, Spotify’s “Friend Activity” is a step in the right direction and now they have added an “Artist Fundraising Pick” for fans to support artists during this COVID-19 crisis. However, the results will likely be underwhelming. Tipping is now ingrained into TikTok, Twitch and several other platforms, but the culture needed for tools like this to thrive does not exist on Spotify.. Features are not used simply because they are added.

Currently, users are stuck in their own algorithmically optimized silos. They consume the music without engaging much with the platform, let alone other people. There are limitations to the impact that can be made when most of a user’s time on your app is spent not looking at it. As most music apps do, Spotify has trained its users to interact with the app in a passive “set it and forget it” relationship. Undoing that programming to a significant extent would be herculean.

We now have an idea of what this looks like due to the COVID-19 quarantine. As people have more active time on their hands, music streams are down. Whereas at the same time, social media use has risen dramatically, especially on TikTok.

Now, Gen Z as a whole is getting trained to consume in a way that Spotify is not prepared for, while Resso is positioning itself to gain from active and passive engagement with music. Of course, Resso still has to prove itself but in a worst-case scenario, Spotify may have to let go of the youth.

As far as Daniel Ek’s company is concerned, podcasts are still a promising opportunity in general, but now there is an added benefit. Having a stronghold in that marketplace will help lock in more mature consumers that are less susceptible to the draws of TikTok. Going beyond that, they will also have time to build competitive advantages as Resso still has to focus on music, not to mention that in general, long-form content is far outside of TikTok’s current circle of competence.

Only time will tell if Spotify will manage to significantly innovate and grow in music or play defense through aggressive offense in podcasts and other verticals. One thing is for certain though, TikTok is here to stay and Resso is coming. The battle for Gen Z starts now. While Spotify won’t become irrelevant anytime soon, it is in danger of losing its dominance.