Music and the transformation of product to service

Enrique Dans
Mar 5, 2017 · 3 min read

Spotify now has fifty million paying users, a 25% increase over the last year, and a milestone that takes on even greater significance when compared to its closest rival, Apple Music, which has less than half that number of users. The evolution of the two services is being followed closely: after a first month in which it was clear that Apple wasn’t going to catch up with the Swedish company at least in the near term, everything seems to indicate that both services will continue to enjoy a strong growth rate that will likely maintain the distance between the two.

The company founded by Daniel Ek and Martin Lorentzon in October 2008 has gone through events of all kinds that have included protests from artists, some of whom have withdrawn their music from the service, saying it doesn’t pay enough, while some labels have tried pressuring it to eliminate its freemium service, although the company seems to have found the way to convert free users to premium: the former, which represent 70% of the total, contribute about $220 million to the company’s turnover through advertising, the latter are being given more opportunities to try the service thanks to a policy of alliances and constant promotional offers, and contribute nearly $2 billion through their subscription fees. The record companies, who are shareholders in Spotify because it was the only way to ensure access to their catalogs, still complain about how little they earn from it, but the numbers show that the fault lies not with Spotify … but with them.

By now, we have come to accept the idea that music is no longer a consumer product we by in a disc format, and that instead we access via a subscription service in return for a monthly or yearly payment, and is undoubtedly one of the main reasons unlicensed downloading has fallen drastically around the world: the best competition is good service, despite claims that nothing can beat something for free.

To start turning a profit, Spotify needs to scale up significantly. Its business model is based on a lot of people paying a small amount of money, and what is interesting is that once you try the premium service, it is very difficult to unsubscribe.

Furthermore, Spotify is constantly coming up with agreements to attract new users, such as its recent deal with The New York Times, and then waiting for those users who try the premium service to sign up. At the same time, it is seeking to create an ecosystem that reaches everywhere: vehicles, taxis, newspapers, and social networks. The more opportunities to introduce the service to new users, the better.

After more than eight years, Spotify provides a very interesting example of a phenomenon we are going to see in many more industries: the move from product to service. In an environment with transaction costs as small as those on the internet, where virtually everything is a click away, ​​offering platforms of this type makes perfect sense, and is set to become one of the most advanced of the so-called digital transformation following the reconfiguration of the relationship with users and internal information flows.


(En español, aquí)

Enrique Dans

On the effects of technology innovation on people, companies and society (writing in Spanish at enriquedans.com since 2003)

Enrique Dans

Written by

Professor of Innovation at IE Business School and blogger at enriquedans.com

Enrique Dans

On the effects of technology innovation on people, companies and society (writing in Spanish at enriquedans.com since 2003)

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