Notes by Nero Okwa
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Notes by Nero Okwa

#30. Spotify: A Product Story ‘Review’

06: Betting on Podcasts, and Series Conclusion.

Source

Listening to 🎵 Night & Day by WSTRN

Hello Everyone,

Firstly, welcome to all our new readers, glad to have you here 😊.

I am excited to bring you the final article in this 7-part series — Spotify: A Product Story.

So far, we have explored Spotify’s story as a startup, to a company with over 300m users.

You can read past series articles: Part 0, Part 1, Part 2, Part 3, Part 4, Part 5, and Part 6.

Today we shall learn about how Spotify discovered its next successful idea after music streaming: podcasting and took it from an idea to a successful product, transformed into an audio company in the process, and is strategically betting on original and exclusive content.

Are you offering a product, running a business, or an avid Spotify user? Then this article is for you.

SUMMARY

Lesson #1: Follow the hackers.

Lesson #2: You’re always better off competing with yourself than competing with someone else.

Lesson #3: Differentiate with business model, not just with product and features.

Lesson #4: Content strategy is product strategy.

INTRODUCTION

At its inception, Spotify’s founder: Daniel Ek considered doing either Music, or TV. That is right Spotify could have been Netflix.

He quickly moved on to a core mission of bringing music users the perfect listening session, and the rest is history. 12 years later Spotify is closest to achieving this: from a desktop app to a mobile app, to music personalization, available on over 2000 different devices and smart speakers.

‘Like any successful company’, Spotify had grown to the point that to remain successful and competitive it needed to expand into another product — its ‘first second product’.

Ideally, this should build off what was already working well — music streaming — and put Spotify ahead of its competitors.

How do we Compete?

Recall in Part 0, the media strategist Matthew Ball showed the 3 different ways for competition in media services:

1. Enabling Access (to previously inaccessible content)

2. Content Differentiation (providing differentiated/exclusive content)

3. Becoming a Platform (for users to create content on e.g., Facebook)

Spotify had started out by providing users with access to music through its streaming platform, personalization, and connection to speakers and devices.

This leads to the next stage of competition which is Content Differentiation. Spotify’s ability to do this with music recording companies/artists was limited as they could take their music to another streaming platform or build their own.

So, the question Spotify’s next product needed to answer was:

How does Spotify build on the music streaming demand to give users a differentiated service, so they always choose you as the access solution, rather than competitors?

Which space are we in?

Going forward, Spotify needed to be clear about which space they were playing in before they could change that space.

“Rather than trying to copy the competition, we had to ask ourselves; what are we? Are we a music company, or a streaming company or are we something entirely different? Because from a technology point of view we can stream anything”

- Gustav Söderström, Spotify: A Product Story

And then something happened.

In Germany, the record companies also owned a lot of audio book rights, and with the rising revenue through Spotify music streaming, they realized they could get more revenue by uploading their entire catalogue on Spotify…as music tracks.

Ironically, several of these audiobooks were in the top 100 audio music charts. There were no special audiobook features like skipping 15seconds within the chapter or going from one chapter to the next. Despite this poor experience, users were still listening to these audiobooks.

This was an opportunity. It showed Spotify that there was a potential to focus on the audio space.

This brings us to lesson 1 in product strategy.

Lesson #1: Follow the Hackers.

“If you see someone hacking your system, that could be an indication of a real, unmet user need — so instead of seeing them as “breaking” your product: listen, learn, and let them lead you.”

“What use cases are they exploiting? Why are they adapting your product, rather than the existing alternatives? And what would happen if you actually embraced it and elevated their user experience?”

- Gustav Söderström, Spotify: A Product Story

The user data in Germany also showed that those who experienced this (awful) audiobook listening experience also listened to more music on Spotify.

“Now, what do audiobooks and talk radio have in common? Well, they’re both spoken word content. You know what else is spoken word content, and hadn’t been innovated on for years? Podcasts.”

“And suddenly we had the answer. We weren’t a music company or a streaming company. We are an audio company.”

Just like that Spotify had figured out they were playing in the audio space, and podcasts were going to be their content differentiator.

The next stage of the strategy, was to figure out “What’s the purpose of doing podcasts? What can we do for consumers? What can we do for creators? What can we do for advertisers? What can we do for ourselves? And what can others do? What can we uniquely bring to this marketplace?”

After What, Comes How

Now that Spotify was focused on podcasting, it needed to figure out how it would achieve this.

To become a podcasting powerhouse where creators would stream their podcast content exclusively, Spotify needed a large podcast audience.

To build a podcast audience, you need catalogue completeness (have access to all available podcasts).

To have catalogue completeness, you need to have an app that play podcasts.

Spotify could either follow the trend and create a new podcast app — called a “podcatcher”, or add new podcast-friendly features to their existing music app.

To decide, Spotify needed to understand the existing market, the value created by both options, and the trade-offs. The podcast market had one big competitor that had 98% market share, and several other players that shared 2% of the market.

This meant that Spotify needed a significantly different, and better offering, and marketing strategy. Building the best podcast app was not going to be enough.

Luckily during Spotify hack weeks, Spotify engineers had experimented on how to add podcasts into the existing Spotify music player.

This showed that it could be done. While the data from Germany showed that there was an unmet user need, and that users who listened to podcasts, also listened to more music, paving the way for a truly audio product.

The final insight was having these pieces in place would create a platform for future podcast creators, thereby driving a podcast virtuous cycle.

It was better Spotify disrupted itself by developing a ‘podcatching app’ compared to a competitor with a better offering that eventually ‘eats into’ music listeners on Spotify.

This brings us to lesson 2.

Listening to 🎵 Greyhound by Swedish House Mafia

Lesson #2: You’re always better off competing with yourself than competing with someone else.

“If you go back to that core mission of creating the perfect listening session, it made sense: incorporating everything into a single player would make it that much easier for podcast fans to toggle back and forth between their music and talk.”

“This would introduce podcasts to millions and millions of Spotify listeners who never would have sought out a podcasting app of their own.”

-Gustav Söderström, Spotify: A Product Story

Now that Spotify had a good enough podcast app, the next stage was to bring all available podcasts onto Spotify providing a ‘one stop shop’ where listeners could listen to their favorite podcasts and music.

To achieve the next stage of media innovation — differentiation through exclusive content — Spotify took inspiration from Netflix.

What did Netflix do?

Netflix launched a golden era of TV through the new business model of exclusive and original TV content, and ability to access this worldwide through the internet. This increased the participation of creators and led to higher quality shows, and guaranteed revenue through subscriptions.

Spotify was in a unique position to do for podcasting what Netflix had done for TV. They could fund big-budget, high-quality podcasts, and usher in a golden age for podcasting.

But taking a cue from when Spotify attracted new music listeners through a free, ad-supported business model, Spotify could give all this podcast away for free.

This was the key insight. A free offering would attract new users who come for the podcasts and stay for the podcasts and music. It is then likely that a proportion of users convert from a free account to paid music subscribers.

This brings us to Lesson 3.

Photo by Billy Freeman on Unsplash

Lesson #3: Differentiate with business model, not just with product and features.

“By 2018, we had a sizable and growing podcast audience. We had catalogue completeness. And we had an app that can actually play podcasts.”

“We had finally arrived at the point that we had been driving towards for several years: it was time to start making our own shows. The only problem was, we did not know how.”

-Gustav Söderström, Spotify: A Product Story

Spotify hired an experienced chief content officer and advertising business officer — Dawn Ostroff — who oversees everything related to content, advertising, and content marketing.

She went about this in two ways.

First by leveraging the listening data on existing users to understand their preferences, so as to increase their engagement by providing similar ‘genre’ of content.

Secondly, she focused on acquisitions and partnerships that would provide access to new users and bring new content to Spotify.

So, in 2019 Spotify acquired Gimlet Media (the HBO of podcasting), and Anchor (the YouTube of podcasting). A year later Spotify acquired the sports podcast network The Ringer, and exclusive rights to stream the popular podcast The Joe Rogan Experience.

This brings us to our final lesson.

Lesson #4 — Content Strategy is Product Strategy.

These strategic acquisitions and partnerships brought Spotify’s vision for content differentiation into fruition.

“We used everything we had learned from our 10+ years as a music company to catapult ourselves into position as the leader in a whole new, much bigger category: audio.”

-Gustav Söderström, Spotify: A Product Story

Listening to 🎵 Jerry Sprunger by Tory Lanez and T-Pain

SUMMARY

Lesson #1: Follow the hackers.

Lesson #2: You’re always better off competing with yourself than competing with someone else.

Lesson #3: Differentiate with business model, not just with product and features.

Lesson #4: Content strategy is product strategy.

There you have it.

This article is a walkthrough on how Spotify targeted a new market based on content differentiation, built an integrated podcasting app, applied a unique free business model, and made strategic acquisitions and partnerships to attract new users and already successful content.

It is also a roadmap for you to do the same😊.

SERIES CONCLUSION

With that we come to the end of this exciting 7-part series on Spotify and its product strategy, technology, and business thinking at each stage of its journey to revolutionize music and become an audio company.

From developing a desktop app, reinventing their business model in time for the mobile revolution, to pioneering the machine-learning that helps you find you next favorite song, Spotify’s journey has been impactful to say the least.

I believe the ultimate lesson is to always follow the user — what are their unmet needs and pain points? These are likely to change along the journey, so you need to evolve with it.

Good luck!

Thanks for reading and see you next week.

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For any questions you can reach me at notesbynero@gmail.com or on LinkedIn, and Instagram.

Nero

Racing Towards Excellence.

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Nero Okwa

Nero Okwa

61 Followers

Entrepreneur, Product Manager and StoryTeller. In love with Business, Technology, Travel and Africa.