🎧 The Secret to Spotify’s Success
Spotify has beaten players like Apple to become the global leader in the music streaming space. Now it is trying to replicate this success in India as well.
The early 2000s was a rare time in India when almost every teenager broke the law every single day.
Yes, we broke laws to listen to music.
Before Jio made the internet dirt cheap, we 90s kids would either have to buy CDs and cassettes to listen to our favourite songs or illegally download them from websites like mp3skull.com and share them with others using bluetooth.
All this hocus-pocus is not required anymore.
Most kids now don’t even know what a cassette is and we hardly ever download songs. All thanks to music streaming.Â
So, we thought why not take a look at how the world’s top music streaming app works.
Yes, we are talking about Spotify.
🎼 The Tunings of Spotify
Spotify, and other streaming services that came after it, truly saved the music industry.
Song piracy had almost killed the sales of CDs and cassettes, the major source of revenue for the music industry.
It is only when streaming apps like Spotify and Gaana (for India), entered the market that the industry once again saw revenue growth.
Spotify provided people the ease of listening to music without having to deal with potential computer viruses (90s kids know what we’re talking about) and without paying cash.
So, people ditched their pirate hats in favour of streaming.
But unlike Netflix and Amazon Prime, Spotify came to rule the world through a freemium model.
Instead of focusing on selling everyone a subscription, it focused on selling a subscription to a few and selling everything else to the others through ads.
And this model has worked out well for the company, making it the global leader in music streaming.
But soon many players entered this market, including giants like Apple Music and Amazon Music.
How has Spotify managed to stay ahead of them despite the fact that Apple and Amazon bundle their music subscriptions with other offerings like Amazon Prime?
That’s because of Spotify’s unique features like personalised playlists and the year-end Spotify Wrapped which highlights your listening trends.
This manages to keep customers hooked to Spotify and even get the company 187 million paid subscribers, who account for 91% of the company’s revenue.
But as the market got more and more crowded Spotify realised that just this approach wouldn’t work. The same problem that a lot of streaming services are now facing.
It constantly needed to attract more and more new customers to get more ad revenue and this would only be possible if it differentiated itself from the other music apps in some way.
Now, this wasn’t possible through the music route. People can listen to songs anywhere, even on the radio.
So, to bring more customers into the fold, it would have to launch exclusive content.
Exclusive Podcasts to be precise.
Over the last four years, the company has spent well over $1 billion to acquire exclusive podcasts and it now has over 4 million podcasts (not all are exclusive) in its kitty. For comparison, Apple only has 2 million podcasts, while Amazon Music has 9 million podcasts.
The addition of so many new and exclusive podcasts is probably a major factor behind Spotify’s profits.
The company, which in true startup style was famous for its losses, finally turned profitable in October 2021.
But wait, why did it take 15 years for the company to make profits?
Because Spotify has to pay a lot of licensing and royalty fees to artists, labels and publishers. (P. S artists hardly get any money out of this. They are paid around $0.003-$0.005 per stream).
For each $1 that Spotify earns, $0.60 goes to these entities.
And the rest usually was spent on operating and employee costs.
So, the company was unable to make profits and was burning cash.
However, podcasts have changed this.
They have brought more users to the platform, who spend more time on the platform, which has increased the company’s revenue from both subscriptions as well as ads.
But while all of this has helped Spotify become the global leader in streaming, it is still lagging far behind in India.
Why?
😥 The India Problem
This is a problem that many global streaming services have faced in India because cracking the Indian market is difficult.
We Indians are notorious for penny-pinching and as such these services cannot really sell their wares as easily as they do in other countries.
This is clearly highlighted in Spotify’s case.
Where subscription revenue contributes to 91% of the total revenue for Spotify worldwide, in India only 65% of its revenue comes from subscriptions.
Plus, Spotify is only three years old here. And other Indian services like Gaana and JioSaavn have already captured bigger customer mindshare.
However, Spotify is not used to losing.
So, it has come up with several strategies to make sure that it is soon No.1 in India as well.
For starters, unlike Netflix, Spotify took Indians’ bargaining instincts pretty seriously from the very beginning.
Which is why it gave us subscriptions at a pre-bargained, pre-discounted price: the lowest in the world!
Not just that, it also kept our tendency to buy chota sachets in mind and launched plans worth Rs. 7 and Rs.25, to get us hooked on the ad-free experience.
And because Spotify knows that despite all this, some of us former pirates will still never pay for music, it gives us a better free user experience than anywhere else in the world.
Just so we would stick around.
But experience isn’t everything and Spotify knows this.
So, it is also focusing on the content side. How?
It knows that India is a land of diversity and ultimately all we want is to jam to songs in our mother tongue (or whatever other regional language is trending at the time).
Therefore, it is focusing more and more on regional content.
And Spotify’s bets have paid off.
It has managed to double the number of Indian subscribers in 2022, and India is now one of its top 20 markets globally.
Now, the only question is will it be able to sustain this growth and beat JioSaavn?
Or will Indian companies remain the kings in India?
âš¡ In a line: Spotify has managed to capture the global music streaming market through some truly unique strategies, and is now trying to replicate this success in India.
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