Spotify’s success as a music streaming service has a lot in common with the video streaming service, Netflix. A close examination of Spotify’s business model will reveal that the company’s rapid rise to power is no accident.

We’ll take a look at what has made the company successful and what the future holds.

What’s the Formula for Spotify’s Success?

Why has Spotify been so successful despite the long-standing competition from Apple’s iTunes? There are a few tactics that have put the company ahead.

The Spotify pricing strategy offers a distinct advantage over “pay-per” models. One major incentive for choosing Spotify over competitors such as iTunes is the subscription pricing model. People would rather pay one flat, low monthly fee than purchase albums or singles from Amazon or iTunes. In the same way that bundling tends to offer more content for a lower price, Spotify has successfully “bundled” music.

The company employs tried-and-true scarcity and discount techniques. At the end of 2014, Spotify introduced a limited-time-only special: $0.99 per month for three months. This cut its normal $9.99 fee drastically, and helped launch the company to 15 million paying subscribers. This follows on the heels of its November tactic, when it introduced a “family plan” that allowed subscribers to add family members at $4.99 per month.

The company’s music licensing gives it a competitive edge over other streaming services. Pandora, for instance, allows users to subscribe or listen to ad-powered music feeds. But its licensing doesn’t allow users to have control over which song or artist plays at any given time. Over time, Spotify has managed to give users more and more control over the artists and songs that they listened to. 

Spotify’s free service is ad-supported. Without the ads to support its free service, Spotify would never have been able to earn the user base and subscriber fees that are keeping the company afloat today. This stepping-stone model, which is used in everything from apps to streaming services, is a very important user acquisition strategy.

The company has developed a powerful unique selling position. Through all of the above techniques, Spotify has managed to differentiate itself from its competitors. By offering unique benefits that other companies don’t offer, such as the ability to access specific artists through a flat subscription fee, Spotify sets itself apart from competitors.

Early financial support has given the company the backing it needs to succeed. Naturally, without the requisite funding and financial support from investors, the company wouldn’t be where it is today. Subscriber revenue alone just wouldn’t be enough to put the company in its current market position. Since the company’s inception in 2006, it has managed to secure millions in funding from investors around the world.

What Does the Future Hold for Spotify?

In the same way that Netflix created a revolutionary subscription-based streaming model, Spotify has accomplished the same with the music industry. But while Netflix appears to have a substantial share of the market in terms of video streaming, Spotify may face some stiffer competition in 2015 and beyond.

The company’s successful business model has attracted the attention of Google, Apple, and even Amazon. These companies have responded to Spotify’s success by launching streaming music services of their own:

YouTube Music Key – YouTube has been negotiating with music companies for at least a year. Beginning this year, the company will roll out the full version of a music service that has much in common with the Spotify model: users will be able to subscribe to a streaming music service for $10 a month.

Apple Music Beats – Apple has finally decided that it should jump into the streaming music fray. The tech giant acquired Beats, a streaming music service, for $3 billion in 2014 – the largest acquisition in Apple’s history. Some report that the next version of iOS will incorporate Beats. And with 800 million mobile devices and 200 million iTunes users on hand, Apple is certainly in a good position to compete with Spotify.

Prime Music – Amazon’s Prime Music is another streaming service that shares a few features with other streaming models. The service was called “lame” by Time, and has drawn criticism from quite a few other sources. But one fact sets Prime Music apart from the others…it’s bundled with the existing Amazon Prime services. Though this service may not take many users from the competing music services, that may not be its intention…

 

Though the tech giants may be preparing to put Spotify through the ringer in 2015, there’s no denying that Spotify’s model has been a major inspiration to the giants. In just 9 years, careful pricing and cutting edge innovation have turned Spotify from a fledgling streaming service into a worldwide streaming service with 15 million paying subscribers. 

Monetization News Music and Monetization: What Marketers Can Learn from Spotify’s Success