The global platform Spotify that has transformed the music industry is currently present in 79 countries (Martins, 2020) and as of May 2020 claims 36% of the global streaming market (Spotify, 2020). The music streaming service has refreshed how people access, use and listen to music and other artistic cultural audio through a digital sharing economy that encourages sharing and distributing (Coffey, 2016).
Spotify has recently campaigned the hashtag #ListeningIsEverything which embodies artistry.
Firstly, this web essay with explore Spotify’s platform design and consumption as well as its historical development. Secondly, an evaluation of how its business model has had transformative economic, social and cultural effects in the music industry. Additionally, how it has transformed the regulation of music file sharing and copyright issues. Lastly, the revolutionary impact of Spotify on the music industry and how economic and cultural relevance play a role.
History of Spotify
Spotify was originally created in 2006 in Sweden by Daniel Ek and Martin Lorentzon and then launched in 2008 to subscribers (Swanson, 2013).
Spotify was created as a reaction to issues with the current music sharing opportunities offered by the internet. The music industry was faced with new means of distribution and consumption accessible as it was a sharing economy relying on new technologies (John, 2018).
A significant event in the music sharing industry leading to Spotify was the fall of Napster due to large-scale copyright infringements (Swanson, 2013). Napster grew to fifty-seven million users as it was the first platform that supported users with sharing MP3 music files (Swanson, 2013) and consumers identified they “loved” having access to any all music with no costs (Suzor, 2019).
Napsters final design update in 2002.
As Napster provided the opportunity for anyone to upload and distribute illicit duplicates of music, copyright industries were compromised therefore the Recording Industry Association of America responded with lawsuits against a large number of users (Suzor, 2019).
Lawsuits and copyright infringements as approaches to prevent file sharing were unsuccessful due to the expansion of technology and rise in users, which led copyright owners to gaining the most when streaming services and platforms arose (Suzor, 2019). These platforms have programmed algorithms ensuring all content uploaded is controlled therefore copyright owners’ interests are protected (Suzor, 2019) whilst still providing the user content.
Spotify is a platform that utilises digital rights managements (DRM) as their content and copyright control through encrypted systems to ensure content is not misused by users (Suzor, 2019). Check out this video to learn more about DRM:
As the leading music streaming platform today, Spotify has transformed the challenging internet regulation task of regulating music file sharing and copyright issues through a successful reaction to historic issues.
Spotify’s Business Model and Innovations
The prospect for Spotify to develop innovative technology and construct a music sharing service that was not piracy (Swanson, 2013) was an opportunity used by the founders to grow the platform and
“make music free but legal” (Fleischer & Snickars, 2017, p.137).
The original business model was as a free distribution of cultural goods through only providing users a free account subscription by using advertisements between songs as the only source of revenue (Fleischer & Snickars, 2017).
The current business model provides consumers two accounts, either a free option with embedded advertising or a premium subscription option with no advertising (Fleischer & Snickars, 2017) which currently costs an average of AUD $11.99 per month (Spotify, 2020). The unlimited music streaming provided through a Spotify premium subscription is an access-based model (Martins, 2020).
It is significant that both the subscriptions and advertisements are equal aspects of the business model and makes Spotify more of a media company instead of purely tech as they are “selling those audiences to advertises” (Fleischer & Snickars, 2017, p.134) not just providing content. This form of business relationship can also be labelled a platform business which profits through a collaboration of two parties bought together being the users and advertisers (Vonderau, 2019).
Lastly, in relation to the content rights Spotify allocates royalties to the owner of these rights based on popularity and number of streams a file on a pro rata basis (Swanson, 2013). The downloading and sharing of digital content including music is often problematic to ensure no digital rights or ownership issues arise (Groggin et al, 2017). However, Spotify has created a sharing economy with a successful intellectual property and copyright design to ensure digital rights for all users and owners.
Overall Spotify has created a business model that has transformed the distribution of cultural content and also provides other content sharing and streaming services inspiration through technology design innovation (Vonderau, 2019).
Spotify’s Social Ecology
Looking further into the role of advertisers as a key actor in Spotifys social ecology, they provide significant revenue for the entity through their personalised consumer targeting which has been identified as essential for the internet’s growth (Vonderau, 2019). Organisations have been able to increase their presence and discovery of products and services through personalised algorithms that are ensuring advertisements are increasingly accurately targeted and favourable (Vonderau, 2019).
Spotify has a key partnership with Facebook from early in 2010 (Fleischer & Snickars, 2017) that introduced social methods of connecting accounts and sharing music preferences. This opened up new opportunities for advertisers as targeting through social discovery and behavioural marketing techniques (Vonderau, 2019) combined with a redesigned search engine (Fleischer & Snickars, 2017) led to more direct personal ad targeting. The user experience was also improved through Facebooks integration as connections and recommendations through friends allowing social discovery (Fleischer & Snickars, 2017).
Apple’s App store is a significant Partner for Spotify providing the initial connection to its users as well as the listed benefits outlined by Apple (2019) below. However, in 2019 Apple and Spotify experienced some issues due to revenue arrangements, you can read further about this in Apples statement here about maintaining their app ecosystem with Spotify.
Statement by Apple, 2019 “Addressing Spotify’s claims”
Google also provides Spotify this same connection to users through their Play Store to other devices and is equally significant. Google Assistant is a leading competitor for home smart speakers holding 30.9% of the US market share (Voicebot.ai, 2020) and they provide users the connection to Spotify through these devices.
Spotify’s current main competitors include Apple Music, Amazon Music and Pandora as can be seen in the graph below (MIDiA, 2020). Spotify has maintained a healthy leading market share however the large number of competitors provide opportunities to innovate platform design to ensure its place in the music sharing industry in the future.
Both Premium and free subscription holder accounts are the key platform user who rely on the distribution of cultural content and participate by streaming in their everyday lives. As 72% of global internet users listen to music on streaming services and 42% listen to podcasts (Global Web Index, 2020), Spotify provides this crucial intermediary to distribute content to users.
Spotify provides the access to distribute content for both large well-known Artists as well as new up and coming creators. Users listen to an average of 41 unique artists per week on Spotify (Spotify, 2020) and the platform encourages new artists with many tips and follow ups on how to promote and increase engagement. Check out Spotify’s guide for artists here.
Spotify’s Ecosystem Map
This map offers a visual representation of the social ecology of Spotify.
Spotify has transformed music streaming culture
The growth and success of Spotify is broadly viewed
“as an indicator of its economic and cultural relevance” (Vonderau, 2019).
Firstly, although the financial and economic benefits that are highlighted in the business model decrease the importance and value for culture and music, Spotify and music streaming has benefitted all parties involved.
Due to the expansion of digital channels, music streaming has increased the number of revenue streams for artists and improved the transactional relationships in the music industry (Swanson, 2013). Spotify has also created a platform that is incredibly accessible and provides users the greatest sharing and distribution opportunities of all time.
Secondly, the cultural transfer from ownership of music content to maximum online content distribution could be anticipated, due to the infinite capabilities of reproduction that digital markets and technology continuously offer (Vonderau, 2019).
Spotify took advantage of the internet capabilities and revolutionised the music industry by changing the users need. Technological innovations and internet intermediaries have used design choices and policies to transform and influence the behaviours of a huge number of users (Suzor, 2019) therefore favouring free access to maximum culture and content (Vonderau, 2019).
Spotify’s business model capitalises on data
Although Spotify and other streaming services provide free access to content, their business model exploits user data. As stated earlier, user information is sold to advertidsers and internet intermediaries. Spotify takes advantage of the idea of free content to “drive sale elsewhere” (Vonderau, 2019).
Algorithms and platform design allow documentation of user data which is continuously being produced through searches, streams, and interactions with the platform (Fleischer & Snickars, 2017).
Spotify is acquiring existing copyrighted content in the music industry, distributing this content and then generating customer data (Eriksson et al, 2019). The business model enables this producing and analysing of social and cultural information which raises ethical concerns (Eriksson et al, 2019).
Unfortunately, this exploitation of user’s data is only inevitable in future innovations due the technological opportunities fostering internet users’ attitude of maximum free content (Fleischer & Snickars, 2017).
Spotify, as a sharing economy, is not only distributing music and culture, but also the data generated by users. As a revolutionary internet innovation, Spotify has fostered an enhanced technical solution for music distribution (Eriksson et al, 2019) through the sharing economy. It has changed how users’ access and listen to music, artists share and promote their content, how music file sharing is regulated and how as an internet intermediary the user can be ‘sold’ to a third party.
Apple. (2019, March 15). Addressing Spotify’s claims. Retrieved from Apple Newsroom: https://www.apple.com/au/newsroom/2019/03/addressing-spotifys-claims/
Coffey, A. (2016). The impact that music streaming services such as Spotify, Tidal and Apple Music have had on consumers, artists and the music industry itself. University of Dublin.
Eriksson, M., Fleischer, R., Johansson, A., Pelle, S., & Vonderau, P. (2018). Spotify Teardown: Inside the Black Box of Streaming Music. MIT Press.
Fleicher, R., & Snickars, P. (2017). Discovering Spotify – A Thematic Introduction. Culture Unbound, Volume 9, (2), 130–145.
Global Web Index. (2020). Digital 2020 July Global Statshot report. We are social.
Groggin, G., Vromen, A., Weatherall, K., Martin, F., Webb, A., Sunman, L., & Bailo, F. (2017). In Digital rights in Australia (p. 74). Sydney University Press.
IQBAL, M. (2020, October). Spotify Usage and Revenue Statistics (2020). Retrieved from Business of Apps: https://www.businessofapps.com/data/spotify-statistics/
John, N. A. (2018). Sharing Economies. In The age of sharing (pp. 69–97). Polity.
Martins, F. (2020). SPOTIFY’S EQUITY RESEARCH. NOVA School of Business and Economics.
MIDiA. (2020). Music Subscriber Market Shares Q1 2020. MIDiA.
Spotify. (2020). Financials. Retrieved from Spotify Investors: https://investors.spotify.com/financials/default.aspx
Spotify. (2020). Guide Spotify for Artists. Retrieved from Spotify for Artists: https://artists.spotify.com/guide/spotify-for-artists
Spotify. (2020). Why go Premium? Retrieved from Spotify: https://www.spotify.com/au/premium/
Suzor, N. P. (2019). How Copyright Shaped the Internet. In Lawless: the secret rules that govern our lives. (pp. 92–122). Cambridge University Press.
Swanson, K. (2013). A case study on Spotify: exploring perceptions of the music streaming service. MEIEA Journal, vol. 13, no. 1, 207+.
Voicebot.ai. (2020). Smart Speaker Consumer Adoption Report April 2020. Voicebot.ai.
Vonderau, P. (2019). The Spotify Effect: Digital Distribution and Financial Growth. Television & New Media, Vol. 20(1), 3–19.