Online music streaming service

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Introduction

Spotify is an online music streaming service. This service allows the user to play specific tracks or even full albums. Spotify transfers music files over the Internet through a combination of server-based streaming and peer-to-peer technology (P2P). Even with slow Internet connections no big delay occurs. However, a transmission speed of at least 256 kbit /s is recommended. The files can be played as if they were on the hard disk of the user. To make this possible, commonly used music files are transferred via P2P to the cache of the computer from the Spotify users. Thus, the available bandwidth when streaming is used effectively.

Spotify requires the user to register for an account in order to use the software. This account can be administered on the website www.spotify.com. With an account, you can dial in from any number of computers (software installed and an Internet connection required), but not simultaneously listen to music on all these computers. The software stops playing the music on a computer once it is played with the same account on another computer.

The system requirements require at least Mac OS X 10.4 (Mac) or Windows XP (PC) operating system. Linux is also supported with the help of Wine. The size of the cache memory can be used is limited by the user and defines the location of the cache. It is recommended that much free space on your computer's hard drive is available, minimum is 1 GB cache on the local hard drive.

History

Spotify is developed in 2006 by a team of developers from Spotify AB, Stockholm, Sweden. Spotify, the company was founded by Daniel Ek (former CTO of stardoll.com) and Martin Lorentzon (former CEO of TradeDoubler) in Stockholm, Sweden. On March 2 2009 , the membership reached one million users. The program was offered in Sweden to the public for the first time in October 2008 for download.

Current value

According to the website Techcrunch, Spotify is getting new financing at a company valuation of 250 million dollars. A previous round of investments included investments from the big music labels ? Universal Music Group, Sony BMG, EMI Music, Warner Music Group (Mike Butcher, 2009). ?All of the labels, says our source, paid the same price for the stock that the venture capitalists did, other than one label that got in very early?(Michael Arrington. 2009) .

Availability

Currently, users can create an account for Spotify in Sweden, Norway, Finland, Britain, France and Spain, but not in the rest of the world. Free Spotify users (Currently only by invitation) can use the service abroad for 14 days, after this period they have to return to their home country to sign in. For users with a Premium account there is no such limitation. By using geo-targeting of the IP address of the user's computer, they can examine from where the service is accessed from any country they want.

Costs and Features

Spotify is freeware and can be downloaded for free. All the offered music is provided by music labels and licensed by them. The license fees are financed in two ways: either you pay for your account with a subscription or accepting advertising. Each user can track all of the tracks that the big major labels and countless smaller labels have, where the repertoire is constantly expanding with new labels. The music can be found through a search by artist, title, album, genre, label or publication date.

Users can also create music playlists and share them with other users and work together (collaborative software or groupware). To this end, the playlist link can be considered an Instant Messaging window because it send it directly to an e-mail address. The recipient clicks on the link that downloads the playlist in the Spotify account of the recipient. These playlist links can be used like normal links anywhere, for example, on Internet sites. The same principle applies to individual pieces of music you can drag and drop them into any application and web pages as a link.

Statistics of streaming music

One of the most important advantages of streaming music is that all actions of the viewer are logged . Unlike other streaming server logs, audience behavior measurement methods are accurate and rich of information. Sampling fits poorly with the immense number of titles and channels that are offered via the Internet. Web scripts or measurements via the internet only register whether a title is clicked on, not if or how long a title has been watched. Download Statistics measures only whether a file is downloaded, not whether it actually hits, or how often it is viewed. Streaming servers log both content, data quality and technical information so that producers, marketers and IT managers can collect sufficient information to optimize their services and to measure the Quality of Service in order to meet their stated guarantees.

SWOT Analysis

Strengths:

Spotify's combination of server-based streaming and peer-to-peer technology that even allows users with a slow connection to buffer the song with no big delays.

Spotify allows users to create music playlists and share them with other users and work together.

Their contracts with big record labels that gives Spotify a huge music library.

Weaknesses:

The contracts with the record labels can be changed by the record labels and can change their music library.

It's only available in 6 countries.

Opportunities:

Technology; if new advertisement targeting software will be developed that increases revenues, it will be a huge opportunity.

Threats:

If Apple decides to stream the music in Itunes as well it will be a huge threat to Spotify

The contracts with the record labels ; If they decide to withdraw their tracks from Spotify.

Success Factors

  1. The simplicity of the program, it's functions are easy to handle and it's easy to understand. This made it popular among teens and pensioners
  2. By using the free service as an ?Invite only? service, they made it look like there was a scarcity of the ?invites? this drove the demand up. In fact Spotify gave premium users many invites.
  3. The Ad-supported ?invite only? users have access to an extensive library of music, and it's all free.

The threat of substitute products

The threat of subsitute products is quite high for Spotify:

The propensity to substitute is high since you can find almost all of the tracks offered on Spotify on youtube.com (free of charge) or on Itunes (99p per track)

The price performance of Spotify is much better than Itunes, At Itunes a track costs ?99p. For that same price you can listen to tracks for 24 hours

To switch to a substitute is not expensive.

With Spotify you don't buy a MP3 but you are allowed to stream it. This is difference that the majority of the subsitutes does not have.

There are at least 5 substitute products available in the market.

The threat of the entry of new competitors

The threat of the entry of new competitors is high for Spotify, because of the huge size of the music industry, huge profits can be made.

One of the biggest barrier of this market are the deals you will have to make with record labels. This can require capital since

Developing the required software is expensive unless it's open-source.

Aggressive mass marketing campaigns can be expensive, but word of mouth is one of the most important free advertising in this market.

Since there is a lot of competition, new entrants can find it hard to compete.

The intensity of competitive rivalry

Price, quality, and innovation drives the intensity in this market. Spotify is easy to use, but so is youtube. After the introduction of Spotify, Napster quickly reduced it's prices

The bargaining power of customers

The bargaining power of customers is not high due to the fact that some features are unique, the invitation only users don't pay any money and the price of the premium account is not price sensitive.

The bargaining power of suppliers

The bargaining power of suppliers is high. If Spotify loses a contract with a major record label it will miss income from the advertisements. There is a wide presence of substitutes for the record labels to go to.

Competition

Rdio

Rdio is a digital music company founded in 2009 by the founders of Skype, Niklas Zennstrom and Janus Friis. The company is still in the start-up phase and the software and website is still in development. Rdio will be a streaming music service allowing users to archive their playlist and share it from a web browser and mobiles. The basic service will be free, alongside some sort of premium service.(CrunchBase, 2009) This will a future competitor of Spotify, especially since Spotify only offers the free service by invitation. The main features of Rdio are basically the same as Spotify's features.

we7

we7 is a new music streaming service where you can listen to, share and discover music for free, legally and safely. You choose the music you want to hear and play full songs and albums online, on-demand at anytime. They also offer you the ability to buy the music you love in high quality mp3 downloads which you can play on iPods and most other digital players.(CrunchBase, 2009)

We7's unique ?MediaGraft? technology shows dynamically attached advertisement at the beginning of a track, whether you download it or stream it. This technology also recognizes the genre and emotional power of the selected music in such a way that advertisements can be used very effectively. In this way the end users gets to see advertisements specially selected for him/her. The advertisements are more appealing to the user and thus will We7 generate more advertisement revenues than a normal random ad-based technology. We7 has an in-site store where users can purchase mp3's. The revenue from the advertisements and the in-site store go partially to the labels and artists.

Currently We7 is free , even registration is not required, but to have access to the in-site shop and other advanced features free registration is required. Currently We7 has about a million users in the UK and 2,5 million worldwide( CrunchBase, 2009?)

Pandora

Pandora is an Internet radio service that adapts to the taste of the listener, organized by the Music Genome Project. Using the name of an artist, band or song, the system will look for music that it similar. The user can always provide feedback on each song by using a button ?good music? or to ?reject?. Listening is free. You can purchase the music that is playing by clicking on the ?buy this music? button that will redirect you to Amazon.com By clicking through to Amazon.com website if you actually buy music.

Till May 2007 the site had many European and American listeners. Due to licensing restrictions, in May 2007, the service was only available to people within the United States. In other countries it was not longer possible to listen to Pandora. Access to service was denied to people outside the US based on the IP address of the visitor. This could be a future competitor if Spotify wants to enter the US market. But Pandora doesn't have the ?On-demand? feature that Spotify has. (Compete,2009)

Youtube.com

YouTube is a free website for uploading, viewing and sharing videos (and thus audio) by users. The motto of this site is YouTube, Broadcast Yourself. The uploader can upload a film with tags (keywords) that allow non-hierarchical classification (Folksonomy). This site was founded in February 2005 by three former PayPal employees. The site is currently owned by Google Inc.

In July 2006 there were about 65,000 videos added daily to this site and more than 100 million videos viewed daily.(Reuters, 2006) According to an article in The Wall Street Journal in August 2006 the website had then 6.1 million videos, a total storage of around 45 terabytes.

On Youtube you can find almost every music track available, not all of them are legal due to the large amount of users that upload illegal content. You don't need to download a program to access youtube.com.

Itunes

The iTunes program is a digital media player created by Apple. It was introduced at the Macworld Conference & Expo in San Francisco on January 10, 2001. With iTunes you can play digital music and video files. The program is also an interface to manage the contents of the iPod and the iPhone. Also the program connects through an Internet connection to the iTunes Store, digital music, TV shows, iPod games, iPod software, audiobooks, various podcasts and download movies. Finally, the program is also able to transfer music from a CD to import.

The program is designed to easily manage a library of audio and video files, and iTunes offers several options to search in the collection. Users can search by title, composer and album.

It is also possible to create playlists. These can be used on an iPod or iPhone. The iTunes library can automatically synchronize with an iPod or iPhone. This gives iTunes a strong market positioning.

Strategy

Currently, users can create an account for Spotify in Sweden, Norway, Finland, Britain, France and Spain, but not in the rest of the world. Free Spotify users (Currently only by invitation) can use the service abroad for 14 days, after this period they have to return to their home country to sign in. For users with a Premium account there is no such limitation.

The target audience of Spotify consist out of everbody who wants to listen to music with a computer or mobile device with access to the internet. People who regularly visit youtube, use limwire , napster, last.fm or pandora are amongst their target audience. Spotify offers streaming audio in high quality and transfers music files over the Internet through a combination of server-based streaming and peer-to-peer technology (P2P). Even with slow Internet connections no great delay occurs. With this technology combined with a free service they are delivering unique value to customers. This is a feature Apple's Itunes does not have. Spotify's users either pay for an account with a subscription or accepting advertising. By Placing advertisements in front of the tracks users want to play, and every half hour ,they generate income. A part of their income goes to the record labels and artists. The Their sustainable competitive advantage comes from their operational effectiveness; the easy use of the program; it's functions are easy to handle and it's easy to understand. This made it popular among teens and pensioners. By using the free service as an ?Invite only? service, they made it look like there was a scarcity of the ?invites? this drove the demand up. In fact Spotify gave premium users many invites.

The Ad-supported ?invite only? users have access to an extensive library of music, and it's all free.

Word to mouth advertising is one of the most important advertising there is for Spotify. Due to the many substitutes for Spotify users can switch easily to another free music service. Spotify has integrated into some social networks like Facebook and Twitter, this is part of their strategy in order to attract more users. The demand for music on mobile devices is increasing, Spotify developed applications for the Iphone , Symbian and Android mobile devices. This improves their market positioning in the online mobile music market.

Analysis

The free streaming music concept is a special concept which is quite unique, but paid streaming music is already used for a couple of years. So if users want to pay for a music service they can choose from a variety of programs and websites.

Spotify?s `invitation only` strategy can scare potential users away. Price, quality, and innovation drives the intensity in this market. Spotify is easy to use, but so is youtube.

The bargaining power of suppliers is high. If Spotify loses a contract with a major record label it will miss income from the advertisements, a big part of Spotify's future depends on the choices the record labels make. There is a wide presence of substitutes for the record labels to go to. The price performance of Spotify is much better than Itunes, At Itunes a track costs ?99p. For that same price you can listen to tracks for 24 hours at Spotify. But in order to use Spotify on your mobile device you need to download their software, iTunes is already compatible with an iPhone. The availability of Spotify is a weakness of Spotify. In order to get a bigger market share, Spotify will have to make their service available to more countries. If Apple ever decides to let users stream their content, spotify will lose one of its unique features

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