Introduction
Spotify has been founded in Sweden in 2006 by Daniel Ek and Martin Lorentzon. They intended to end the era of plummeting music industry because they both were big music fans. As pirating was difficult to tackle, they offered better solution to pirating that was actively developing. Spotify became a platform for listening and sharing music as it is convenient for people. It is clear that such internet invention has become a subject to many challenges, including some legal issues. At the same time, the company needs to keep itself profitable and withstand the increasing threat of new competitors. Therefore, the case of Spotity is very interesting taking into account current trend for the intellectual rights protection and development of the Internet. It is like balancing from acceptable regarding the legal system and customer expectations.
Spotify’s Background and Origins
Digital music was a breakthrough in the industry. It allowed recording and selling huge amounts of CDs as well as technologies that allowed to play them. However, with mass computerization and internatization, music became cheaper or for free at all. Spotify was not a forerunner in the industry of online music. At the dawn of the rise of Internet technology, Nepster began to revolutionize the music industry. Music was stored at one server and everyone could download or play it. On the one side, music became more accessible and gained a wider audience. People enjoyed listening and were developing music culture. On the other, singers were getting nothing because the music was available for free. Illegal downloading is a matter of strict regulations till now; however, peer-to-peer downloading is still thriving and cannot be prevented.
Pirating became common thing and this demanded prompt actions. Nepster was banned with its server destroyed. Other attempts were more elaborate, however, no previous online music companies tried to draw inspiration from pirating. Spotify accepted the fact that it can be only tamed, but not completely eliminated. Therefore, Spotify is a perfect example of uniting technologies for making pirating platform better and legal-friendly.
SWOT Analysis
Spotify has a number of strengths. It helped unite a large amount of various music tracks from different countries under one platform umbrella. It engaged technologies that had not been used for music before. It offered availability, rapidity and variety to their customers. Spotify has become an attribute of the modern stage of the music industry development. However, it also has some weaknesses. Spotify has been always misinterpreted as a pirating platform. Therefore, its reputation often suffers from the authorities’ remarks or customers’ reviews. It is also highly dependent on new technology emergence and implementation, as the competition is high.
However, weaknesses are compensated by many opportunities. Soon the company may get into the movie and video industry working under the same principle. Moreover, it can continue to encourage “customers to abandon pirating and may eventually lead them to want to pay for the service” (Bissonnette & Brunelle, 2015, p.6). The idea is to change file format to the format of comfort. Spotify can provide a listener with a huge variety of services, including the access to many albums, while charging some payment for such a service. It is also worth noting that legal constraints remain the main threat to development of Spotify. Record companies considered it as a major threat when Spotify tried to make an agreement with them. Its development is hindered by the resistance and disbelief of companies in the music industry to cooperate with a ‘pirating’ platform. Another potential threat is a significant rise of technology that can leave comfort and easy access to online music without any demand.
Spotify Strategies and Problems
The model that Spotify uses is called the “freemium” model. It is a model “where products are provided free of charge at the basic level, but are paid for by subscription at higher levels with richer functionality” (Seave, 2014). Spotify uses only basic level, but the condition is that the customer is obliged to listen to advertisements from time to time. The idea is genius because Spotify collects money and provides services at the same time. Therefore, such a rapid growth in popularity that is experienced is completely understandable. The problem, however, still lies in the possibility of monetizing music and getting higher net revenue. Its losses are still too high to claim that the company is successful in its main goal of profit-making. Especially difficult the situation is with less popular singers who gain very little financial satisfaction. In these terms iTunes looks more attractive.
Recommendations
The current market situation shows that people are willing to buy songs or albums. ITunes sales are high, despite they charge money. The concept of Spotify is great for functioning in the countries that have less solid intellectual rights protection, fewer and weaker laws regarding music products and the absence of judicial precedent. Sooner or later with the rise of claims of the right owners, the amount of losses may exceed the amount of revenue. Therefore, there must be a revolutionary technology or a revolutionary strategy that this company should adapt in the future in order to stay competitive and successful. The idea of paying for comfort is good, but it requires thorough analysis of how much money people may be willing to pay and where that extreme is, at which a person decides to give up this comfort. Otherwise, in a couple of years, Spotify will find out that making agreements is getting more difficult, the right owners refuse to provide content, while competitors that chose working on buy/sell basis have an increase in their profits. Spotify should get rid of its reputation as a ‘pirating’ platform in order to be heard by the recording companies and singers themselves.
References
Bissonnette, Joelle, and Brunelle, Eric. (2015). Legal and Profitable? Spotify: The Challenges of an Online Music Service. IJCSM 13(3).
Seave, Ava. (2014). New Research Helps Find the Perfect Strategy for ‘Freemium’ Business Models. Forbes. Retrieved from http://www.forbes.com/sites/avaseave/2014/08/27/choosing-the-perfect-strategy-for-freemiums/#2a1d82084bcd
