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Spotify SWOT & PESTLE Analysis

ID : 52628353| Mar 2020| 15 pages

COMPANY PROFILE -Spotify

Business Sector :Online Music streaming service

Operating Geography :Sweden, Europe, Global

About Spotify :

Spotify was founded in 2006 and officially launched on October 7th, 2008. The name Spotify was coined by the combination of words “spot” and “identify”. It followed a freemium model wherein users were initially provided with a free service and allowed them with an upgrade to premium features. The premium feature was based on drawing a monthly or yearly subscription, majorly concentrated towards ad-free music. Legally domiciled in Luxembourg, this audio streaming platform is headquartered in Stockholm, Sweden and provides DRM-protected music, videos and podcasts from record labels and media houses.
The Company witnessed a massive growth in the premium subscribers as well. In Europe itself, it doubled the number of premium subscribers to 2 million in just six months after its introduction. From 2016 it aggressively marketed using billboards and innovative captions. With a “direct listing” on NYSE, it went public on April 3rd 2018. It was a huge success with the opening price fairly above the reference price of $132. The brand value among the public and the institutional community made this success possible. The audio streaming czar competes with major distribution services like Google Play Music, Pandora, Apple Music, and Amazon Music. With a record 271 million total monthly active users globally at the end of 2019, Spotify plans to double down on podcasting by 2020.
Spotify’s USP or unique selling proposition lies in being the most popular global audio streaming subscription service with 271m users, including 124m subscribers, across 79 markets. They take pride in being the largest driver of revenue to the music industry presently. Spotify’s mission statement reads “Our mission is to unlock the potential of human creativity—by giving a million creative artists the opportunity to live off their art and billions of fans the opportunity to enjoy and be inspired by it.”

Spotify Revenue :


5.2 billion Euros – FY ending 31st Dec 2018 (y-o-y growth 26.8%)
4.1 billion Euros – FY ending 31st Dec 2017

Competitive Analysis of Spotify

SWOT
PESTLE
The SWOT analysis of Spotify is presented below:
Strengths
Weaknesses
1. Massive subscriber base
2. Music personalization and recommended feeds based on user preferences through machine learning
3. Minimal payment for rights
4. Enjoys advantage of Freemium model
1. Conventionally running on zero profits
2. Huge dependence on internet connectivity
3. Complex royalty payment scheme making it difficult to forecast amount payable under license agreements
Opportunities
Threats
1. Producing own music using AI and data
2. B2B model, forge partnerships with mobile companies or telecom companies
3. Entry into markets with high population density
4. Music streaming services coming preloaded on devices
1. Competing with established biggies
2. Arduous licensing pre-requisitions to get artists on board
3. Breach of security
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Detailed SWOT Analysis of Spotify

 

Strength

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Weakness

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Opportunity

1. Producing own music using AI and data: Companies like Apple, IBM and Google have already realized the importance of artificial intelligence in the music industry, specifically in the digital sphere. Deep learning networks, machine learning along with artificial intelligence are used to understand chords, rhythm, tempo and based on that data, the system creates music from scratch. Spotify, being primarily a data driven company, has a core capability in this area since it can use the data to understand the beats and tempo that is being played the most by the users. Using the same data, compositions can be made. PopGun, an Australian startup has already started working on this use case to produce professional music. Although, in this case the background music is created by the system, the vocals need to be sung by a human. The company is trying so solve issues with certain kinds of beats and music with the help of machine learning.

2. B2B model, forge partnerships with mobile companies or telecom companies: The reach of the application can be increased by forging partnerships with mobile companies and telecom companies. For example, HP has entered into an alliance with the antivirus software company called McAfee, which has two benefits: increase customer reach and increase the likelihood of customers buying the software if they have liked the free trial that was offered. Jio in India has partnered with Saavn to provide free music to its customers. By leveraging the vast customer base of Jio, Saavn can reach a wider audience with this partnership. Vodafone also has recently announced that it would soon be partnering with one of the biggest music providers. It has also recently partnered with AT&T, telecom giant in the USA, which offers a free trial of the premium version for a period of 6 months for the users. Some even predict that the partnership might be with Spotify itself. Cross-sharing between applications is the latest trend, and many telecom players are concentrating on providing content along with their packages. Spotify currently allows cross-sharing with Instagram permitting its users to share what they are listening directly to their Instagram stories conveniently. Hence, Spotify needs to continuously adapt and make changes to the existing service to suit the needs of the customer and remain competitive.

3. Entry into markets with high population density: India, with a lot of different local labels and local publishers, presented great opportunity for Spotify as the world’s second-largest Internet market. China and India are currently a very low penetrated, fragmented market owing to piracy. This poses a challenge since customers are not willing to pay for paid services. Spotify launched in India in Feb, 2019 and ever since it has seen exponential growth with over a whopping 2M subscribers. Spotify collaborated with T-Series, a leading Indian film and music company with a catalog of more than 160,000 songs. However, the current compounded annual growth rate (CAGR) for the music streaming industry in China is 7.3% until the year 2024. Also, according to a report by Statista, it is estimated that China will have 326 million users by the year 2024 for audio streaming services, which is the highest across the world attributed to its huge population. Although the market is currently not penetrated and is highly fragmented, it is dominated by a few local players like QQMusic, NetEase and KuGou which together constitute 70% market share. Chinese Government along with National CopyRight Administration is taking steps to curb piracy. Apart from this IFPI has also taken action against the infringements legally and has made the infringers sign an agreement to take down piracy. Also, Tencent has acquired a 7.5% share in Spotify which might give an opportunity for market entry into China.

4. Music streaming services coming preloaded on devices: Competitors of Spotify including Apple, Amazon and Google are bundling music streaming services with their devices and many a times offering it free of cost as an add-on or complimentary perk. As they continue to develop and offer music streaming service preloaded on their devices like iTunes for Apple iPhones, iPads and Mac, Amazon Prime Music on Echo and Google Play Music on their Google smartphones, Pixel, Spotify will face substantial competitive disadvantage. With shifting consumer tastes and choices and technology advancements, as people prefer streaming music on handheld devices or other internet connected products, Spotify will need to adapt to the changing preferences, improve existing services, offer innovative and attractive features to hold onto its reputation and remain competitive.

Threat

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TABLE OF CONTENTS
DELIVERY AND FORMAT
WHY CHOOSE US?
References used in Spotify Analysis Report

1. Spotify Annual Report 2018 - https://s22.q4cdn.com/540910603/files/doc_financials/annual/SPOT_20F_Master-Master_Exhibits_HTML.pdf

2. Spotify revenue 2017-18 - https://www.macrotrends.net/stocks/charts/SPOT/spotify-technology-sa/financial-statements

3. Spotify 2019 Sustainability Report - https://s22.q4cdn.com/540910603/files/doc_downloads/govDocs/2019/03/2018-Spotify-Sustainability-Report-FINAL.pdf

4. Jay Z's music suddenly returns to Spotify after 2 years of not being available - https://www.businessinsider.in/tech/news/jay-zs-music-suddenly-returns-to-spotify-after-2-years-of-not-being-available/articleshow/72371475.cms

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Spotify SWOT & PESTLE Analysis - SWOT & PESTLE.COM

SWOT & PESTLE.com (2020). Spotify SWOT & PESTLE Analysis - SWOT & PESTLE.com. [online] Available at: https://www.swotandpestle.com/spotify/ [Accessed 15 Jul, 2020].

In-text: (SWOT & PESTLE.com, 2020)

Copyrights and Disclaimer

Spotify SWOT and PESTLE analysis has been conducted by B.Sai Srujan and reviewed by senior analysts from Barakaat Consulting.

Copyright of Spotify SWOT and PESTLE Analysis is the property of Barakaat Consulting. Please refer to the Terms and Conditions and Disclaimer for usage guidelines.

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Spotify SWOT & PESTLE Analysis
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