The one year old internet radio service Spotify needs more time to develop its business – read ‘to make profit’. In a post on the company’s blog, co-founder Daniel Ek says that Spotify “has a long way to go” in order to avoid joining dozens of other startups in what he calls the “digital music graveyard”. And he adds: “Yet this is unfortunately something the music industry as a whole is particularly good at, expecting business models to be proven within months of inception.” Nevertheless the company’s advertising revenues have now passed the millions of Euros per month mark.
However he also welcomes the support the company has gotten from the music industry: “Spotify has a long way to go but this continued support from the music industry in the face of a recession and rampant piracy has made the difference and I feel that we are set up to succeed with this kind of willingness to innovate and try new things from the music industry… together we can do even better things.”
Stockholm and London based Spotify offers users free music on demand if they also listen to adverts. Advertising-free services are available as well by subscribing for £10 a month. With more than 5 million users signing up to use it, it’s one of the fastes growing legal music services around. Despite this the company is buning money fast with streaming costs hitting the roof. Spotify so far has raised more than €71 million from investors and tries to lower its million euro monthly cost by integrating peer-to-peer technology and other ways to save bandwidth.
Ek added however that it is intention to solve the problem of making money from music streaming and not simply sell out to the highest bidder: “We are in this for the long haul. We aren’t interested in just trying to hype the company and then ‘flipping it’.”
Nice to know is that the Spotify ounder also acknowledges to not having always acted with the company’s patners (artists, composers, labels etc.) in mind: “Someone asked me a while back, during a fireside chat, what was the biggest mistake I’ve made so far with Spotify? I can’t recall my answer, but I’ve since thought more about the question. I would say that the biggest mistake that I’ve made is that Spotify, unlike any of the other businesses I’ve been a part of, depends on our partners (artists, composers, labels etc.) and I haven’t always acted with this fact at the forefront of my mind. If we’re asking the industry to change, we need to be transparent and honest about the end goal – especially since we’re asking everyone to make a huge leap of faith to an unknown place where you could potentially argue that the industry risks its most profitable customers. We haven’t been as open as we could have been up until now, and that’s been an oversight on my behalf.”
Spotify will also invest in a couple of focus areas in terms of developing the product. Besides better monetisation, those areas include better library handling, making Spotify socially capable as well as significantly improving the portability ) – read ‘iPhone and related applications’.
Ek also pleads that the industry needs to think outside of the box and realise that the new business model in music is a mix between ad-supported music, downloads, subscriptions, merchandising and ticketing where the user comes first and where the key to monetisation comes from portability and packaging access rights. “I believe this is something that most people in the industry can agree to, but it can’t happen if the industry continues to enforce the per-play fees it has tried so hard to hold on to. The new model is about figuring out how to increase the revenue per user (RPU) between the different models – not squeeze as much as possible out of every single transaction. And that is how we can grow the overall business and work to protect a business that is in decline.”
In the past streaming music services have found it difficult to generate (any) profit largely due to the costs of licensing. That other dotcom darling Last.fm even had to close down advertising-supported services in some areas because it could not cover costs. The American online radio service Pandora from its side has been locked in a battle over royalty payments.
The one year old internet radio service Spotify needs more time to develop its business – read ‘to make profit’. In a post on the company’s blog, co-founder Daniel Ek says that Spotify “has a long way to go” in order to avoid joining dozens of other startups in what he calls the “digital music graveyard”. And he adds: “Yet this is unfortunately something the music industry as a whole is particularly good at, expecting business models to be proven within months of inception.” Nevertheless the company’s advertising revenues have now passed the millions of Euros per month mark.
However he also welcomes the support the company has gotten from the music industry: “Spotify has a long way to go but this continued support from the music industry in the face of a recession and rampant piracy has made the difference and I feel that we are set up to succeed with this kind of willingness to innovate and try new things from the music industry… together we can do even better things.”
Stockholm and London based Spotify offers users free music on demand if they also listen to adverts. Advertising-free services are available as well by subscribing for £10 a month. With more than 5 million users signing up to use it, it’s one of the fastes growing legal music services around. Despite this the company is buning money fast with streaming costs hitting the roof. Spotify so far has raised more than €71 million from investors and tries to lower its million euro monthly cost by integrating peer-to-peer technology and other ways to save bandwidth. iayz2gv4qk
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