NOTE: This article was posted on a former blog but is still relevant today and has been reposted in response to the recent US release of Spotify.
Spotify is an online music streaming service launched in 2006 that is currently available to a few countries in within Europe. Spotify users register for an account where they can listen to an unlimited amount of songs for free so long as they are prepared to listen to a few adverts littered in between the songs.
In theory these adverts are tailored to a your listening profile so that they remain relevant for users and provide a good return on investment for the advertisers. The last piece of the puzzle is that if you want to remove the adverts then it’s possible to pay a subscription fee which will completely remove the adverts from the service.
The business model embraced within Spotify is an interesting one as it is completely born into the digital age and as such has embraced the “freemium” model.
Although not the first person to use the word, Chris Anderson, the author of “Free: The Future of a Radical Price” defines a freemium business model as one that provides a free version of a service to basic users, that is matched with a premium paid version.
This has all been made possible due to the low costs of distribution involved with digital music. In fact the Telegraph reports that only 12% of Spotify users need to subscribe to keep the ad-supported service free for the rest.
When you consider that premium subscribers not only get to remove adverts but also gain higher quality music tracks, can download and listen to tracks offline and even gain mobile access the foundations are definitely there. Based on my seemingly perpetual upgrade to Premium and their plans to expand into the U.S. later this year it seems that they’ve created a service that is sticky enough to succeed.
As previously mentioned I just can’t seem to shake the urge to go premium on Spotify. In fact since signing up for Spotify I’ve only had the urge to buy from two artists and part of the reasoning was simply that I wanted to support them more directly. An urge which may have been quashed since I discovered that Spotify are now the fourth largest digital revenue generator for Universal Music Group thanks to Spotify’s move to pay labels per user within the U.K. and Spain.
It all begs the question if you can listen to music both both on and offline as well as downloading it to your phone whilst on the go for only £9.99; Has purchasing individual tracks and albums become a thing of the past? I know where I stand but I think it would be interesting to get some conversation going and see what the general consensus is on the future of music. Will subscriptions, purchasing or plain old pirating prevail?