Spotify Business Model Explained: How Does Spotify Make Money?
Spotify is a popular streaming platform that has established itself as the numero uno of modern day music playback. Its popularity isn’t hidden under a rock; with over 500 million downloads and a whooping 380 million active users, it’s the perfect platform for users, advertisers and content creators.
Whether you’re an investor looking for good stock returns, or a content creator who wants to start big, learning about the Spotify Business Model can help you choose its feasibility as a profitable platform or company. Without further ado, lets understand how Spotify makes money to know the secret behind their success.
Spotify is a digital streaming platform that allows users to stream music, podcasts, stories, audiobooks, educational content and much more. With its dynamic sound features, coupled with its easy to use interface, Spotify is a cut above the rest platforms. You can listen to your favorite old hits, while also discover new ones that are shown to you after the app learns your listening pattern.
Spotify, with its Artists app, gives content creators the chance to grow their online presence. Creators can see who’s listening to them, what songs are more popular, and promote their brand through its integration with Shopify for merch sale.
Similarly, the app is the cream of the top for long format creators that share podcasts, and audiobooks. Since the app has over 380 million active users, advertisers view it as the perfect option to launch targeted ads.
Spotify is the jack of all trades, when it comes to market segmentation. It targets mature listeners with its Spotify For Podcasters app, whereas younger aged users are targeted with the Spotify for Kids app. However, the larger chunk of its customers are millennials who account for 29% of its total target market.
Similarly, it also targets advertisers by inviting them to advertise their brand on Spotify’s Free version. Their advertisements are played in between songs to generate conversions. As far as geographic segmentation is concerned, countries like the U.S.A, United Kingdom, Luxembourg and Australia stand at the top of its target markets. In some regions of the world, its service has been blocked but people still use it with the help of VPNs, showing how popular the platform is.
Spotify has reported a record profit of $1 billion after facing a loss in previous years.Its average revenue rose by 13% to swell to 13.25 Billion Euros. 51% percent of its total revenue (6.78 Billion Euro) was generated in the entire world, except the rest 49% generated in U.S.A, United Kingdom, and Luxembourg.
Spotify business model offers a lot of value propositions which persuades users, advertisors, and artists to choose it over other platforms. Here are a few reasons why users, artists, and advertisors use Spotify:
For Users
HD Sound Quality
With its HD sound quality feature, Spotify provides an exceptionally high sound quality maxed at 320kbps. Thats why users report to feel like they’re in a concert whenever they stream music; something that’s missing in other platforms.
Customization
Spotify business model has been launched with idea of personalization in mind. It tracks a user’s listening patterns through machine learning algorithms to determine their taste and overall preference. Thereby, it shows each user the content they’ll most likely enjoy. Its like having a music connoisseur besides you everytime!
Dynamic Listening
Listening to your favorite melodies shouldn’t have any limits; Spotify makes it possible with its mobile apps that let users stream their favorite hits anywhere around the globe. Whether you’re working out at the gym or just laying on your couch, Spotify can always fill your ears with melodious tunes.
User-Friendly
Who would want to use a messy app that takes an eternity to find a decent track to listen to? Spotify’s user friendly interface allows a seamless streaming experience for all users. You can easily manage your account from multiple devices, and search your favorite content by clicking on a single button. Moreover, the app arranges all of your favorite songs in the form of playlists and ques to let you listen to them without any nuisances.
For Artists and Ad Agencies
Target Wider Audience
Spotify’s huge user pool makes it the best platform to launch an advertisement or content. The chance of converting a user to purchase your product, or listen to your music is quite literally twice than every other platform. You have the option to reach more than 300 million users, making it the best platform for targeting customers from varying age groups, demographics, and geographical locations.
Helps Brand Identity Formation
Spotify creates your artistic image like no other platform. You can use Spotify for Artists to make spectacular canvas, merchandise, and engage with your fans by sharing exclusive content and short videos.
Valuable Insights
Spotify business model provides artists and advertisers with valuable information that can help them make better decisions. Artists can tune their content to work more on the genres that are viewed the most to save time on their less popular styles. Similarly, advertisors can use this data to identify the best creators to engage in brand promotions.
1. Gather Users with Free Service
The Spotify business model has its free service at its baseline. Spotify uses its free service to attract customers to purchase its premium subscriptions. This is done by providing the users with a few good features like high sound quality and a large variety of playlists, but not giving problem-solving features such as unlimited skip, ad-blocking, and crossfade.
2. Convert Users to Spotify Premium
Once the users start on the free plan, Spotify business model tries to persuade them into buying the Spotify Premium’s basic subscription which unlocks all content, along with the options of offline download, unlimited streaming, and no advertisements.
3. Discounts For Customer Retention.
Spotify tends to retain its customers by giving discounts on gift cards and higher subscriptions to make the users stay on the app. Also, the app persuades the users to purchase bigger plans such as the Family plan to increase their revenue.
4. Balance Expenses
Spotify uses it’s premium subscriptions s its ultimate cash cow. It covers all of its expenses, such as payments to labels such as Universal, Merlin, Warner and Sony with 52% of its total revenue.
FAQs-Frequently Asked Questions
Spotify business model is one of the best business case studies in the tech industry. Its efficacy is shown by the Swedish app’s remarkable success as Spotify has taken every music lover by a storm. If you haven’t started, download Spotify Premium now and get the chance to display your advertisements and exclusive content on the go.
