Spotify - Why They're Successful

[Music] you know what I think is amazing about Spotify the music streaming industry has become very competitive there's at least a dozen popular services notably Amazon music google play music Apple music those are some pretty big companies yet somehow Spotify this seemingly random company from Sweden is beating all of them with a very similar service Apple music is their main competitor and I challenge you to tell me any major differences between them they're the exact same price very similar selection similar features yet when it comes to paid subscribers Spotify is way ahead as of September 2019 Apple music has 60 million paying members compared to Spotify x' 113 million I should also mention that Spotify doesn't make any profits well a little something in recent quarters but traditionally it's pretty bad here's a statement from their 2018 annual report saying that they've been incurring significant losses combining two over 2.5 billion euros these are operating losses - meaning they only include expenses it takes to operate before taxes interest in everything else the main issue is here looking at 2018 they made 5.2 billion euros that's from when you pay them that $10 every month or the money that the advertisers are paying them it all combined - 5.2 billion euros their cost of revenue I'll talk more about that later but it's essentially the amount that they have to pay to have the song streaming on their service is 3.9 billion euros that's 74% of the revenue meaning once we start deducting the cost of advertising research administration we're in the negative that's their main issue for competitive reasons they can't really raise the prices so they need to lower this percentage which they've actually done that 74 percent is actually much lower than it used to be but still not low enough so that's a major issue that they're facing moving forward I thought I'd get it out of the way so I can talk about some of the more successful aspects of Spotify Daniel Eck is the man we should be talking about here of course there's many important people involved in various ways but I'm gonna go I didn't say that Danny is the main reason that we all know the name Spotify today he co-founded the company back in 2006 and has been in charge as the CEO ever since he's from Sweden by the way Spotify is a Swedish company and well that's why I would describe him as a genius programmer and businessman with the exact impressive background that you would expect in high school he was earning thousands of dollars designing websites on the side he went to college but only for a few weeks before dropping out and quickly becoming tremendously successful working at various technology companies his big payoff was in 2006 when he sold his online marketing company for over a million dollars and briefly retired directly after now all of this happened before the age of 23 so he decided he wasn't quite ready to retire especially considering he perceived a great opportunity for a new business you can see where I'm heading with this but I think we should go back to basics for a minute so there's a lot of musicians out there with varying levels of success in popularity all of which dedicate their resources and talent to create songs I hope that most of us can agree that if you listen to their creation they should get compensated in some way I actually find it strange there's so many people that would disagree with it especially 20 years ago that's when everybody was sharing their music files all over the place essentially downloading everything for free which come on it isn't fair there was even all this software being created that made it incredibly easy to do it the most popular one of course being Napster but after only a few months the laws started catching up with them and they were confronted with this legal nightmare that ultimately led to the end of the service in 2001 you might think that with all these new laws in place in the largest file-sharing service being shut down and that this would be the end of the issue we know that wasn't the case it really just made way for all these other shadier under the radar services daniel ax saw what was happening and concluded that the only real way to stop the illegal downloading was to create a service that was superior he actually had that thought in 2002 and by 2006 he was in a perfect position to try to make it happen they spent a couple years getting everything together and in September of 2008 officially launched Spotify initially the service was only available in six large countries throughout Europe but by 2011 was finally available in the United States and as of 2019 they claim to have reach in 79 different countries and territories all right there's a brief overview of the start and growth of Spotify now for the rest of the video I want to identify the reasons behind it in an attempt to explain their success first off the music catalog that was their first big hurdle back in 2006 and it remains a huge risk for them today this relates to what I talked about in the beginning a core difference between Spotify and Napster and all those other crazy illegal sites is that Spotify pays for the rights to stream the songs they have to make all these deals with whoever owns the rights to the songs which in many cases ends up being the record labels everything goes through them the actual artist usually gets paid based on the deals that they have with the record labels not directly with Spotify but remember back in 2006 the industry was a bit of a mess illegal downloading was a huge problem and Spotify provided a potential solution it was a cheap and easy way for the users to access the music but still have the labels and artists and everyone else get compensated the circumstances sort of forced them into making deals with Spotify and after two years of making those deals they had secured enough European streaming rights to launch their service in Europe their growth after the launch made them even more attractive to record labels they made new deals with Universal Sony Warner and by 2011 had secured enough US streaming rights 15 million songs to launch their service in the US I'm sure you've heard a bunch of artists speak negatively towards Spotify Taylor Swift has been vocal about it her songs left the service in 2014 but were all put back in 2017 a similar thing with jay-z he actually owns a competing service called tidal and even his music is being added to Spotify I'm not a musical artist myself so I have no first-hand experience to speak from but this sort of evidence suggests that from the artists perspective they've simply become too big to ignore so now it's strangely the fact that they are number one is actually accelerating their growth I guess I'll go ahead and add that as a reason for their success here's another one I've been stepping around it but they've existed for over a decade in a way it they were the first of their kind predating any your competitor that uses this model for heaven's sake their biggest competitor Apple music didn't exist until 2015 they had a seven-year headstart a four-year headstart if we're talking about the United States actually in the United States the two are very similar as far as paid subscribers Apple music past Spotify in April of 2019 the difference comes internationally which leads into my next reason Spotify is more focused internationally not surprisingly most of the revenue comes from outside of the US they started in Sweden focused solely on Europe for years and as a result are dominating the international market how about data collection in my experience Spotify is really good at figuring out what you want to listen to they have this daily mix playlist that I always put on it's a good way to find new songs and artists while mixing them in with the older ones that you already know I don't use these others as much but there's also discover weekly and release radar I don't know how it works but it seems to work and many people agree that their recommendations are among the best in the industry I suspect that this may be related to their continued investment in research and development and the fact that they had that jump start in collecting the data in perfecting their system they claimed that about a third of all music heard on Spotify is from one of these personalized playlists this next reason I've been kind of saving because I think it might be the biggest it's their free option it's got to be the biggest difference from Apple music let me just talk about it from personal experience Spotify has this option where you can listen to everything they have to offer for free I used to use this version of Spotify pretty heavily for about a year and I have to say I don't like it it has so many limitations and they're all really annoying the biggest one for me it was only being able to skip a few songs at a time it kind of forced me into listening to things I didn't really care about then the ads came on every few songs which you have to expect but it got annoying I don't believe I was able to download songs so it was always very dependent on the data and the Wi-Fi so after that year I signed up for the three-month trial for the premium and it was so much better when the three months ended he couldn't go back so I've been paying them $10 a month ever since the hell was my own true Spotify journey I guess you can call it I'm not trying to promote the servus but if you're using the free one you might want to look into it I'm sorry the free service just isn't very good I suspect intentionally they make it just bad enough so it makes you want to upgrade rather than deleting it let's face it the whole reason it's there is to bring in new premium subscribers I don't believe they would have it otherwise especially considering it that's where most of the complaints from the artists end up coming from look at this usually around 90 percent of their total revenue comes from the premium service and that's despite more people being part of that ad supported plan as of September of 2019 they have 113 million premium members compared to 141 million members on the free plan the money they make from those ads is almost insignificant but that's a group of people that are very likely to upgrade I don't know about you 141 million other people but when I had the commercials a lot of them were simply telling me to sign up for Spotify Premium more than 60% of their new premium members come from the free service and they have a very specific path to make it happen it's actually exactly how they got me the numbers vary from quarter to quarter but recently something like 25% of ad-supported listeners started the free trial for the premium subscription and then somewhere around 75% of those people who engaged in the free trial ended up converting to a paid premium subscription because as I said it's hard to go back so I would identify this controversial yet effective way of attracting customers as being a big reason for their success so there you have it Spotify took advantage of the conditions of the industry and later on their size to build up an impressive music catalog with just about every song you can ever want to hear take an advantage of a head start over all their competitors in the US and internationally part of that includes their data collection resulting in sophisticated recommendations and playlists and we can't forget about that unique free service providing a path for well me and millions of other people to sign up for their premium service that they really care about let me know in the comments do you agree with these reasons as always it's far from a complete list but I think those are the most significant let me know if you think there's others worth mentioning also I'm curious which music streaming service do you subscribe to if any and why if it is Spotify specify if it's the free or the paid service and why you chose that one I'd like to hear what you have to say thank you for watching [Music]

Channel: Company Man

Views: 824,011

Rating: 4.9440217 out of 5

Keywords: Spotify, Music, Streaming, Apple Music, Apple, Business, Songs, Napster

Id: PBoz2XigTFA

Length: 11min 27sec (687 seconds)

Published: Wed Dec 11 2019