Monthly Archives: June 2013

Constructing Robust Business Models – Spotify

In my research, I theorize about designing robust business models.  One example of such a design is Spotify.  The Swedish start-up followed up on Apple’s revolution in the music industry, by instead of downloads offering a streaming service, based on a monthly subscription fee for listening to Spotify’s music library.  Spotify offered listeners an improved experience by enabling them to almost instantaneoulsy access millions (over 13M actually) of songs without ever downloading them to their computer (and thus reducing the urge for piracy).

Spotify designed a robust business model by not only solving the music fans’ problem of legitimate music access across devices, but also by involving the record labels in a profitable formula.  Indeed, music labels report Spotify to be the second-biggest, and in some countries like Sweden or UK, THE biggest source of revenue from digital music.  Moreover, Spotify also provides these partners with very useful and very detailed data about the evolving music tastes, something few other distribution channels can easily offer.  Furthermore, Spotify smartly partnered with Facebook to generate positive network effects for both parties by sharing your Spotify activities with friends.  By relying on these very legitimate partners, Spotify, a start-up, quickly gained rapid proliferation in Europe, where granted less competition exists, – and has also recently entered the US market, a harder nut to crack due to the much higher competition and the prevalence of iTunes there.

It would be interesting to see which business model will become the dominant design in the future for the music industry – owning your songs through downloads on iTunes or subscribing to a streaming model developed by Spotify?  Apple has already retaliated by launching “Apple Radio”, implicitly recognizing the threat this challenger might be posing to the incumbent…the saga to be continued!