November 9, 2008

Spotify premium service to promote user base

I am getting back to Spotify and their model (hopefully) changing the music industry.

It is not new with teasers or previews offered to specific audiences. Which is why it comes pretty natural when the new album with the Swedish artists Orup and Lena Philipsson, Dubbel, is offered to premium users in Sweden almost a week before the public release date. It is interesting to see how the music industry this way, sort of at least, show that they approve the new way of distributing music.

Still, I have not seen the agreements between Spotify and the record labels, it might be so that they share the different revenue streams in some interesting way. But it might also be so, which I think to be more likely, that the record company sees Spotify more as a way to promote other sources of revenues then to strengthen the Spotify model. The service is all too young to be a trusted way of income for the record labels.

It is however interesting to see that it is only the premium service which gets the early access to the preview. Could this be a sign of that it is not enough with the commercials every sixth song to differentiate the two levels of the service? It might. But I strongly doubt that it was not thought of as a way of separating the two in the planning of the business model. It will rather be a continuous process to offer good value for the around €9 the premium service cost each month. It will otherwise be easy to switch to the ad-based level.

Next interesting part in all this is of course as I wrote above, the models of revenue streams between Spotify and the rights owners. Perhaps is it more profitable for both parties to have lots of users using the ad-based one. A hint in this direction is that they only account for that between 2 and 15 percent of the users will use the subscribed versions of the service, according to Martin Lorentzon. Then, still the question is why to offer the early release to the premium costumers?

The same article in Dagens Nyheter suggest that they believe to have 20 million users in 2 to 3 years. A quite large customer base which they have pretty good user information about, due to their music preferencies. I reckon customized commercial spots can be made with quite good accuracy based on that information which makes the community pretty valuable for advertisers. Or perhaps third party use in some way.

For now I still think it is safe to assume that Spotify will continue to offer premiums to the subscription service, in one way or another. Mostly I base this on that you as customer are more eager to use a service which you have actively decided to use. You are also probably more interested in talking to and inviteing your friends to the service as long as it offer good value. This way creating a stable base of users subscribing and becomming part of the "Spotify tribe". The same tribe inviting their friends and promoting Spotify.

But the most important part is however the diversification of the offer towards the costumers. In order to fulfill the diversification needs, there has to be differnet values assigned to the different alternatives. Which is why we will see more early releases and designated content in the premium level of Spotify.

Johan Örneblad

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