Spotify — the giant audio streaming service’s secret — freemium model and hyper-localization to markets.
The music streaming service beat out most of its competition in the US even though it started its roots in Sweden.
Spotify, the Swedish audio streaming and media provider, is a well-wortth case study for a successful global strategy. Launched in 2008, Spotify has grown to be the streaming industry leader with 155 million paying subscribers. Recently, Spotify announced plans to launch in 85 new markets, increasing its operation to 178 countries by the end of 2021 (Variety, 2021). Clearly, the motivation for internationalization is to extend their reach to more than 1 billion potential new listeners. Within the existing 93 markets is South Korea, the world’s sixth-largest music market, in which Spotify recently launched on February 1. However, China remains the biggest single country with no Spotify presence.
Spotify success coincided with the popularization of music consumption via mobile phones.
With more than 70 million tracks, Spotify is able to offer personalized digital copyright music and podcasts to its international user base for free (Spotify, 2020). Leveraging its freemium model, Spotify has used localization as its global strategy to cater to its vastly different markets.
Spotify started in Sweden, and opened its free service in the UK in 2009, and launched in the US in 2011 with a six-month trial period (Verge, 2012). With each new market, Spotify studied the new userbase and introduced them to new and local music through its discovery playlist. It is reported that Discover Weekly playlists was stream 1,7 billion times (Quartz, 2015). Spotify frequently shows listeners top charts in each music genre as well as top 100 podcast chart. Spotify pays royalty to both major record labels and independent artists. Thus, the company can offer a variety of playlists in targeted countries.
Despite massive growth in subscribers due to COVID-19 (a gain of 6 million subscriber in Q1 of 2020), Spotify is not yet a profitable company. It reported a loss of €356 million (€1.91 per share) (WSJ, 2020) due to higher-than-expected payroll taxes in Sweden.
While Spotify has definitely beat out its competitor in terms of market dominance and brand recognition, the company is struggling to turn a profit from its freemium business model. Its latest expansion is an effort to rapidly increase revenues from premium subscription, which is up 24% at 2020 year end (Variety, 2021).
Spotify’s existing platform supports more than 60 languages and will continue to add more languages to accommodate the emerging Asia, Africa and Latin America markets. There will be need to coordinate beyond localization to lower cost for the company so that they can successfully grab the market shares in the new host countries. In the past, Spotify has acquired music discovery app Tunigo, music intelligence company Echo Nest to build personalized playlists. In recent years, Spotify captured the podcast-listening trend by acquiring podcast networks such as Gimlet Media and Parcast. Perhaps, to do well in markets outside the U.S, Spotify should acquire contents from host countries and redistribute in other countries with the same spoken language.
Resources:
https://variety.com/2021/digital/news/spotify-to-launch-in-85-new-countries-1234912270/
https://newsroom.spotify.com/company-info/
https://www.theverge.com/2012/1/6/2688250/spotify-free-account-restriction-10-hours-per-month
https://qz.com/571007/the-magic-that-makes-spotifys-discover-weekly-playlists-so-damn-good/
