Five Business Lessons Spotify Has Taught Us Over The Years
In 2006, Daniel Ek and Martin Lorentzon spent their autumn planning and discussing the idea of a new business venture. Like us, they played music while working, but on a PC, which always felt like an inappropriate device to fulfill their musical needs. In the middle of all the frustration, they realized the limitation of playing music on a computer. After which, they immediately identified the need for an excellent peer-to-peer music sharing platform. Spotify, a music streaming app with a current valuation of $20 Billion, was founded.
But how did Spotify manage to achieve such a feat?
The answer lies mostly in its marketing mix, particularly product and promotion. Spotify positioned itself as the go-to audio streaming platform for millennials and Gen Zs and aims to deepen its relationship with them. From its User Interface Design to quirky, humorous marketing campaigns, it engages deeply with both artists and listeners.
Besides its marketing acumen, another part of Spotify’s success can be attributed to its business operating model, which is based on the Agile Scrum framework.
While the company bases its operations on Agile principles, its success is not in simply adopting the model itself — but the fact that it developed the model internally over time. Spotify recognized it needed to take a framework like Scrum and tailor, evolve and adapt it to suit its business objectives and culture. That said, if companies try to adopt the Spotify model without looking beyond the model itself, they will fail almost immediately. The model cannot be treated as anything more than as a template it is not an end solution or a one-size-fits-all.
On Spotify, you can pretty much find anything you want.
From inspiring chill out tunes to the latest trending hits, the service really does offer a wide and eclectic selection of music. Millions of people choose Spotify over other music services, such as iTunes, and there are plenty of reasons for this. It is worth nothing, that despite competitor inroads, Spotify remains the undisputed category leader. For observers it is difficult to digest, for in this case the market leader is a David rather than a Goliath.
Everyone uses Spotify. Even people who don’t use Spotify have thought about using Spotify.
Since its launch, Spotify has been an unquestionable success. But how did they get here? And what can we learn from their journey to the top? Here, we like to keep our eye on superstar brands like Spotify to find actionable insights that you can use in your own business strategies. Spotify is a digital music service with more than 170+ million users. Find out which business strategies this popular service has used to maintain its appeal.
Spotify Tip #1: Don’t Be Afraid to Take a Way-out Approach
Almost 377 billion songs were streamed in 2017, up more than 50 percent from the previous year, according to a report by BuzzAngle Music. That number left song sales in the dust. As the world’s largest music streaming service, Spotify is leading competitors including Apple Music and Pandora — and although it wasn’t technically the first of its kind (Napster launched in 1999), the company aimed to revolutionize music streaming with easier access for consumers and a new idea for turning a profit.
Whatever your business, do something differently — or better — than everyone else.
That kind of “different or better” approach is a good way to frame your own business idea, and one key is often finding your niche and solving a chief problem. For example, Netflix’s original incarnation — allowing consumers to rent and return movies via snail mail — capitalized on a problem in the industry and offered a solution. Once you’ve got a business plan, practice your elevator pitch that clearly details why your idea is different and which problem you’re solving.
Your business doesn’t have to be the first to market; it just needs to find the sweet spot between what is currently available and what users actually want.
By leveraging market and industry research, Spotify broke through marketplace barriers by understanding what did and didn’t work. The company was entering a space that was full of tough competitors. Pandora, a leader in the category, provided a certain number of free hours of listening per month (with advertising), but it didn’t allow users to pick a particular song to listen to. Rhapsody costs $10 per month to begin listening, but users could play specific songs and create playlists. This initial cost seriously limited its user base, making it the choice for only serious music aficionados. So, what did users want? They wanted a social, cloud-based music service that allowed them to listen to any artist or song for free. Spotify worked hard to find a competitive edge by creating a solution that gave both casual and dedicated listeners options, creating a large user base.
Spotify saw a problem that no one even realized they had yet.
They realized that the format that music was distributed in restricted the amount of time you could listen to it, where you could listen to it, and who you could listen to in one session. On a typical CD you can only listen to 60- 90 minutes of music, and only when you have a CD player. Mostly, you can only listen to the same artists, or a variety of artists and songs chosen by someone else and not necessarily to your taste. Where most people accepted this as a slight irritation to live with, they used this frustration as fuel for innovation. Spotify didn’t accept that this was the way things are done in the music industry, they changed the way it was done.
Spotify saw an opportunity where others saw a problem.
Most music distributers and musicians saw the impact of the internet on music and the increasing trend of illegal streaming as a problem. Spotify, on the other hand, embraced these trends and used it to create a solution that addresses these unexpressed needs of the consumers, while at the same time helping the musicians create more great music and market themselves. Obstacles are inevitable in the business world, but when you gain the right perspective, they become opportunities for even greater success. Only after we overcome struggles does it become clear that success can come as a direct result. In fact, dealing with obstacles of varying degrees and urgency is a requirement to succeed in both life and business.
Spotify Tip #2: Focus on the Social
Spotify has a ‘friends’ feature which enables you to interact with peers and connect to Facebook friends who are also subscribed to the service. You can recommend music to one another, send music and also browse their music history, making the music-listening experience more social and interactive.
If you want to execute a successful business strategy, you need to be social in everything that you do.
Add social media buttons to the pages of your website and email marketing campaigns. Users who want to interact with your brand need to be able to find you on social media; once there, it’s essential that you interact with those users by replying to all comments and engaging in conversations. Using invite-only access to drive momentum, Spotify created a powerful viral trial audience before it launched to the rest of the world. Users had to receive an invite from a current Spotify user. Twitter, Facebook, and other social media platforms buzzed with people looking for invitations to the service. Spotify let its audience help market and create demand for the service organically. If early users feel like they are part of the development process, they will be more likely to spread the word.
If you’re just starting a business, you know that social media marketing is a great way to increase your brand awareness.
It’s affordable and effective, and it has a low barrier to entry. There’s no need to hire an expensive ad agency to promote your site on Facebook, Twitter, or Instagram. It’s so effective, in fact, that 83% of all marketers have already started using social media to boost sales and brand identity, according to ShortStack. If you want to boost the identity of your startup, social media is the perfect place to start. To get massive results, however, you need to approach things a little differently from the rest of the crowd. These unusual tactics will skyrocket your business’s presence on whatever social platforms you’re interested in using.
Spotify has changed the way we socialize with friends, becoming the newest “social network”.
No longer do we have to tell our friends “check out this song I just listened to” instead they can now just follow our playlist, and listen to that one song. On Facebook, you can like your friends’ status updates, but with Spotify, you can like a song your friend was just listening to, or you can listen to it as well — making it as if you are with them enjoying it. Spotify is capitalizing on the fact that music is an item that brings to people together, and that our relationships with music is deeply personal and intimate. Music is a form of self-expression, speaking for us; shaping our identities. Spotify’s integration with social media platforms allows for us to highlight those expressions.
Music is for sharing, and Spotify often highlights this in its marketing campaigns.
By making the streaming service have a great purpose in connecting people through music, the brand gains interest and appreciation from users. Few things can evoke memories like music. Spotify used that emotional connection in a new social media environment to invite users to share their songs and the stories connected to them. Users could upload a photo along with their story and #thatsongwhen hashtag to share on social media, further enhancing the brand’s visibility and reach.
Spotify Tip #3: Only the Agile Survive
Spotify’s core system was originally based on a peer-to-peer network, like Napster, but in 2014 (seven years after its start) Spotify shifted its online IT architecture to client/server, phasing out peer-to-peer. The technical benefits behind Ek’s decision need not be fully grokked; the lesson here for founders is don’t stop evolving, even if it means changing your core. So long as you deliver on your value proposition, users won’t care.
The processes and tools at Spotify support the value of change and agility, with everything clearly defined, and nothing final.
Like a beehive, there is a structured, or rather balanced, kind of chaos, where the processes are constantly changing. The processes support the vision and the people, not the other way around. Where so many organizations drive the organization based on the restrictions of the processes and tools, Spotify changed their entire architecture to support the delivery train concept. The Spotify model is a powerful force propelling Spotify to the massive success that it is today. But its power doesn’t lie in the organizational design; it’s in the Spotify engineering culture.
Those who look at Spotify as the holy grail of business models need to remember that it is a great example of an organisation that has developed and applied Agile principles to its processes, to work within its business model and culture.
The Swedish culture’s egalitarian and frank nature has played a large part in driving Spotify’s path to successful Agile adoption. It’s based on individualism, caring for others and quality of life — but also has a strong focus on clear communication to ensure people aren’t conducting rogue tasks that may impact on overall business objectives. These values are also at the heart of Agile, which cannot be defined by processes or procedure. It’s a holistic approach that is first and foremost informed and driven from within by workplace culture.
Spotify does hack weeks — a practice that I’ve started to see in most growing tech companies.
Unlike other companies though, Spotify doesn’t force people to go in one direction or another — they just provide enough context to people so that they can make informed decisions. An interesting idea that came from a recent hack week is the practice of doing internal company podcasts. As opposed to having strategy discussions in the form of presentations, Spotify publishes their internal discussions as a podcast on their platform — allowing employees to catch up on discussions at their convenience. If Spotify gets to the stage it expects, these podcasts would be invaluable to listen to as people try to understand how Spotify continued to grow its dominance over the audio market.
While the vision is the north star telling you “what” to do, the culture and mindset creates an environment that helps teams know “how” to do it.
A culture might not be tangible, but it can be clearly defined as Spotify has demonstrated. Spotify invested effort in creating two short videos to clarify what is most important to them, and to answer “how” things are done at Spotify, in a similar, unrestricted format than the agile manifesto. It provides a framework for decision making rather than a set of rules to follow. For example, cross-pollination is more important than standardization to Spotify, and community is more important than structure. It doesn’t say that structure is not important, or defines the exact structures to be used, it allows the teams to adapt and use a structure used by other teams when they see value in it.
Spotify Tip #4: Nail it Before You Scale it
Going big and going global is the dream of many entrepreneurs. But before you scale up, you need to ensure you have a repeatable, sustainable, and scalable business model. For most, that means holding off investing in growth until after nailing the initial beachhead market. Marc Andreessen calls this inflection point “product market fit.” Product market fit is the moment that a startup has found a way to make lots of revenue while spending little on customer acquisition.
A company can scale after reaching product market fit, knowing that each new customer not only leads to revenue but ideally to profit.
Finding low-cost channels to acquire customers while at the same time finding ways to increase customers’ lifetime value is the key to product market fit. Spotify found its model in Sweden and only then expanded to the U.S. Premature scaling (for example, hiring a sales force before the product is ready to be sold) is the number one killer of startups, according to the Startup Genome Project. You want to grow your venture as quickly as possible, but doing so out of balance will not turn your company into the next Spotify.
It’s obvious that the easiest way to beat someone at their own game is with a solid strategy.
Business is no different, but the process of crafting a good plan isn’t always so clear. The foundation of your success comes from the knowledge you gain about what your customers want. Your secret weapon against failure is careful observation of your customer’s purchasing habits. Consider how you can adjust your strategy to meet their needs. Once you have that, continue to modify it into a reproducible business model. In your business’s early stages, your plan will likely go through many changes, and that’s normal. But don’t take too long to craft a more solid long-term model.
Growing a successful startup takes time. As a founder, to go the distance you must remember you’re running a marathon, not a series of sprints.
Unlike your product development teams, working in sprints just won’t work and will only result in burnout for founders. Entrepreneurs are easily consumed by the finish line, but part of scaling is learning to pace yourself and remain calm throughout the journey. It takes endurance and resilience — including recognizing pain points early and finding solutions to build strong foundations for the future. Additionally, by testing the waters with a minimum viable product that’s localized to suit each market, it will soon become clear which regions are the best fit for your product. If your business fails in one, move on quickly. If it thrives in another, then you can start investing money with higher confidence in returns.
Y Combinator founder Paul Graham promotes the motto “Make something people want.”
Paradoxically, research shows that the natural tendencies of entrepreneurs jeopardize that mission, every step of the way. The conventional, “build it and then sell it” process doesn’t work because entrepreneurs start out with a guess . Building a product based on a guess is a game of Russian roulette. Entrepreneurs must search for the right problem and the right solution. 90% of businesses fail because they can’t get anyone to buy it, not because they can’t build it. Do not waste time pursuing an idea that’s not a true opportunity; fail fast. Be dispassionate enough to let go and move on.
Spotify Tip #5: Keep Things Simple
Spotify has a simple pricing model that you can explain to anyone. They have two plans: a free and a premium plan. The premium plan then has a further option for a family plan. I particularly like their free plan because it provides access to their app to anyone who wants to use it. If you don’t mind the ads and limitations, you can listen to as much music as you want. I’m pretty sure Spotify could figure out multiple plans based on specific features, but they have kept their pricing simple for a reason: it works.
In a growing startup, you have a few things completely within your control; and a ton of things not within your control.
I’ve seen this mistake way too often: as a startup grows, it willingly infuses unnecessary internal complexity where it doesn’t have to. The end product is a labyrinth of external forces and circumstances, trying to be solved and navigated by an equally confusing and convoluted internal ecosystem. I see this most often as startups scale, and begin to flesh out and fill in their org charts. Setting aside the ins-and-outs of hiring and incentivizing, the maze that often becomes early-stage orgs is damaging to those who are shuffled around within them, those who have to operate cross-functionally, and even to those placed at the helm.
Building successful startups is not easy. That is why only one in ten startups actually succeed.
But if you are going to have any chance of success, you need to K.I.S.S.—Keep It Simple Stupid. You have to boil your idea down to one specific thing, and stay religiously focused on that end goal. Which means not getting distracted by the various “flavors of the month” that can lead you down rabbit holes and stress out your organization in the process. Stop what you are doing, take a breath and re-assess everything you are doing today. Is everything as simple and laser-focused as it can be? If not, you have some fixing to do. And, oftentimes, entrepreneurs are simply too close to their own business to clearly focus. So, maybe you need a non-biased outsider to come in with a fresh set of eyes, to help you navigate the forest through the trees. If you K.I.S.S. your business, good things will surely follow.
Human nature is such that we have an urge to complicate things.
We think it shows off our abilities, sophistication, and intelligence. We hide behind complexity to mask our insecurities. We think that if we only do the simple stuff, we are “naked” — there is nothing special to distinguish us and we are replaceable. However, simplicity, success and customer delight go together because, when you keep things simple, they tend to be robust — less goes wrong, and there is less to maintain and less to breakdown. Simplicity leads to accuracy, reliability, and lots of “up time.”
Good businesses solve simple problems well. Too many start-ups seem to think they can solve every problem.
A good product can get way too complicated way too fast. Keep things simple. Have a clear idea of the problem you want to solve and find the simplest, most elegant way to do it without tacking on a million other features. Your customers will thank you. Spending money on things you don’t need to create a business that is too complex for what you really want to do is a waste of time and finances and could spell the end of your business before it has had a chance to start. Keep things simple and build up to growth rather than throwing everything at your startup all at once – slow and steady wins the race, after all.
Not all founders dream of billion-dollar IPOs, but all entrepreneurs can learn lots from reviewing Spotify’s journey from startup zero to IPO hero. Presently Spotify is not just a music streaming app but an audio business. This aggressive expansion is another huge reason why it is on our phones today. Emerging out of frustration and personal experiences, Spotify teaches us not to believe in general theories of wisdom but to manifest our ideas.
Spotify isn’t an accident. The music streaming business is riddled with the corpses of other services that couldn’t make it.
Spotify has built an objectively great product and supported that with effective deal-making with music labels and artists. There’s no question about it: Spotify is a giant. The massive brand continues to enjoy widespread and well-deserved success and recognition. While you might think that kind of success is intimidating and unrealistic for you, you have to know that Spotify’s business strategies can be easily translated into results for your own business.
Giving consumers access to virtually any song they’d like to hear — at any time and for free — may not sound like a business model tech startups would be quick to emulate.
But the truth is that Spotify’s model is focused on more than free streaming. Startups across the board can learn from the company’s strategic product launch. Spotify isn’t in the business of free music; it’s in the business of using free music to drive subscriptions, upsell, harvest valuable data, and ultimately, make money. Any startup can learn from these strategic principles to drive the bottom line.
Spotify isn’t successful merely because you can play music reliability. That’s table stakes in this business.
The Spotify brand identity revolves around the phrase the right music for every moment with the guiding principles of being easy, personal, and fun. Then, Spotify realized that they are pretty good at delivering music, and they are now moving into other audio content forms. This is an excellent example of doubling down on success instead of trying to build on failures. In your business, are you exploiting what is working and trying to do more of it?
It is clear to see that given their various approaches, Spotify will most certainly be able to maintain its huge market share for the next couple years.
The emergence of Spotify as the leader of the music streaming industry can be best described as groundbreaking. Their rebellious idea of disrupting the music industry and making music “free” for everyone was downright crazy. However, as simple as the idea sounded, it proved to be a real game-changer in the days to come. Earshare is the new mindshare! What do you think about Spotify and its success? I’d like to hear you in the comments below 🙂
Digital Dandy. Hacker From Heart. Workaholic. Coding Artist. Self-made.