Spotify Case Study
The Premium model ‘Give your service away for free, possibly ad supported but maybe not, acquire a lot of customers very efficiently ” then offer premium priced value added services or an enhanced version of your service to your customer base. Fred Wilson, (2006). Premium is a word which appeared for the first time on the Fred Willow’s Blob :www.
PVC. Com, 2006). The word is a contraction of “Free” and “Premium”, which means offering premium subscription and enables at the same time another kind of users to listen to streaming music for free.According to the Co-Founder of the Hub Copenhagen Peter Forbore (2012), the Premium business model is based on the Med expansion of a free offer to reach a large customers database and subsequently generate incomes by selling a Premium offer to a number of specific users. Contrary o the original meaning of its name may suggest, the primary goal of Premium is to generate profit and not distribute a product or service for free. The Premium business model is based on a famous concept of micro-economics: the theory of the economy of scale; the lower the price is, the higher the production and the cost advantages will be.In other words, With the Premium model, we increase the offer of the service by lowering its price to make it free.
Thus, we maximize the demand for the good that will be an additional service feature (the Premium subscription). According to the author David E. O’Connor (2004),” A decrease in the price of a complementary good will cause an increase in demand for the related good and vice ‘eras”. Therefore, the user can test the offer and assess if the asking price for the Premium service for example, is in agreement with the utility that will take back. 2. He Porter’s Model: ‘Competitive Advantage introduces the concept of the value chain, a general Framework for thinking strategically about the activities involved in any business and assessing their relative cost and role in differentiation”. Michael Porter, (1985).
Negotiation power of clients: As a company in the streaming music Industry, it is essential to have a competitive advantage in order to stay in the run. Indeed, a big competition is established between all the companies which are using more or less the same business model. In the streaming music Industry, it is easier for clients to make implicit bargaining.Indeed, the more subscribers a company has, the more music labels will be in service for users and the company will be more competitive. Spottily understood very well that is really important to have an advantage compare to the competitive companies: Indeed, the company has a partnership with Backbone which push customers, when they subscribe to use Spottily (even for a free use), to create a Backbone account or to log in on the website. With this business strategy, Spottily expands its notoriety on the Backbone website, because users can share their plastic with Backbone friends.Finally, Spottily offers three different products categories, (Free, Unlimited and Premium), which drives customers to be less able to bargain as many options open to them with a real choice of music and services.
Negotiation power of suppliers: advertising agencies and sponsors. It is the same as for customers but from the other side: the more subscribers you have, the more renowned your company will be and Ho will have a lot of suppliers interested in your business. The advertising that Backbone make for Spottily is one of the best ways to have more subscribers in a long- term.If the company has more users, it will definitely be more music labels to offer on the website. Over the business of musical choices, Spottily will have more subscribers: this is called a virtuous circle. Threat of substitute products: ‘Go faster than the music. This is exactly what happens in each Industry where everything is moving so fast.
Clients, companies, music, technology and innovation are changing every day; it could be possible to see in few months substitute ideas of the streaming music, like streaming music replaced CD sales few years ago.With this kind of market, Spottily has managed to make a name in the streaming music industry, distinguishing itself from others and getting closer every year more and more from the Leader. The music library of the company is growing each year and attracts more and more subscribers. Wreath of new competitors: or avoid the entry of new competitors, the actual companies on the market have to put barriers to strengthen their image, investments, notoriety and to fight against ‘new entrances”.Nowadays, a new entrant in the industry can hardly hamper the reputation of Spottily; indeed, with three different categories of products (Premium, Unlimited, and Premium), a partnership with Backbone, a growing music library, and the possibility to share plastic with friends, the company tries to find competitive advantages to differentiate itself from competitors. Competitively, Rivalry: In this market, the rivalry is defined by the desire to have always more than other firms: more advertising, more music labels, more music library, and more options for customers.The problem is that in always wanting more, it happens so-called discomposes of scale.
Therefore, the more a company tries to develop and grow against its competitors, at a specific time this will lead to an increase in cost of production. By definition, if production costs increase, the company must increase its prices and therefore increase sales offers to customers. In the case of Spottily, the many has a real interesting strategy, because it combines cost savings, competitive offers, economies of scale, increase in users, increase in number of available music tracks and interesting partnership with giant.According to Michael Porter, if a company gets to go against all these threats that exist on the market and finally find true competitive advantage, the company can only be successful. Competitive advantage? Spottily can achieve real competitive advantages because it is a company which had the idea to use social networks, one of the most used tools in the world. Indeed, as Mitten before, in contrast of the others streaming music websites, new Spottily subscribers have to be on Backbone to sign-up on Spottily website.Otherwise, this strategy helps to rejuvenate the brand image of the website, to make it more competitive, because each user can share their playbills on Backbone in order to itself from others who only offer to like their Backbone pages.
Moreover, this tool allows introduce new artists and therefore to advertise these artists still unknown to the general public. This is one of the most interesting ways to do advertising. Spottily evolved with the society and as we all know the music industry is one of the markets Inhere everything evolves very quickly and a company created a year ago may have disappeared after six months. . Recommendations: According to the Wall Street Journal (201 1), Spottily had big loss in 2011, with more than $59 million of losses on about $245 million in revenues. Even for a start-up, these kinds of losses are really important and it is so different regarding the notoriety of Spottily since its launch in 2008. The company is aware of its losses, but not discouraged, however, and continues to grow.
One of the key recommendations that could be made is that Spottily rethink its strategy in a profit point of view. In fact, the company has net revenue very important each year but lost money in things like royalties.Indeed, according to Sam Handmade, founder and CEO of the company Proviso’s, “the biggest problem of the start-up is that every dollar she earns as revenue, 98 cents are paid in royalties”. Seen in this light, we recommend Spottily to Increase the price of subscriptions for the Premium option, because the company cannot stop paying royalties, or cannot increase the number of advertisements teens each song (this option would undermine the influence on the website because too much commercials would make it impossible to read music).Conclusion: As a conclusion, Spottily is a company who reached its target in five years and succeeded to establish its strategy and its business model in a really competitive market. As a start-up, the company had to manage competitive advantage to optimism its growth and build its notoriety. The streaming music Industry is one of the most competitive markets, with more than a hundred of streaming music services around the world.
Be renowned in such competitive market is to be different from competitors in order to achieve more profits, more subscriptions and better music labels.The Information and Communication of Technologies (ACT) of Spottily could be improved in the future. The treatment of the music on the Spottily website provided to users could be improved to expand the number of subscribers. It could be a real competitive advantage. In addition, the dissemination of music on his website can also be improved by offering even more music labels and reducing such parasites Inch inhibit listening subscribers.