A measure of great success is when a company name is turned into a concept. Internet users say that they are googling – not searching on the internet, and many entrepreneurs now say that they’re building a “Spotify for...” as they try to sell their business concept to venture capitalists.
Spotify’s journey from a Stockholm apartment – so hot from the servers that the programmers were forced to sit shirtless in front of their keyboards – to today’s influential and successful global company has become the topic of countless articles and books.
Some aspects are that often described as being crucial success factors are: an early focus on user experience, smart and skilled negotiations with the big record labels and – as for many successful tech companies – timing.
“Remember that Spotify was launched when the music industry was in deep crisis because pirate downloading of music on platforms such as Napster and Pirate Bay was the way people were consuming music – and it was free. Technology development had in a really short space of time created entirely new user behaviour where the access model replaced ownership and it was considered impossible for people to go back to buying music in a format such as a CD,” says Martin Lorentzon.
Although it was already possible to find music on file-sharing networks, people had to wait until the songs were downloaded on their computer. Spotify decided to build a way to get rid of the wait.
“Every successful product or company needs a magic trick – something that differentiates it from what’s already on the market. In Spotify’s case it was speed. It was supposed to feel as if all the music in the world was already on your computer or phone, and that the start-up time from clicking on “play” until the music began playing would feel as quick as lightning with no delay at all. One of the big challenges was therefore to reduce the start-time to as few as 250 milliseconds, which is what we humans perceive as instant,” said Martin Lorentzon.
But reducing the wait is far from the only technical innovation that made Spotify huge. At the beginning the only way to navigate an ocean of music was in a search box. That meant that the users initially found music or artists they already knew about and liked, or had at least heard of.
When Spotify opened its platform and allowed other companies to build music services on top of it, one of the success stories was Tunigo, a company that created niche playlists that users could subscribe to. In the end Spotify purchased Tunigo in 2013 and later built on the idea by helping listeners find music through playlists created by both humans and algorithms.
Moving away from desktops was also important. Daniel Ek and Martin Lorentzon founded the company in 2006 – in a world flooded with smart phones.
“Early on in Spotify’s journey there was a paradigm shift – user behaviour moved people to a great extent from desktop to mobile phones – people wanted to take music with them, not just listen to it on their computer. We had already attracted a large audience with a legal and revolutionary service as an alternative to illegal downloading, and the artists were being paid. But it was when we introduced the possibility of syncing the songs with an offline mode on phones that we really created an incentive for music-lovers to start paying for music through Spotify Premium,” says Martin Lorentzon.
As for all tech companies, there was more to Spotify than a good product. It needed to work from a commercial perspective as well. For Spotify the challenge was particularly complex because the company didn’t own the rights to the music that would be distributed via the service.
Spotify’s first employees therefore included not only skilled programmers but also lawyers. Many and long negotiations resulted in the end in a structure where, among other things, some of the biggest record labels became shareholders in Spotify. The business model was first tested in a few smaller markets. When it proved to be working, Spotify could start its global expansion in earnest.
“Our main challenge, apart from obtaining music licences to launch the service, was to convince users to start paying for music again. It was therefore incredibly important for us to be able to offer a paid version for SEK 99/month and a free version with advertising to attract people and get them to start using Spotify. When we introduced the two-model offering we saw a clear correlation where the more people using the service, the more likely it was for them to switch to becoming paying users.
What were the defining moments?
“There have of course been many over the years and the value of a company is the sum of the problems it can solve. But two things that stand out are when we managed to secure venture capital for the company and when we succeeded in obtaining music licences from the record companies”.
At thirteen years of age, Spotify is mainly associated with music, but it has also been possible to listen to podcasts via the service for a while now. Two acquisitions in winter 2019 show that Spotify has ambitions in this area of audio entertainment as well. With the company Gimlet Media, Spotify gained a successful podcast producer, and with Anchor, a service that makes it easy for anyone to launch a podcast. In a blog entry where Daniel Ek announced the acquisition of Gimlet and Anchor, he confirmed that music isn’t any less important for the company. But Ek also provided a wider picture of what Spotify will become.
“In our industry things change fast, but Spotify’s path forward is clear: we want to be the world’s leading audio platform and today is an important step in that direction. Keep listening”.
Education: Left an engineering programme at the Royal Institute of Technology (KTH) after a few months.
Career: Founder of internet marketing company Advertigo in 2005. Sold the company to Tradedoubler in 2006. Worked as CTO at Stardoll. Founded Spotify in 2006.
Distinctions: Inducted into the incubator SUP46’s Swedish Startup Hall of Fame in 2013. Årets Svensk i Världen 2014. Named in 2017 by Billboard as the most powerful person in the music industry.
Education: Civil engineering degree from Chalmers University of Technology.
Career: Founded online advertising company Tradedoubler in 1999 which was listed on the stock exchange in 2005. Founded Spotify in 2006. Member of the board of Telia Sonera 2013–2018.
Distinctions: Årets Svensk i Världen 2014. Conferred an honorary doctorate in engineering at Chalmers University of Technology in 2015 and inducted as a member of IVA in 2016.