The secret of Spotify’s public market debut is actually an acquisition made in 2014. The Echo Nest also powered the musical recommendations of Beats Music, Rdio, Vevo and iHeartRadio before Spotify subtracted them by buying them for reported $ 100 million – 90 percent in Spotify equity. This agreement was very conclusive because it turned the startup of a fearsome search box for 35 million songs into a custom mixtape.
Today, in the Spotify SEC deposit to become public through an unusual direct list, the company writes that “a key differentiator between Spotify and other music content providers is our ability to predict the music that our users will enjoy. Our system for predicting music preferences of users and selecting music to suit the individual musical tastes of our users is based on advanced data analysis systems. and our proprietary algorithms. “
This data comes from The Echo Nest. 200 petabytes of user behavior data to be exact. Compared to the 60 petabytes of Netflix in 2016, Spotify records 150 billion reads, shares, hops, follow ups and other daily signals that refine its recommendations.
All of this feeds Spotify’s popular Playlists like Rap Caviar that consume 31% of users’ listening time, versus 20% two years ago, and the Discover Weekly algorithmic playlist that allows them to to store music. Always knowing what to play next, Spotify has soared to 159 million active users per month (up 29 percent year-over-year) and to 71 million paying subscribers (up 46 percent year-over-year ).
These users are loyal and spend 25 hours a month streaming Spotify content. Only 5.1% of subscribers go out every month – a low rate for a subscription service that went from 7.5% two years ago. Spotify accounted for 42% of worldwide streaming in 2016, and in 2017, its subscription fees and ads earned $ 4.09 billion in revenue.
But most importantly, these recommendations are what makes Spotify the streaming service for serious listeners in the midst of an incredibly crowded competition field. “W think Spotify differentiates itself from other services because we offer users a more personalized experience, driven by powerful search engines and music discovery,” Spotify CEO Daniel Ek writes in his letter to potential investors . With similar catalogs and reading functions, his understanding of Spotify about what we want to hear prevents people from getting lost.
And there are plenty of places to go astray. Apple and Google pre-install and promote their streaming apps on their mobile operating systems, while charging Spotify a tax on subscriptions purchased through its platforms. YouTube’s vast catalog of legally gray videos and eye-catching videos attracts the youngest listeners. SoundCloud offers the latest emerging artists. Amazon uses its Echo speakers and premium subscriptions to get its music service to millions of homes. And there are still CDs, LPs, MP3s, iTunes downloads, FM and satellite radio, and strong online radio services like Pandora.
But none combines the dedicated musical recommendation prowess that Spotify has created with demand-dial users and a free, ad-supported level to attract people. “With access to unprecedented amounts of data and ideas, we are building audiences for every type of artist at every level of fame and exposing fans to a world of songs” Daniel Ek, CEO from Spotify, written in his letter to investors.
And because music lovers trust the application to tell them what to play, Spotify has managed to develop some leverage to negotiate with record companies and rights organizations that control the content that it broadcasts. Spotify can promote any music that he wants, replacing the top 40 radio as the most crucial success maker in the business. In addition, his ads and revenue generated by subscriptions have helped transform the music industry after hacking MP3s and the 1-dollar ungrouped singles have cracked the post-CD landscape. The musicians and their management are finally starting to need Spotify as much as they need it.
This is the only reason why Spotify can become public despite its reliance on these rights holders. If not, they could just increase their license and royalty rates, and if Spotify refused to pay, they could shoot their music. This is particularly worrisome for a public company with all its financial information laid bare. Earn too much profit, and rights holders would reduce it to size. But they will play well since Spotify selects what becomes popular.
The democratization of music creation and distribution requires a new layer of preservation that Spotify wants to provide. “The old model favored some porters, the artists had to be signed on a label, they needed to access a recording studio, and they had to be played on terrestrial radio to be successful.” , writes Ek. Nowadays, with so much content coming out, “the greatest challenge for artists is to navigate this complexity to be heard. We believe that Spotify allows them to break through. “
To keep his crown, however, Spotify will have to keep one length ahead of everyone’s recommendations. Its public ranking lists top brands, bank accounts, hardware and app stores as significant risks. While Spotify has almost twice as many Apple Music subscribers, the competitor is growing rapidly by offering free one – month trials, paying for exclusive access to blockbuster albums and pre – loading the albums. application on iPhones. Apple has released a profit of $ 20 billion in the last quarter, while Spotify has lost $ 4 billion so far.
Spotify will not only bring out the best content, but also create it. By producing proprietary audio and video internally, it could appeal to subscribers and avoid royalty payments. Spotify will have to understand not only what we want to hear, but what we want to see. By displaying better factoids, lyrics, slideshows, etc., behind the music, we could add a unique dimension to the same songs released elsewhere. And it must be considered a true ally for musicians, podcasters, videographers and beyond. By winning their hearts, Spotify could get them to promote the content of their content that lives elsewhere too.
Surrounded by tech titans, Spotify could still be the long-term underdog. But by becoming the DJ of the world, Spotify is imposed as indispensable to the music industry. This jukebox sounds for your money.
Take a look at all the TechCrunch stories about Spotify in public and read our featured article “How Spotify finally wins from”. influence on labels “