In this post, we will conduct a swot analysis of Spotify, the world’s leading music streaming network holding the largest market share globally. The swot analysis will highlight the leading strengths, weaknesses, opportunities and threats before the music streaming network.
SPOTIFY: AN INTRODUCTION
Spotify is the world’s most popular music streaming platform with a strong presence across 182 markets. Its business has expanded rapidly in recent years driven by ITS heavy focus on research and development. The company is based in Luxembourg, Sweden and was founded in 2006.
Over the past few years, the company has experienced strong growth in its subscriber base. It continues to remain the dominant player in the digital music streaming industry despite heavy competition from several tech brands including Apple, Amazon and Google. While the platform is not highly differentiated compared to either Apple Music or Amazon, Spotify continues to enjoy stronger popularity. With more than 180 million paid subscribers, Spotify has experienced solid growth in its subscriber base in 2021.
STRONG BRAND AWARENESS:
Spotify enjoys strong brand awareness across the globe. It distributes its content across more than 180 markets. The company has expanded into several new markets in 2021. As the level of internet usage around the world grow, the company has successfully penetrated new markets to grow its user base. Its popularity as a music streaming network has continued to grow worldwide. The company also uses social media for marketing and growing brand awareness.
STRONG GLOBAL PRESENCE:
Spotify has adopted a digital business model and people can stream music and podcasts from anywhere across the globe using internet enabled devices. As of December 31, 2021 the company had users across 184 countries and territories. The total number of Spotify’s monthly users grew past 400 million in 2021.
DIFFERENTIATED BUSINESS MODEL:
Spotify has adopted a different business model compared to the other players in the industry. However, Google has also used a similar revenue model for YouTube where it offers both paid and ad supported services to users worldwide. Spotify also offers ad supported and premium services. The number of ad-supported users is higher compared to the paid subscribers but the paid-subscribers account for a larger part of the company’s revenue.
Spotify offers a large collection of music labels and podcasts. All users have free access to podcasts. However, the ad supported users have limited access to music labels compared to the paid subscribers. The company uses advertising and other methods to convert its ad supported subscribers to paid subscribers.
STRONG USER LOYALTY:
Spotify enjoys strong popularity. Apart from its customer friendly pricing strategy, the user experience also plays an important role in driving higher user engagement and loyalty. The company is enjoying higher user retention over time driven by the introduction of superior features and functionalities leading to higher user satisfaction.
IMPROVING FINANCIAL PERFORMANCE:
The company has enjoyed impressive growth in revenue over the past few years. Its net revenue grew 16% in 2020 compared to the prior year. In 2021, its net revenue increased 23% compared to the prior year. Spotify enjoyed impressive revenue growth across both the ad supported and premium segments. Its net loss has also declined in 2021. The company incurred a total net loss of only $34 million in 2021 compared to $581 million in 2020.
STRONG TRACK OF ACQUISITIONS:
Spotify has made several acquisitions in its history to grow its market share and improve its competitive advantage. Between 2019 and 2021, the company had made more than half a dozen acquisitions. In 2019, it made three key acquisitions including Gimlet and Parcast. Spotify acquired Megaphone and The Ringer in 2020. Again in 2021, the company has acquired Betty labs and Podz in an effort to strengthen its market position and competitive position.
LARGE COLLECTION OF MUSIC LABELS AND PODCASTS:
Spotify offers one of the largest collections of musical tracks and podcasts. The company offers a total of 82 million tracks including 3.6 million podcasts according to its annual report 2021. According to sources, Spotify offers the second largest collection of musical tracks after Apple, which offers around 90 million tracks.
HISTORY OF LOSSES:
Spotify was founded in 2006. However, the company has not been able to generate a positive net income yet. It incurred the highest net loss of more than $1.2 billion in 2017 and second highest in 2020 at $581 million. Its net loss fell sharply in 2021 at $34 million. However, considering its history of losses, it is still uncertain if the company might be able to generate positive income in recent future.
AD USERS MAIN SOURCE OF SUBSCRIPTION:
Spotify’s largest source of revenue are the paid subscribers of the company. However, the company mainly focuses on marketing to its ad-based users to turn them into paid subscribers. It is why the company has ton continually push for premium subscriptions. Apart from its own platform, the company also uses digital advertisement on other channels to convert ad users into premium subscribers.
LITTLE DIFFERENTIATION COMPARED TO OTHER MUSIC PLATFORMS:
While Spotify is a highly competitive brand, it is not highly differentiated compared to others like Amazon music or Apple Music. Apple offers a larger collection compared to Spotify. However, Spotify has maintained its position by offering free plans and other competitively priced plans. The company has to invest a large sum each year in research and development to maintain its competitive edge. Brands like Apple and Amazon are at the helm of technological innovation in the entire industry which leads to higher competitive pressure and lower level of differentiation.
EXPANDING INTO VIDEO STREAMING:
The music industry is expanding at an impressive rate. Spotify has expanded its range of podcasts to attract more users and maintain its growth momentum. Fans of music videos are there around the world. Spotify can tap into this opportunity by offering music videos on the same platform.
PARTNERSHIPS IN MARKETING AND OTHER STRATEGIC AREAS:
Spotify has no doubt maintained a strong position in the online music streaming industry. It can partner with telecom brands to grow its business and user base. Brands like Netflix and Prime video are already benefitting from such partnerships. It can also partner with celebrities since celebrity endorsements can also lead to higher conversion. Another area, where Spotify can invest to find faster growth is influencer marketing.
EXPANDING INTERNET USAGE AND GROWING DIGITAL MUSIC INDUSTRY:
Worldwide the level of internet usage has grown in the recent years driven by increased penetration of internet technology. This has led to growth in sales of businesses like Spotify, Netflix and other online streaming networks. Apart from that the digital music industry has also experienced impressive growth over the last seven years. Since it reached its inflection point in 2015, global recorded music industry has grown ever since. In 2020, this industry has grown by 7% and reached $22 billion. Industrywide streaming revenues accounted for around 62% of global recorded music revenue in 2020. These are good signs for Spotify as favorable industry environment continues to drive faster growth for its business.
COMPETITIVE RIVALRY WITH DOMINANT TECH BRANDS:
One of the most imminent threats before Spotify is the level of competitive rivalry. Its main competitors are the leading tech brands like Apple, Amazon, and Google. According to reports, Spotify controls around 31% market share in the online music streaming industry. Apple music holds a 15% market share and Amazon music 13% market share in the industry. Over the past two years, its market share has declined by around 3% which can be attributed to several factors including increased competition.
ARTIST DISPUTES AFFECTING IMAGE:
Several big artists have been vocal about Spotify’s payment related issues. Several leading artists like Thom Yorke and Taylor Swift have criticised the online music streaming network heavily in the past. More recently, Neil Young removed his music from the network accusing it of giving a platform to podcaster Joe Rogan who was spreading vaccine misinformation on his show. Such disputes and criticism affect the platform’s image negatively.
While the online streaming industry has grown at an impressive rate, there are also several legal issues and hurdles that affect businesses in this sector. Most of the legal issues that Spotify has faced in its history have been related to copyright infringement and artist royalties. Spotify is still facing some legal battles. Around the world, the legal framework related to online distribution of content has continued to grow stiffer making the situation challenging for businesses like Spotify.
While Spotify has experienced impressive growth in its user base and revenue during recent years, it is also experiencing sharp growth in its operating expenses. The company is operating in a highly competitive industry environment, where it is playing against the likes of Apple, Amazon, and Google. In order to maintain its competitive position and leadership position, the company has to invest a large sum in research and development.
Due to the heavy competition, the scope of differentiation has continued to reduce, and the need to invest in innovation continued to grow. The total cost of revenue for the company increased 21% in 2021 compared to 2020. In 2021, the cost of revenue for Spotify remained $7.1 billion compared to $5.9 billion in 2020.
Spotify is the world’s leading online music streaming platform, which has experienced stronger financial performance and user growth in recent years. The company has continued to increase its investment in research and development to maintain its growth momentum and competitive strength. However, it is operating in a highly competitive industry environment. The online music distribution network has experienced a slow and steady decline in its market share due to intensifying competition in the sector.
During 2021, the company experienced solid growth in its premium subscriber base. Its number of premium subscribers in 2021 was 180 million compared to 155 million in 2020. Premium subscribers are its largest source of revenue and the company mainly converts its ad supported users to premium subscribers to strengthen its premium subscriber base.
The company can expand its business faster by extending its services to video streaming. While Spotify continues to enjoy strong popularity and brand awareness worldwide, it can use its existing advantage to grow its business across new segments.
OTHER SOURCES: SPOTIFY ANNUAL REPORT 2021.
SUGGESTED READING: SPOTIFY GENERIC AND INTENSIVE STRATEGIES