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Insights: Positives and Pitfalls of Spotify's Streaming Revolution

July 15, 2019 00:00 AM UTC
- Updated May 06, 2020 17:12 PM UTC

The streaming platform once derided for destroying an industry is now hailed for rescuing it. Can now-public Spotify discover profits? And how does its foray into podcasts figure?

ALEX NORSTROM: So if you look back in time, let's say 20 years ago, there were roughly 20,000 to 30,000 artists that were living off of their art. And cost of distribution was high. So you saw that the money went for the proven artists. And you couldn't really fault the industry for that, right? So at the same time, on the customer side, an album cost 15 bucks on average. And so you'd think twice before you would go for a new artist. Today, that cost is virtually zero, right? So just on Spotify alone, we have 11 billion artist discoveries every month, which literally means that there are 11 billion chances for artists like Fletcher to gain a new fan. So I think we've come a long way from what you described. If you peek a little bit under the hood, there are really three things that power the business models. One is Freemium. So you have the free product, and then you have separately also the premium product. And these are complementary products, right? So you start out on free, and eventually if you want more control and desire all the extras, you move on to premium. So the separate but complementary nature. And then you have ubiquity, which is hugely important for us. As an independent company early on, we decided we're going to be everywhere where our listeners are, right? Not tied to one specific ecosystem, because in the post PC era, people tend to have multiple devices, and they change them out over time. Thirdly, personalization-- also key to our business. We wanted to make a product that would improve on itself over time. All right, so for instance, a playlist would, because of our investments in machine learning and algorithms, improve over time. And if they get better over time, you will then stick around for longer. And if you do that, that's good business for us. So those are the three things that are really kind of making up our model and power the kind of growth of new things like Discovery Weekly and Summer Rewind and all these things that we put on top of this.