spotify Business Model – How does spotify make money

The music industry is one of the biggest industries in the world. Since the beginning of civilization, music has played a major role in people’s lives. It has evolved through thousands of years around the world. Listening to music is one of the most refreshing things that a person can do after a long day of work. Not only that but if you look at closely music is a big part of our day to day life. People play music while they are working at home or working out in the gym. Many people also listen to music while working at their office as it helps them focus on their work. It doesn’t matter which part of the world you are living in, you need music in your life. You play music at birthday parties, marriages, and even at funerals. That’s how important music is to us because it conveys something that cannot be expressed in words. 

Over the years music has changed drastically. Not only music has changed but also the way of producing music has also changed. Along with this changed the way people are able to access it. If you remember your childhood you couldn’t listen to music using your mobile phones. The only way you do it is through cassette tapes or DVDs and CDs. If you go further back you didn’t even have that. You had to listen to music either through radio or gramophone. But in this generation, music is more accessible than ever before. All you need is a mobile phone and an SD card. You download all the songs from your favorite artists. 

However, even this trend is fading away. Now people are more interested in listening to music online. This is because they will have access to all the songs of every artist they know and more importantly it doesn’t occupy any space in their mobile phones. The rise and availability of the internet made it easier for people to stream music and movies. More than videos it is easy to stream music so people are more interested in using platforms that allow them to stream music. Even you might have a music streaming application on your mobile. This article is also about music streaming application. The application is Spotify, which is one of the biggest audio streaming services in the world currently. This article will tell you about the business model of the company and how it makes money. Before that let’s know a little bit about the company itself. 

What is Spotify?

Spotify is a Swedish audio streaming service that was founded by Daniel Ek and Martin Lorentzon in 2006 which is more than a decade ago. But the platform was not launched until 2008. It was not all smooth for the company in the beginning. Spotify has to suffer huge losses in the initial years. It was initially only available for the people in the United Kingdom where it was completely free. But after they incurred losses they made it invite-only. After that, they launched their subscription service wherein users have to pay a monthly subscription fee to get access to unlimited streaming. In 2011 it ventured into the United States where it offered people a free trial for six months after which the users had to buy the subscription if they wanted the option of unlimited streaming. However, the next year it removed this plan and made it a freemium platform that allowed users to stream unlimited music but not of the highest quality. 

The highest quality of music streaming was only available for the people who had a subscription. Soon the company started to see an increase in the number of users using their platform on a daily basis. Not only that but they have also seen an increase in the number of users who are getting a subscription plan. The number of users who are using the platform and those who were getting a subscription did not. Apart from that, the company was also helping the music industry as it was more efficient in getting the labels and artists money, compared to album sales or paid downloads. 

Not only Spotify but also many such platforms were helping the music industry by paying royalties to the artists and labels who produced music. The revenue through streaming platforms like Spotify for music increased more than 50% in the year 2016 and it is only going up. Spotify is available to download both on mobile devices and computers irrespective of the operating system. All you have to do is download the app and stream the music you like. It has millions of songs in various languages. Spotify buys the licenses from labels to stream music through their platform and pays royalties in return. But the amount of royalty paid to each label or artist is different.

Business model of Spotify 

Spotify has more than 130 million users around the world which is a very large number for a streaming service. These users are the key reason for the success of this platform. But there are a few things that made this platform so popular. Let’s look at those things that are the core of its business model.

Music streaming for free

This is perhaps the most important reason why the platform is so popular today. There is a growing trend of using music streaming applications among millennials. As you know most of them are college students and teenagers so they cannot afford to pay a subscription fee. But what they can do is use these freemium music streaming platforms and make them popular. Not only millennials but there are lots of people who use Spotify just because it is free.  Because it is free it is easily accessible to everyone and after using it for a while people might want to get a subscription to get a better user experience. Streaming music for free may not generate any revenue for Spotify but it does help it a lot in increasing its popularity and promoting it. 

Uninterrupted music streaming

This is another big reason why Spotify has become so popular. You see music streaming platforms are not new. There are many music streaming platforms online but there is a reason why they haven’t become so popular. It is hard for people to stream music through them without any interruption. People needed a really good internet connection to stream music through them. But Spotify is not like that. It has made sure that it incorporated technology that allowed people to stream music without any delay. Rather than streaming the music directly through its servers, Spotify sees if the users near that region have caches of songs requested by others. Spotify does this through various techniques. One of the ways it does this by looking at the searches and social networking sites used by the users. If they find the song then they play it using that cache. 

A vast library of music

Spotify has a large collection of music. This music is not just in English. It has songs in all major languages of the world. There are more than 50 million songs on Spotify. So it doesn’t matter which country you are from you can use Spotify. This is because the platform does not stream music just in English but also in the regional languages of other countries. It is an important step by Spotify to become one of the best music streaming platforms in the world. This also allows it to reach a wider audience. Not just music but Spotify also has hundreds of thousands of podcasts. In a way, it has helped popularize podcasting. 

How does Spotify make money?

There are two ways in which Spotify makes money, that is advertisements and subscriptions. Let’s go through them one by one.

Subscriptions

Most of the revenue earned by the company comes from subscriptions. It has different subscription plans to suit the needs of different individuals. Here are the subscription plans of Spotify.

Individual

This plan is only for one person as it supports only one account. It is priced at $9.99/month. The best part about this is you get a three-month free trial before using the subscription plan. This allows the individual to stream ad-free music and also allows them to play music offline along with on-demand playback.

Duo

This plan is meant for two people as it supports two accounts. It is priced at 12.99/month with a one-month free trial. It offers all the features that the individual plan has. Along with that it regularly updates music that you both enjoy. 

Family

This Subscription plan id is great if you want a plan for your entire family. The family plan costs $14.99/month and supports six accounts. Not only do you get all the features of the other two plans but also get additional features. You will have the ability to block explicit music that you don’t want your child to listen to. Apart from that, you can also use Spotify kids which are specifically designed for children

Advertisements

This is the most common way in which online platforms are making money these days. Spotify runs different types of ads. But these ads are only seen by people who do not have an active subscription plan. Here are the different types of ads that are run by Spotify.

Sponsored sessions

These are the ads that play a video before allowing you to continue streaming. This type of ad allows the companies to show the users the product they are offering. You will often find advertisements for Netflix and other companies in Sponsored sessions. 

Display ads

These are the ads that pop-up at the bottom of the screen when you are playing music. These are shown for thirty seconds. You will also see such ads after you return to the app.

Audio ads

These ads are similar to video ads except there are no visuals. These are usually promoting a product or a podcast present on Spotify. They also promote albums of other artists. 

Conclusion

This is the business model of Spotify. It is mostly a subscription-based business model. Spotify has been very instrumental in helping smaller artists get some money and recognition by providing them a platform. Every day thousands of new songs are being uploaded to Spotify in different languages. As its library grows more and more people will be using the platform. This trend of streaming music online is not going anywhere so you can only see the platform grow in the coming years. You can also know about the business model of other companies on Zeen. Click here if you want to know the business model of Apple. If you are interested to know who owns Spotify click here.

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