1.0 the strategies that the company used will be

1.0  Introduction

 

In
this introductory part, the company background, vision, mission, and goal will
be stated clearly. Other than that, the type of service of the company will
also be explained briefly.

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1.1 Company Background

 

            The early development of Spotify was
established in 23th April 2006. The headquarters of Spotify is located in
Stockholm, Sweden. Spotify was founded by Daniel Ek and Martin Lorentzon1. The
vision of Spotify is to have music everywhere, whereas the mission of Spotify
is to give people access to all the music they want all the time in a
completely legal and accessible way. Spotify’s goal is to have all the world’s
music.2 Spotify
start the expansion and available in the countries such as Asia Pacific
countries, Europe, Latin America and the Caribbean, United States and Canada.

 

1.2
Type of Services

 

            Spotify is a freemium service of
music streaming. The content of Spotify is derived from major record labels,
independent artists, and pays copyright holders royalties for streamed music. Spotify
gets its revenues from selling the premium streaming subscriptions to the users
and advertisement placements to the third parties. The functions of Spotify are
the users can create, edit, and share playlists, share music on social media,
and make playlist with other users. Through Spotify, the users can access the
music for more than 30 million songs.

           

There
are two types of subscription in Spotify which are Spotify free and Spotify
premium. Spotify free offers unlimited listening time but has some
advertisement, no enhanced sound quality, only available with shuffle mode and
the users cannot listen to the music offline. For the Spotify premium, the
users can listen to music for unlimited time. It also offers free advertisement
which make the users can listen to the songs continuously without having to
listen to any advertisement. Spotify premium allows the users to listen to the
exact song that the users want without having a limited to only shuffle mode in
the playlist and full albums. Furthermore, it provides enhances sound quality
up to 320kbps bitrate which is the high quality sound of music. Spotify premium
users also can listen to offline songs because the users can download the
media.

 

2.0  Analysis

 

In
the analysis part, the strategies that the company used will be analyzed and
determined thoroughly. There are various tools that are used to analyze the
company such as SWOT analysis, Michael Porter 5 forces analysis, PESTLE
analysis and financial ratio analysis.

 

2.1
SWOT Analysis

 

According
to Philip Kotler, the definition of SWOT is the overall assessment of a
business’ strengths, weaknesses, opportunities and threats. “A SWOT analysis is
an organized list of the business’s greatest strengths, weaknesses,
opportunities, and threats.” (Tim Berry) Strengths and weaknesses are internal
to the company whereas opportunities and threats are external to the company.
Below is the SWOT analysis of Spotify:

1.1 Diagram of Spotify SWOT Analysis

2.1.1
Strengths

 

Spotify
is one the first music streaming platform.3 It
makes Spotify gain more trust and loyal consumers as it had a little bit ahead
from the start up. Moreover, Spotify application is very easy to use because
the application able to search and select almost any songs. It is also can be
played through tablets, laptops, PC, and mobile phones. It gives Spotify a
competitive advantage.

 

2.1.2
Weaknesses 

 

            The weakness of Spotify is it only
offer and focus on the music streaming service solely. Other than that, the
weakness of Spotify is the artists get quite a low revenue from Spotify. It is
because Spotify offers free music streaming service and the users do not have
to subscribe or pay to listen to the songs of the artists.

 

 

2.1.3
Opportunities

 

            As markets are expanding, there are
some opportunities for Spotify to diversify the availability. Spotify can
expand to live music streaming live band interview, television programs or
films. It is the opportunity to offer the video streaming into Spotify. 

 

2.1.4
Threats

 

            The biggest threat of Spotify is its
competitors. The competitors of Spotify are iTunes, Amazon, and Sound Cloud. Each
competitors are trusted as well as Spotify. Furthermore, piracy or illegal
music downloads are one of the most concerns and threats for Spotify.

 

2.2
Michael Porter 5 Forces Model Analysis

 

            Five forces model was originally
developed by Michael E. Porter in Harvard Business School 1979. There are five
forces in the Michael Porter’s model which are competitive rivalry, threat of
new entrance, bargaining power of buyers, threat of substitutes, and bargaining
power of suppliers. Below is the Michael Porter 5 forces model analysis of
Spotify:

1.2
Spotify’s Michael Porter 5 Forces Analaysis Model

2.2.1
Competitive rivalry

 

Competitive
rivalry is the influence of competitors to each other. Spotify face a medium
competitive rivalry. Even though Apple Music or iTunes is one of the strong the
competitors of Spotify which is an established brand, however it cannot
overtake the Spotify subscribers. “The competitive advantage that Spotify has
in this situation is the fact that they have a free version that provides the
same exact services and benefits, which other competitors do not have.” (Sarah
de Ferrari, Danielle de Ferrari, Bryce Simantel, and Christine Osazuwa)

 

2.2.2
Threats of new entrants

 

            Threat of new entrant is the force
of the potential of new players in the industry. Spotify face a low threats of
new entrants because the online music streaming market is quite saturated. “Profitability
is a problem which no service has seemed to have adequately solved yet.” (Max
Riesewijk) Therefore, there is a low new entrants because to enter the online
streaming music service, it is quite hard and risky to gain the revenues. It
shows that Spotify has a competitive advantage in this area.

 

2.2.3
Bargaining power of buyers

 

            Bargaining power of buyer is the
force that based on the effect that the individual or group users have on the
business.  Spotify face a low bargaining
power of buyers. “It is because Spotify has the standard, free service provided
to all users and offer the Premium service for those who wish to listen
offline.” (Sarah de Ferrari, Danielle de Ferrari, Bryce Simantel, and Christine
Osazuwa) Although there are many competitors that offer similar online music
streaming services, Spotify still manages to grow the users. Having a free
online streaming music service is a competitive advantage of Spotify that gives
control to the bargaining power of buyers.

2.2.4
Threat of substitutes

 

            Threat of substitute is the force
that gives an impact to the service. The threat of substitute for Spotify is
low because the substitute to listen to music is through radio, mp3 player and
others. “Spotify provide a unique online music streaming service that can
substitute others because the users can create their own customizable playlists
and have unlimited access to over 20 million songs.” (Sarah
de Ferrari, Danielle de Ferrari, Bryce Simantel, and Christine Osazuwa) Low
threat of substitutes give Spotify a competitive advantage.

 

2.2.5
Bargaining power of suppliers

 

            Bargaining power of supplier is the
force that refers to the influence that the suppliers have to the business. The
bargaining power of Spotify is quite low because the suppliers of Spotify are
the labels and artists. “The labels seem to have a positive attitude towards
streaming, since it realized a growth in revenue after more than a decade of
decline in revenue in the recording industry.” (Max Riesewijk) From that,
Spotify and the labels recive mutual benefits.

 

2.3 PESTLE Analysis

 

            The acronym PESTLE stands for six factors that will
affect the business. The factors are politic, economic, social, technological,
environment, and legal. PESTLE analysis is a strategic analysis tools that are
effective to analyze the impacts of external issues. Below is the PESTLE
analysis of Spotify:

Diagram
1.3 PESTLE Analysis of Spotify

 

2.3.1 Politic

 

            Spotify involved in the politic by
launching audio project “I’m with the banned,” that  highlight the artists from Syria, Sudan, Somalia,
Libya, Yemen, and Iran which are the six Muslim majority countries included on
Trump’s travel ban. The goal of the project is to “empower
artists and fans from different cultures to come together, and to amplify the
voices of people and communities that have been silenced.” (Lindsay Maizland,
Jul 7, 2017) It shows that Spotify respond to the current politic issues.

 

2.3.2 Economic

 

            Spotify faces economy issues because
majority of the users are not premium users or paid subscribers. Spotify hardly
gain their revenue because of the payment habits are different in the Asian
countries where owning a credit card is not common as other develop countries.
“For
example in Indonesia and Philippines, the use of credit cards are a rare sight
compared to other develop countries.” (Nikki Wicks, June 18, 2015) The
differences in the economic system of each countries give problems to Spotify.

2.3.3 Social

 

             As people nowadays are more into social media
networking, Spotify sees the social opportunity to integrate the music with the
social media network such as Facebook, Twitter and many more. “Spotify excels
in this area as Twitter has a playlist on Spotify to play songs that are
trending on Twitter” (Sarah de Ferrari, Danielle de Ferrari Bryce Simantel, and
Christine Osazuwa) Other than that, Spotify use social media networking to ease
the users discover new songs, find what friends are listening to and socialize
through music.

 

2.3.4 Technology

 

            Technology revolution is one of the
factors that Spotify faced. As Spotify is an online music streaming service,
technology revolution always need to be replaced with more updated and
modernized materials. “Spotify uses P2P (peer to peer) technology to operate
for legal purposes.” (Mohan Varma Pusapati, June 15, 2014) Spotify also
launched mobile applications in order to keep updated with the technology
changes.

 

2.3.5 Legal

 

            Legal is one of the factors that
become a problem to the Spotify. “Spotify has been available in the United States
of America since it started in 2013, but was not available in Canada until October
2014 due to the legal reasons.” (Annmarie Hanlon, Dec
17, 2014) Spotify face difficulty in setting up the business in Canada because
there was no clarity about the royalty rate.

 

 

 

 

 

2.3.6 Environment

 

            Spotify also take part in the
environment issues or problems around the world. For example when Singapore and
Malaysia were affected with smoke from Indonesia’s forest fires, Spotify aware
of this issues. Spotify responded with a playlist, “Hazed and Confused,”
featuring 40 tracks like Billy Joel’s “We Didn’t Start The Fire” and Maroon 5’s
“Harder to Breathe.” (Kerri Lu, October 31, 2016)

 

2.4 Financial Ratio Analysis

 

            Financial ratio analysis is the
selection, evaluation, and interpretation of financial data along with other
information in order to assist in the investment and financial decision making.
Financial ratio analysis may be used internally to evaluate issues such as
employee performance, the efficiency of the operations, and credit policy
whereas for external use, it can evaluate potential investment and the credit
worthiness of borrowers.4  Financial ratio analysis includes liquidity
ratio, profitability ratio, financial leverage ratio, and efficiency ratio.

 

            For Spotify financial ratio, the
gross profit margin is 15%.5 Gross
profit margin is the ratio that reflects the pricing decision and the service
cost. This ratio also indicates how much of every dollar of sales is left after
cost of goods sold. The calculation for the gross profit margin is by dividing
gross income and net revenue. “If a company has a higher gross profit margin
than is typical of its industry, it likely holds a competitive advantage in
quality, perception or branding, enabling the firm to charge more for its
products.” (Joe Lan, Sept 2012) In the Spotify case, the percentage of the
gross profit margin is quite low compared to the Apple music with 37.91%.6 The
gross profit margin of Spotify is low because it offers low cost for the
subscription fees.

 

3.0  Literature
Review

 

The
literature review section will review the relevant literature and the terms
that are used will be defined and explained in details. The terms and the
literature are based on the previous research or studies, books, articles,
journals, newspapers, and others.

 

3.1 Single streaming

 

            Service that provide single
streaming such as Spotify which only offers music streaming service will not
bring much profit to the company. “A large fault of Spotify is that it does not
offer anything other than music to stream, and in a market full of services
with identical libraries, it would only take one better alternatives to kill
Spotify off.” (Kasiosstone, January 18, 2016) Other competitor such as YouTube
offers not only a single streaming service which is music streaming service but
also offers video streaming service. According to the Max Riesewijk, YouTube is
one of the largest contestants of on-demand music and video streaming, because of
its ease of use, library size and availability without the need of
subscription.

 

3.2 Artists get low revenue

 

“A
number of influential artists for example, Grizzly Bear, The Black Keys and
Galaxie have expressed dissatisfaction with Spotify due to low royalties and
perceived declines in album sales” (Swanson, 2013, p. 8). According to the Wall
Street Journal, Spotify revealed the royalties paid to rights holders each time
a user listens to a song. Rights holders are paid 0.6 cents ($0.006) and 0.84
cents ($0.0084). Fixmer (2012) also stated that some artists only allowed some
of the songs in the album to be played and some other artists hold off
temporarily. 

 

 

 

 

3.3 Different payment habits

 

            “One of the biggest lessons for
Spotify in Asia has been around the payment habits among consumer, where owning
a credit card may not be as common as in other developed markets.” (Nikki
Wicks, June 18, 2015) In Asia countries, the consumers are more preferred to
the traditional payment system which are totally different from other developed
countries such as America. They also tend not to pay for the subscription which
makes the economy of Spotify decrease. “Due to the differences in payment
habits and economy in each of Asia countries, Spotify premium service, priced
at $9.99 per month in the United States, will also be a little cheaper, with
Malaysians getting the lowest price.” (Victoria Ho, April 15, 2013)

 

4.0 Findings

 

In
this finding part, there are several issues or problems that are faced by the
company. The issues and problems will be stated and explained briefly.

 

4.1 Single streaming service

 

Spotify
is just focus to the online streaming music. Spotify only offer music streaming
service. “A large fault of Spotify is that it does not offer anything other
than music to stream, and in a market full of services with identical
libraries, it would only take one better alternatives to kill Spotify off.”
(January 18, 2016) Spotify does not have variety of services to offer to the
consumers which can make the consumer move to another alternatives.

 

 

 

 

 

4.2
Artists get low revenue from Spotify

 

            As Spotify offers free music
streaming service, artists that provide songs to Spotify get quite a low
revenue from Spotify. “The royalties that Spotify pays goes to the record
labels first before reaching the individual artist which makes them get quite a
low royalties.”(Sarah de Ferrari, Danielle de Ferrari Bryce Simantel, &
Christine Osazuwa) It makes some artists against the free music streaming.
This
is a big aspect of why Spotify is losing both artists and users.

 

4.3
Different payment habits among consumer

 

Other
issue that the Spotify faced is the payment habits among consumer, where owning
a credit card may not be as common in Asia as in other developed markets.  The use of credit card in the Asia countries
such as Indonesia and Philippines are a rare sight compared to other develop countries
such as in United Kingdom, America and others. (Nikki Wicks, June 18, 2015) The
consumer finds it difficult to pay for the subscription fees, therefore they
just stay with the basic Spotify free plan which does not give the income to
the Spotify. Spotify lost the revenue because of this matter and it decrease
the economy of Spotify.

 

5.0 Formulation

 

In
this formulation section, there are some recommendations for the issues or
problems that have been found. The formulation includes planning and decision
making. The ideas will be formulated in order to solve the problem.

 

 

 

 

5.1 Expand to video streaming

 

            Instead of having only the music
streaming service, Spotify can offer video streaming service too. Video
streaming is a service that offer accessible and legal video to the users. As
Spotify provide a streaming service, it can expand the service to the video
streaming. Spotify is a trusted streaming service because it is the pioneer to
the music streaming service and the changes to add the video streaming into the
Spotify can give it benefit and competitive advantage.

5.2
Offer benefits to artists

 

            To avoid the problems of artists
taking down their songs which can make the Spotify music library is limited,
Spotify should offers some benefits to the artists that get quite a low revenue
from the free music streaming service that Spotify provides. Spotify should
give rewards to the artists to keep them loyal to the Spotify. Having a loyal
artists on Spotify is important because they are very influential on the
public.

 

5.3 Cash payment and partnering with
telecommunications

 

Instead
of paying the subscription fees through credit cards, Spotify can use other
methods to overcome this problem. The strategy that Spotify can use to solve
the problem is by offering cash payment in Indonesia and Philippines. Besides
that, Spotify need to reach out for partnership with the telecommunications.
Telecommunication partnership is a win-win situation because data is a revenue
stream for telecommunication. By partnering with telecommunication, it is
easier for both users and Spotify.

 

 

 

 

 

6.0 Implementation

 

In
this implementation part, the planning of the ideas for the recommendations to
solve the issues or problems will be implemented. The action will be executed
on how to solve the issues or problems.

 

6.1
Expand to video streaming

 

            Spotify can provide the users with
video streaming services that offer live streaming music, live music shows, live
music awards, live music ceremony, live band interviews, and many more. Spotify
can collaborate with the official channels or broadcasts in order to offer the
live video streaming. Spotify also can include the music video of the songs by
the artists so that the users can listen to the song and watch the video at the
same time. By doing so, Spotify can be more of a strong competitors and gain
the competitive advantage. 

 

6.2 Offer benefits to the artists

 

            Spotify should offer some benefits
to the artists that provide the songs on Spotify such as give reward to the
artist that has the most stream music. The reward can be in terms of
recognition and promote more on the other songs of the artist. Spotify can
create a playlist on the top songs or artist of the month and make it on the
home page so that the users aware and can listen to the songs. By doing so, the
artists will feel appreciated and they will stay loyal to Spotify. At the same
time, the artists can benefit from this as Spotify promote their songs. Thus,
they will feel that the revenue that they receive is fair. Having a loyal
artist can be beneficial to Spotify and also gain competitive advantage.

 

 

 

6.3 Cash payment and partnering with
telecommunications

 

Spotify
can offer the users to pay the subscription via bank transfer, ATM, or at any
convenience stores.  It will ease the
users to pay or the subscription fees even though they do not have the credit
cards. Other than that, partnering with telecommunications. For example in
Philippines, Spotify can partners with Globe telecommunication where the users
or consumers can bundle the payment of Spotify with the telecommunication
bills. Whereas in Indonesia, Spotify can reach out to partner with Indosat Tbk
PT by offering the monthly deals packages so that the users or consumers can
stream the Spotify with the internet data plan.7 By
doing so, it gives Spotify competitive advantage as other competitors are not
offering the cash payment or partnering with telecommunications for the payment
of subscription fees.

 

7.0 Conclusion

 

            As a conclusion, Spotify is an
online music streaming service that provides a good service to the user.
Spotify offers unique features which makes it different from other competitors.
Spotify gain competitive advantage in many ways. The first competitive
advantage is due to its ability to provide more songs selection for the users
to find and listen to. Other than that, the social that Spotify provides to the
users by connecting with new friends through music in social media network such
as Facebook and Twitter, the users can follow their favorite artists, and many
other services. However, Spotify also need some recommendations for the future
development of the business. Spotify need to be aware of the competitor such as
YouTube which provides both music and video streaming that Spotify does not
offers. Spotify also need to increase the economy by targeting more consumers
to get the Spotify Premium and pay for the subscription and not just getting
the revenue from advertising company. Spotify need to increase their sales and
decrease the expenses to achieve a stable profit for the yearly growth profit
margin.

1  Jordan Crook, Fitz Tepper Jul 29,
2015 A Brief Story of Spotify

2 Michael J. Miller July 21, 2011
Spotify’s Goal: To Have All the World’s Music

3 Zosia Emily Pointon April 26,
2017 SWOT Analysis of Spotify

4 Parmela Peterson Drake Financial
Ratio Analysis http://educ.jmu.edu/~drakepp/principles/module2/fin_rat.pdf

5 Spotify Financials https://craft.co/spotify/metrics

6 Apple Gross Profit Margin
(Quarterly) https://ycharts.com/companies/AAPL/gross_profit_margin

7 July 20, 2016 Spotify focuses on
localisation to smooth next expansion in Asia

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