Spotify, the World's No.1 Music Platform, Even Checked by Steve Jobs [Hidden Industry Story]

Global Paid Music Streaming Market Share 35%... World No.1
Founded in 2006, Devised 'Free Streaming Service' as Alternative to Illegal Downloads
Faced Apple CEO Steve Jobs' Challenge Upon US Entry in 2011

Music streaming platform 'Spotify'

[Asia Economy Reporter Lim Juhyung] Operating in 92 countries worldwide, with 300 million users and a market capitalization of $62 billion (approximately 67 trillion KRW).

These are the records achieved by the music streaming platform 'Spotify' just 14 years after its founding. Established in 2006 by CEO Daniel Ek in an apartment in Stockholm, Sweden, the company pushed aside formidable competitors such as Apple and Amazon, who dominated the digital music market at the time, to become the world's number one music streaming company. Moreover, it is also credited with revitalizing the market by providing a stable revenue model to record producers and artists who were experiencing a downturn. What is the secret behind Spotify's growth?

◆ 'Spotify' started as an alternative to the declining record market

Spotify was co-founded in 2006 by CEO Ek and Martin Lorentzon in a rented apartment on the outskirts of Stockholm as an IT startup. At that time, CEO Ek had already become a billionaire based on funds secured from selling an advertising startup.

Having amassed great wealth at a young age, CEO Ek was focused on plans to revive the stagnant record market. At that time, the record market was suffering huge losses due to illegal music sharing sites like 'Napster.' As illegally copied music spread rapidly through these sharing sites, record producers and artists were unable to generate revenue.

CEO Ek came up with the idea of developing a 'free music streaming platform' as a way to overcome this situation, and together with Lorentzon, founded 'Spotify.'

Daniel Ek Spotify CEO / Photo by Yonhap News

◆ Launch of free music service... faced challenges from Apple

Founded in 2006 and officially launched in 2008, Spotify is fundamentally a free music streaming platform. Anyone can sign up for Spotify and listen to about 40 million tracks registered on the platform for free.

However, Spotify inserts advertisements during music playback. Also, free users cannot select specific songs they want to listen to on the Spotify platform. In other words, they cannot create their own 'playlists.' To remove ads and create personalized playlists, users must pay $12 per month (approximately 13,000 KRW) to subscribe to the 'Premium Service.'

Spotify pays as much as 70% of the revenue earned from advertising and premium memberships to artists, record producers, and others who have registered music on the platform. The remaining 30% is reinvested in platform maintenance, management, and service development.

Spotify's 'free music policy' was not initially well-received. In fact, Spotify was a company that posted losses for 14 consecutive years. It only recorded profits three times on a quarterly basis. In the third quarter of last year, it posted an operating profit of 54 million euros (approximately 70.9 billion KRW). The difficulty in reducing losses stems from returning 70% of its revenue to record producers.

Challenges also arose as existing record companies like Apple tried to block Spotify. According to the book 'Spotify Play,' published last month and based on interviews with CEO Ek and Spotify officials by Swedish economic journalists Sven Carlsson and Jonas Leijonhufvud, former Apple CEO Steve Jobs reportedly obstructed Spotify's copyright agreements with Universal Music to prevent Spotify's entry into the U.S. market in 2011.

The book states that former CEO Jobs hinted at tightening funding if Universal Music reached a copyright agreement with Spotify and even called CEO Ek directly to yell at him.

The 'Spotify' application (app) running on screens such as tablets and smartphones. / Photo by Spotify homepage capture

◆ Achieving the world's number one music platform through technology investment and service personalization

Despite the limitations of this revenue model and competition from rivals, what is the secret behind Spotify's success as the world's number one music streaming platform? Spotify reduced platform operating costs through technology investment while focusing on 'user personalization' of its services.

Martin Lorentzon, who co-founded Spotify with CEO Ek, developed technology using peer-to-peer (P2P) technology that allows any song to play without buffering in just 0.2 seconds, and continuously improved this technology to lower costs.

Additionally, Spotify developed personalized services using big data, such as 'Discover Weekly,' which provides recommended playlists tailored to individual user preferences, and 'Spotify Running,' which detects user movement and automatically recommends fast-tempo music during running.

As a result, as of July this year, Spotify has grown into a massive platform with about 300 million monthly active users, of which 138 million are paid subscribers. According to data released by the International Federation of the Phonographic Industry (IFPI), Spotify holds a 35% share of the global paid music streaming market, 14% higher than second-place Apple Music (21%).

Moreover, Spotify has significantly contributed to the recovery of the record industry, which had been in decline. According to IFPI, the global record industry has shown a clear recovery trend since 2015, reaching $20.2 billion (approximately 22 trillion KRW) last year.

The reason for the record industry's recovery is the rapid expansion of the digital music market through music streaming services. IFPI data shows that streaming services have grown more than 28 times from 2009 to last year and accounted for 56.4% of the entire music industry last year.

By providing an alternative revenue model to record producers and artists, streaming platforms including Spotify have injected new vitality into the record market.