Spotify is growing up fast. After first pitching itself as the best weapon against piracy, the online music service now has Apple in its sights. Apple’s approval of Spotify’s mobile application into the iPhone’s App Store surprised many last year but with a major upgrade to its main desktop software, Spotify is now challenging iTunes on its home turf.
Daniel Ek, Spotify’s co-founder, has never seemed short of self-belief but putting itself up against iTunes directly is a confident move for a service that has been around just 18 months.
Today’s new release allows Spotify to absorb its users’ iTunes library of downloaded tracks (powered, funnily enough, by Gracenote, whose former CEO now runs Spotify competitor MOG All Access). It means users need to fire up only one service for all their digital music needs.
Spotify can now offer cloud-based music streaming, digital downloads, offline listening and playlists – all in an interface which never made too great a departure from the iTunes template. Wireless syncing to a mobile app – available to paying subscribers only – gives Spotify another trump card over iTunes, which leaves users tethered to their USB cables.
Like any adolescent, Spotify is becoming more sociable too. Sharing of favourite tracks and playlists through tight Facebook integration will improve Spotify’s viral growth. It also looks to be nipping potential local competitors such as Mflow and MOG in the bud, allowing people to share new discoveries with friends by dragging and dropping song titles into an “inbox” and offering a Facebook-style “newsfeed”. True to Spotify’s initial aims, it’s a song-swapping experience not unlike peer-to-peer filesharing, only legal.
These new features are intended to nudge people to spend more time looking at the Spotify player – therefore seeing more ads – and consuming more music. “What is likely to happen is that people’s music collection will increase dramatically,” says Mr Ek. “People will find more music that is worthwhile listening to and if they are more engaged, they are more likely to pay for it.”
Spotify has been building the new release for the last six months, a period which has seen its plans to launch in the United States delayed somewhat by some labels’ concerns about how much revenue it was really generating. Mr Ek says the company has opened a New York office and staked out server space ahead of a US launch sometime this year, although he insists reports about a third-quarter debut were inaccurate. In the meantime, competitors like MOG and Rhapsody continue to grow in America, with the latter releasing an updated iPhone app with offline listening this week.
Spotify’s business model faces persistent questions, either for paying out so much to labels and artists that its own business is unviable, or for paying out too little to really help the music industry recover from falling CD sales.
A report by the BPI, which represents UK record labels, found that ad-supported streaming services (including YouTube as well as Spotify and We7) generated just £8.2m, less than 1 per cent of total industry revenues last year. UK online subscription revenues grew 37 per cent to £11.8m.
Mr Ek prefers to talk about the money that could be made by commercialising billions of pirated tracks than how much Spotify is actually making. But he insists Spotify makes “tens of millions of Euros” annually from advertising, with upwards of 320,000 subscribers bringing in more than €3m every month.
“We are now one of the top four digital accounts in revenues internationally” for major record labels such as Sony Music and Universal, he says. “That should account for some significant value [for artists]“.
Spotify itself seems to be seeing some value too, and more than just pocket money. On Monday it moved its 29 UK staff to slick new offices in an upmarket part of London’s Soho (just around the corner from Facebook’s rather less shiny digs).
Alongside a ping-pong table and a Smeg fridge emblazoned with the British flag, it has meeting rooms named after classic singers (Lennon, Sinatra) and giant quotes about music on the walls from James Brown and Jimi Hendrix. The entire office is bedecked in its signature garish green.
To prove it really has matured, Spotify needs to start showing some green to the labels too. Dethroning iTunes is one thing, making it pay quite another – but this latest raft of new features will further embed Spotify in the hearts of music fans.
