This project was an exercise to amass information gathered from limited available resources and perform user research, competitor analysis, and product development in a short time span. I worked with 3 other people to investigate the user base, business strategy, and target direction of the online music listening platform Spotify. I worked with the team to reverse engineer their value proposition by depicting it in a Business Model Canvas.
Spotify has been around for nearly a decade. They envisioned a space where people could listen to free music in a legal manner. Over the years, Spotify has kept its engineering culture and is continuously adapting to the market. Recently, they acquired two new companies: Soundwave and Cord Project. These companies focused mainly on sharing between users. What is the idea behind these purchases and how is Spotify going to stay ahead in an environment of constant change? We explored the possibilities of what Spotify might be planning to do by investigating the following 4 questions:
- What is (the role of) Spotify?
- Who is their user and what needs do they fulfil?
- What is their value proposition?
- What is their business model?
WHAT IS (THE ROLE OF) SPOTIFY?
To answer this question, my team and I employed different analyses. Statistics show that as of June 2015, Spotify has 75 million active users (55% female, 45% male). Of these, there are 20 million users with a subscription. In order to identify what Spotify is and does, we used the Co-Create Innovation model by Gardien, Deckers and Christiaansen (2014). Figure 1 shows the stages in this model. We used the Experience Domain Position model (Gardien, Deckers & Christiaansen, 2014) to get an overview of Spotify’s position in the market. An overview of this model, applied to Spotify, is shown in Figure 2a and 2b. We looked into the six aspects of this model in order to visualize what Spotify’s position is in a meaningful context. We formulated the following story based on insights in these aspects:
“People like that a large library of music is easily available and that they can share music and access the shared music of others. This fits very well in today’s interconnected, digital society where people share many things in their life online. In the music business, Spotify is trying to use their agile mind to look at these trends and adapt to this. The company uses iterative design and uses partnerships to help customers to connect and share (for example Facebook). They use the technology of a web-based streaming solution to do data-mining and learn more about the behavior of their customers. This information can then be used to create personalized content and features for the customers to experience, which people can again share among each other.”
Secondly, we looked at several competitors of Spotify. For instance, we looked at Apple Music, SoundCloud, Deezer, Pandora and YouTube Red (U.S.A. only for now). Spotify is different from these competitors in that they have the opportunity to share your music with others.
One of the key aspects of the recently acquired companies was the fact that they focused on sharing. We believe that Spotify is aspiring to become a community-based music sharing platform in which users can form communities.
WHO IS THEIR USER & WHAT NEEDS DO THEY FULFIL?
In order to get an understanding of Spotify’s users, we used multiple methods. Firstly, we used auto-ethnography, because our team itself consists of Spotify users as well. In addition, we went into the field and asked available people around the campus of TU/e face-to-face (n=33 people) if they were using Spotify and how they feel about it. We aggregated this data with data from our online survey (n=28 people) asking the same questions as the face-to-face interviews. We used Customer Empathy Maps (created by http://www.xplane.com) to describe what users think and feel, hear, see and do when it comes to using a product or service (e.g. Spotify). Out of our data, we created three Customer Empathy Maps (Free user, Premium user, Non-user). After iteration and brainstorming, we decided to create one empathy map for the entire group of music listeners (shown in Figure 3).
WHAT IS THEIR VALUE PROPOSITION?
Once we had an understanding of who Spotify users are, we looked into what Spotify is offering them. Continuously taking into consideration the Co-Create Innovation model and Spotify’s position in the market (especially keeping the focus on sharing in mind), we believed that the value Spotify is offering their customers is a Community-based music platform.
This platform is a music ecosystem, a one-stop music service where you can find music, look up lyrics, talk about it, and create a community of like-minded people with similar tastes. They offer free, legal and instant music that is always available, wherever you are. In addition, users can form communities and are able to create and share their own generated content. Within these communities, Spotify users can message, share, collaborate and suggest to other users and potentially get into contact with artists as well.
WHAT IS THEIR BUSINESS MODEL CANVAS?
The customer segment consists of the mass market of music listeners. The value Spotify has to offer is providing users with a community-based music platform where users can:
- Find unlimited music that is legal, instant, always available, easily accessible, and free (because it is paid for by advertisements).
- Form communities and are able to create and share their own generated content. Within these communities, Spotify users can message, share, collaborate and suggest to other users and potentially get into contact with artists as well.
The Key Partners in this model are the rights holders (artists and record labels), open source developers, advertisers, and collaborative partners like Starbucks, Uber, Tesla, Virgin America.
In order to accomplish this, Spotify’s Key Activities will consist of software development and maintenance, and employment of AI and data mining techniques to analyze the data to effectively connect music fans.
To do that, the Resources need to comprise of the music library itself, user data (both metadata and behavioral data), and the team of talented developers to get this done.
The relationships that ensue consist of peer to peer networking between the end users leading to a general feeling of community. In addition, an automated online relation is used to provide automated services to users.
The channels used in making this a reality will comprise of the various forms of Spotify apps (desktop, mobile, and other platforms), the services provided by some of the collaborators (e.g. Starbucks), and of course, broadly speaking, The Internet.
The Costs associated with this incorporate the royalty fees which they have to pay to the rights holders, the personnel costs and investments in other companies. Additionally, for a tech company largely invested in data, they will also need to account for bandwidth costs and elements like servers and data hubs.
Finally, the Revenue will come from advertisement fees and paid subscriptions from the users.
My team and I concluded that Spotify is aspiring to become a community-based music platform; a music ecosystem where users are able to listen to music and share their experiences and content within communities. It was rewarding to identify a solid business model for Spotify for the future, which we built on several models and user-centered design methods based on such little and scarcely available information. It was also a valuable experience in effective user research, and insight in how it can drive business strategy.