In two years, Spotify has gone from being a startup with big ideas to being one of the most talked about and fastest-growing tech companies in the world. Recent reports suggest that the Swedish firm is in advanced talks with venture capital group Digital Sky Technologies about a $100 million investment that could value the firm at somewhere between $1 billion and $2 billion.
For those who may be unfamiliar with Spotify, it is a web-based music hub that employs a freemium model (using a combination of ad-supported and paid subscription services) that allows registered users to listen to a wide catalogue of songs. Currently available only in Europe, much speculation has surrounded its ability to successfully break into the U.S. market due to logistical hurdles in agreeing to terms with the big music labels. But its success in Europe is unquestioned, with Spotify quickly becoming the music destination of choice for many music aficionados and house party hosts. No longer do you need to own the entire back catalogue of Beyoncé to be able to listen to her dulcet tones!
Looking at Comscore data over the last two years, the rise in popularity in Spotify has been nothing short of phenomenal. From a user base of under 2 million people in March 2009, an amazing 11 million now visit Spotify on a monthly basis; representing a staggering increase of 546% over that period of time.
So what has made Spotify such a phenomenon? Its slick interface and the availability of so many songs are two key reasons.
Spotify’s success stands in marked contrast to the music industry as a whole, which has sometimes been seen as floundering over the last few years. In fact, in the time that Spotify has risen from nothing to where it is today, other music related companies have not fared quite as well, including the EMI purchase by Terra Firma and the continuing struggles of high street retailer HMV, both of which spring immediately to mind.
One of Spotify’s major accomplishments is that its popularity clearly transcends borders. In fact, its user base is remarkably well distributed across several European markets. The chart below illustrates the five top markets accounting for Spotify’s audience.
Perhaps the continued decline of the traditional music distribution model coupled with the rise of digital music has helped drive Spotify’s extraordinary growth; but what does the future hold for the company? Well, a couple weeks ago the company announced that it will begin competing with iTunes as a place to store and buy music. And as Spotify continues to build a loyal base of smartphone subscribers, it is clear that mobile will be a critical factor in its future success. If an eventual public offering occurs, then pressure will certainly increase for it to expand its model globally. Perhaps then it will finally clear some of the logistical hurdles and do what many musicians want to do - crack America!