How Spotify is Leading the Music Streaming Industry with its ‘Freemium’ Business Model
- Ritika
- Aug 23, 2020
- 2 min read
Updated: Sep 20, 2020
Regardless of your interest in music, I’m sure you’ve heard about Spotify- world famous music streaming service provider. Spotify is leading in its industry with 138 million premium subscribers and 299 million monthly active users from all over the world. The number of premium subscribers for Spotify has more than doubled in 2020 since 2017.
Comparing these numbers with Spotify’s competitors, Apple music has 68 million subscribers and Amazon Music has 55 million subscribers. Clearly, Apple and Amazon Music have quite a tough competition here due to Spotify’s competitive edge to acquire the top position in the industry.
Impressive, right? The secret behind this success is that Spotify gains a competitive advantage with its ‘Freemium’ Business Model, where it offers its services to its users at no cost and also upgraded services are offered with different premium monthly subscription fee of AU $11.99 for individual premium user, AU $15.99 for duo users, AU $5.99 for students, and AU $17.99 for family sharing.
Let’s further look how Spotify applies the two-tired ‘Freemium’ Business Model to its services:
· Free subscription (Tier one): Spotify allows the users to listen to music for free, but the catch here is, it interrupts their listening by running advertisements, no offline and on-demand music. Here, Spotify generates revenue from the advertisements.
· Premium subscription (Tier two): The users who upgrade to their premium subscription get access to many features like better sound quality, on-demand, offline and advertisement free experience. Here, Spotify generates revenue from the subscriptions.
Apple Music had criticised Spotify for offering the free tier services, however, Spotify remained intact about their decision and didn’t drop its free tier. The head of Spotify’s communication also revealed that about 80% of their premium users started off with free tier, and they don’t see the point of cutting down this service as they believe this as a pathway for them to gain more premium subscribers.
This was undoubtedly a smart move by Spotify as the ‘Freemium’ Business Model for the first 12 years of Spotify came out to be unprofitable. But 12 years later, Spotify doubled down the profit and released their annual net profit report for the first time ever of $60 million.
Whereas, Apple Music and Amazon Music don’t offer this leverage of free subscription to its users. Spotify attracts more users with this Business Model, which has benefited it to acquire more market share and lead the industry by becoming the most popular music streaming platform over the world.
Do you also believe that the 'Freemium' Business Model was a smart move by Spotify? Let me know in the comment section below.
Updated: Changes made based on the Feedback received
Hi Rikita! Nice blog you have here :)
I've thoroughly enjoyed reading this post about the 'Freemium business model' adopted by Spotify. This is a great client-acquisition strategy a marketer can leverage on to increase customer base. Who doesn't love free stuff anyway? This is probably the thing that made Spotify stand out & gain competitive advantage over Amazon & Apple music.
I agree that this approach works for Spotify as it is mainly a B2C product, however, I think for businesses which deals with B2B clients may have to adopt more integrated freemium models or alternative strategies to increase customer conversion rate to be a premium customer. For example B2B businesses using this model may need some initial investment…
Woah! This was a very interesting article with all the facts and figures associated with the company as well as how it stands out against major competitors in quite a dominating position. I am a Spotify user myself and can testify about the tactics used to draw attention with a great retention plan.
Really enjoyed the blog and looking forward to the next one soon.
Nice blog style overall. Perhaps play with your logos a bit so they are more visible!. You asked for some feedback so here we go :)
What I liked:
Like the heading, makes the point really clear
Great use of evidence within the post to support your points
Well structured
What you could work on:
A weak call to action, would be good if you make this feel more real (and less studenty), the audience isn't really students, its marketers from how you've framed this post. This is throughout the post a little but especially that last para.
There are a few gaps in your sourcing, but just a few (some paragraphs where it would be good to link a…