Spotify is the world's biggest music streaming company with 345 million users And during a pandemic where other companies were struggling, Spotify's stock rose by 70%. Interestingly, at present Spotify is at loss and on the other side, Apple Music is making a 4 Billion profit every year. And now the question arises How Spotify is leading the music streaming industry.
Music was expensive so people used to illegally download it to listen. And from here Spotify started. In 2006, Daniel Ek with his friend Martin Lorentzon started Spotify. In the first 2 years, they used to sign deals with record labels and artists so they could stream their songs on Spotify. And then in 2008, they launched Spotify for the public. So Apple Music's yearly profit is 4 Billion dollars. YouTube's profit is 19 Billion dollars but Spotify is in 581 million dollars loss. So now the question arises how Spotify is leading Music Market.
Is Spotify is doing something which no one knows? So to understand this you need to understand these 3 elements. NO 1 - WHAT SPOTIFY CONTROLS? NO 2 - HOW SPOTIFY MAKES MONEY? NO 3 - HOW SPOTIFY RULES THE MARKET? First Element - What does Spotify controls?
'Spotify is not a music company' 'It's an AI company' We all used to think that Spotify sells music but NO So the reality is Spotify sells behavioral data I repeat 'Spotify sells Behavioral Data' I know these 2 questions are coming in your mind First -- WHY? Why do they sell our behavioral data? And Second -- HOW? How does Spotify do this? MUSIC IS A BUSINESS Most people think that Tony Kakkar's songs are a hit because he's the brother of Neha Kakkar Well this is not the case. Any artist cannot predict before release whether this song will be a hit or not. But every artist knows that which kind of vibes people like. And getting this information is not a piece of cake. They get this information from Music Streaming platforms. So this thing works like this- For example, I keep 2 types of data in front of you who have no hands-on experience. There is no mentorship for students and there is a lot of uncertainty about a child's career. Here the teachers have 15-20 years of industrial hands-on experience which means only industry experts teach students. They have one-on-one mentorship from CXOs and have promising careers with a 29 lakhs average package. And in fact, their fresher's package is also 23 lakhs. which is more than IITs and IIMs. So from where will you prefer to do an MBA? Most of you will say MtheyRS' UNION Because here they provide is expert learning, one-on-one mentorship, and higher salaries than IIMs. So you will prefer MASTERS' UNION for MBA only if you have this data. Similarly From your behavioral data artist can know which emotions you feel from which song. Not only this they will also know which song's the vibe you like, which songs you like to share, which songs you hear on-repeat. Spotify sells this data to artists and music labels directly or indirectly as consistency services. So artists and music labels make those songs which are heard on-repeat and mostly shared. As you download Spotify and start using it, Spotify will start collecting this data about you. So let's see what they know from this data. Suppose you searched a song, so from this keyword Spotify comes to know about your song preferences. Suppose you created a sweet playlist so Spotify will know about your moods Cheerful, sad, angry usually in which mood you live in. After that Spotify also access your location so they can know in which mood you are currently. Suppose someone is traveling and driving and listening to songs on Spotify. Spotify knows that you are in high traffic zone so they know which songs should be recommended to you. Not only this they also know from which device you are listening to Spotify. So they can know on average how much time you can spend on Spotify. The people who listen on the computer don't listen for a long time. But who listens on mobiles/tablets will listen for a long time. And Spotify knows this. Then this data of lakhs of people are processed from which they identify patterns. And from these patterns, artists can predict which song can be a hit and which can be a flop. And secondly, Spotify's algorithm is so powerful that based on your data they will keep on recommending new songs so you don't leave Spotify and spend more time. I know you would be thinking that they must be generating solid income by selling data Well NO Spotify sells this data but they don't earn any money from artists and record labels from this.
And this brings us to the 2nd element of this case study. HOW SPOTIFY MAKES MONEY? These 3 things make Spotify powerful 1) Natural Language Processor This is the algorithm that Spotify uses to analyze human speech and text. Basically through this, they read all data available on the internet. Chats, Discussions, Videos, BlogPosts They read this thing and analyze, and from this, they know that what's going on about this particular artist/song on the internet. What is people's perception of that song/artist? 2) Implicit Feedback System In most music streaming companies, there is a star rating system. That is you need to star rate that particular song. From this, the company knows how good is this song. And from this their algorithms further recommend. But Spotify doesn't do this. In the Implicit Feedback System, they check that how many times you heard that song on-repeat. As often the song is listened to, from this their algorithms come to know that this song is good or bad. It should recommend or not. 3) Collaborative Filtering In this Spotify does that, your behavioral data is compared with the second person's behavioral data. And then this collaborated data is compared with the third person's behavioral data. So Spotify comes to know that about this artist/song this sentiment is going on in the market. To how many people this song should be recommended and to how many not. They come to know about this after Collaborative Filtering. Using these 3 things Spotify recommends your songs and shows ads. If someone is using free Spotify, then they need to show him good ads. But if someone is a premium user, then what's the need to do all this? So let me tell you Not to show them ads but give good recommendations. To give the location, preference-based recommendations. So they have a nice user experience and they continue premium membership. Spotify's 80% revenue comes from premium users. Premium users of Spotify are more than Apple Apple Music and Spotify's premium plans are almost the same in terms of price or features you hardly find any difference So why do most of the people want to use Spotify and why not Apple music?
And this brings us to the 3rd element of this case study. HOW SPOTIFY WILL RULE THE MARKET? In 2017, Apple Music had 55% of podcast market shares Today also they have 40 - 50% market share But interestingly this 55% is only available to the world's 20% population only. Because there is one problem with Apple That is SHAREABILITY Apple Music is hardly used by Non-Apple users and you cannot share your Apple Music songs playlist easily. On the other side, Spotify can be used on any device, and sharing a playlist with friends is much easier here than on others. This creates a network effect and Spotify makes most advantage of it. Spotify sells premium your day to you. The question is -- HOW??? A while ago, Spotify did a billboard campaign which was quite successful. But Why it was Successful? Firstly Spotify did geographical listing which means which songs people like to hear from different geographies. So they came to know about people's preferences, behavioral data, and actual moods at a particular location So after collecting data they did its sentimental analysis. And according to the sentiments, they applied billboards in that area. People at traffic places were mostly irritated and angry. So they applied cheerful music billboards. Where there was a Startup and Business crowd, they applied Angel Investments billboards. And this is just a small thing You can't imagine what Spotify can do from your data. Now think this can happen from music streaming data, then what WhatsApp does which has your every single data.
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