Competitive Advantage of Spotify: A Porter's Five Forces Analysis

This report analyzes the competitive advantage of Spotify using Porter's Five Forces. It examines the factors that have helped Spotify gain a competitive edge over its rivals in the music streaming industry.

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COMPETITIVE ADVANTAGE
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Executive Summary:
The purpose of this report is to determine the competitive advantage of Spotify. For this
purpose Porter’s five forces has been used for the determination of the competitive advantage
of Spotify. This helps in the better analysis of the various factors and strategies that has been
applied by the organization to put themselves in a comparatively better position than its
competitors. Moreover, it also helps in the understanding the present condition of the
company in the industry and how much it has achieved over its competitors.

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Table of Contents
Introduction:...............................................................................................................................3
Discussion:.................................................................................................................................3
Porter’s Five Forces:..............................................................................................................3
Competitive advantage:..........................................................................................................5
Industrial Standpoint:.............................................................................................................5
Conclusion:................................................................................................................................6
References:.................................................................................................................................7

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Introduction:
Spotify is one of the world’s most popular music streaming platform, originating in
Sweden and had started its operations in 2006. The music platform promised to connect the
listeners to directly connect to the music labels and enjoy a high quality musical experience.
This aspect led Spotify to initiate negotiation with different music companies and it was
launched in 2008. Spotify has business in over 57 countries worldwide and will launch in a
few other countries in the near future. However, in the modern scenario the concept of
Spotify has been adopted by several other companies and has provided a competition for
Spotify (Peteraf 1993). This discussion highlights on the different aspects of the company,
which can help in the identification of the competitive advantage of the company. Moreover,
a comparative analysis of the competitive advantage by the different theorists can help in the
better understanding of the present condition of the company in the industry.
Discussion:
Porter’s Five Forces:
Spotify has one of the strongest customer bases, considering its several competitors.
However, most of the online music platforms have different marketing strategies and
different services for the users, their basic service puts them in the same competition (Porter
2008). Music platforms such as Pandora, Beats Music and I Heart Radio are the chief
competitors of Spotify.
1. Industry Rivalry:
The industry rivalry has been increasing for Spotify with the other music
platforms continuously trying to enrich their customer service. The purchase of Beats
Music by Apple has put forward a major rivalry in the industry with Spotify.

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However, Beats Music doesn’t pose a major threat to Spotify as it is currently
available only in the USA. It has a customer base of around 250000 while that of
Spotify is around ten million. This puts Spotify at a considerably better position than
Beats Music (Fisher 2012).
2. Bargaining power of Suppliers:
Spotify faces less problems from the bargaining power of the suppliers. Most
of the musicians in the present day like to promote their music through online music
portals such as Spotify. Being one of the largest music platforms, the musicians can
reach out to a large number of listeners at a small period of time (Dierickx and Cool
1989). Hence, Spotify does not have to bargain with the musicians to persuade them
to sell their music.
3. Threat of Substitutes:
Spotify faces very low threats from the substitutes. While there are a number
of other music platforms and several online radios which let the customers to listen to
online music, Spotify is a league apart from them. Spotify allows the listeners to
create their own customizable playlists which is unique experience for the customers.
Moreover, Stotify has both the free and premium versions, which lead both type of
customers to be attracted to the pplatform.
4. Bargaining power of Buyers:
Spotify faces very low threat from the bargaining power of the buyers. Spotify
provides services for both the free subscribers and premium subscribers. Spotify
customers have the freedom to switch from free users to premium services and enjoy
exclusive services. Moreover, the feedback system of Spotify is also good, which
responds to customer feedbacks and tries to make changes accordingly (Porter 2008).
5. Threat of New Entrants:

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The present scenario has a lot of online music streaming companies, which has
made the market saturated for new entrants. Hence, the threat from new entrants is
low. Moreover, the purchase of Beats Music by Apple has already projected the entry
of a big player in the market. New entrants have been discouraged from entering the
market due to the presence of such big players (Brandenburger and Nalebuff 2002).
Competitive advantage:
Owing to the above factors, Spotify has a competitive advantage over the other
competitors. The major strengths of the company has been lying in the fact that it has been in
the market for more years than the other competitors (Kim and Mauborgne 2014). Moreover,
its promotional activities has roped in several prominent artists in the portal. This has
enriched the portal’s reputation in the market. Moreover, Spotify provides 70% of its
revenues to the artists as their royalty, which has helped them to be associated to many
prominent artists. This puts Spotify in a good position as it actually provides improvements to
the music industry (Purkayastha and Sharma 2016). Moreover, the primary objective of a
competitive advantage is to fill market gaps. Spotify, upon its launch has filled in the major
gap by allowing customizable playlists for the customers and has proved themselves to be
better than the radio channels. Moreover, the huge database of Spotify has been appealing to
multiple target markets and has a major competitive advantage over the other competitors
(Barney 1991).
Industrial Standpoint:
The online music portal system has led to the major market revolution and has seen
the decline of the music piracy by more than 50%. However, this trend has led to decrease in
the sales of the physical CDs and other recording mediums. Spotify has held a large part in
the process as it is one of the pioneer of the online music streaming market. This aspect has
led to the increase in the sale of the digital music media (Rayna and Striukova 2016). The

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music industry has been growing positively with the increase in the online streaming services.
The online streaming services such as Spotify provide contribute 20% of the total revenue of
the music industry.
Moreover, stream music has led to the popularity of many artists at a short period. This has
led to the increase in the paid subscribers, which is a positive sign for the growth and
development of Spotify in the future (Porter 2008).
Conclusion:
The above discussion highlights the key factors which gives Spotify a competitive
advantage over the other players in the market. The factors such as association with artists,
over 10 million subscribers and the customizable playlists are some of the key factors that has
helped Spotify gain competitive advantage. Moreover, the global presence of Spotify in over
57 countries has made it one of the largest music streaming companies in the world.

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References:
Barney, J., 1991. Firm resources and sustained competitive advantage. Journal of
management, 17(1), pp.99-120.
Dierickx, I. and Cool, K., 1989. Asset stock accumulation and sustainability of competitive
advantage. Management science, 35(12), pp.1504-1511.
Peteraf, M.A., 1993. The cornerstones of competitive advantage: a resource‐based view.
Strategic management journal, 14(3), pp.179-191.
Porter, M.E., 2008. The five competitive forces that shape strategy. Harvard business review,
86(1), pp.78-93.
Purkayastha, A. and Sharma, S., 2016. Gaining competitive advantage through the right
business model: Analysis based on case studies. Journal of Strategy and Management, 9(2),
pp.138-155.
Rayna, T. and Striukova, L., 2016. 360° Business Model Innovation: Toward an Integrated
View of Business Model Innovation: An integrated, value-based view of a business model
can provide insight into potential areas for business model innovation. Research-Technology
Management, 59(3), pp.21-28.
Fisher, G., 2012. Effectuation, causation, and bricolage: A behavioral comparison of
emerging theories in entrepreneurship research. Entrepreneurship theory and practice, 36(5),
pp.1019-1051.
Kim, W.C. and Mauborgne, R.A., 2014. Blue ocean strategy, expanded edition: How to
create uncontested market space and make the competition irrelevant. Harvard business
review Press.

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Brandenburger, A.M. and Nalebuff, B.J., 2002. Use game theory to shape strategy. Strategy:
critical perspectives on business and management, 4, p.260.