Strategic Management: Analysis of Spotify using Porter's Five Forces and Competitive Advantage Theories

Running head: STRATEGIC MANAGEMENT
Strategic Management
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1STRATEGIC MANAGEMENT
Answer 1
The advent of globalization and also the recent advancements in the technological
fields have made the business world much more competitive than it was a few decades ago
(West, Ford and Ibrahim 2015). Therefore, the various business organizations often take the
help of various strategic and competitive market analysis frameworks to analyze the level of
competition faced by them in the business market (West, Ford and Ibrahim 2015). The
“Porter’s five forces” framework is one such framework which helps the various business
organizations to analyze the level of competition faced by them in the current business
market (Porter 1996). Spotify is a Sweden based company which was founded in the year
2008 and is generally considered to be one of the best “music, podcast, and video streaming
service” providers in the industry presently (Spotify.com. 2018). The company was initially
started in the nation of Sweden however presently the company caters to the needs and the
requirements of the customers from the various diverse parts of the globe (Spotify.com.
2018). A “Porter’s five forces” analysis of the company would reveal the following facts-
Threat of new entrants
The company Spotify is one of the leading ones in the world and caters to the needs
and the requirements of the customers from the various parts of the world (Spotify.com.
2018). In addition to that, the company provides free as well as premium services to the
customers (Spotify.com. 2018). Therefore, it would be apt to say that the company faces a
very low level of threat from the various new entrants in the market in which the company
Spotify conducts its business.

2STRATEGIC MANAGEMENT
Threat of substitutes
The company in addition to the premium services also provides free services to the
customers (Spotify.com. 2018). Furthermore, it is seen that many customers opt for the
premium services provided by this particular company. However, it is seen that many
companies provides the same kind of services to the customers at a much lower rate.
Therefore, the company faces a significant amount of threat from the various substitutes
which are operational in the same sector as the company Spotify. The following figure
provides a list of the various competitors of the company Spotify in terms of the revenue
earned by them since the year 2013-
Figure 1: Monthly royalties for the top companies in the music sector
Source: Spotify official website
Bargaining power of the buyers
It is significant to note that if the bargaining power of the customers is high then that
is likely to affect the prospects or the interests of the company concerned (Porter 2008). The
company Spotify has numerous competitors in the market which provide almost the same
kind of services to the customers and that too at a much lower rate. Moreover, the switching
cost is very low and this acts as an added advantage to the customers. Thus, it would be apt to
say that the company Spotify faces a considerable amount of threat as the bargaining power
of the customers who take the services offered by them is very high.