Business Level Strategy for Spotify Technology

This article discusses the business level strategy for Spotify Technology, including external and internal analysis using Porter's Five Forces and VRIO Framework, strategic suggestions to turn the company on a profitable and competitive advantage track, and more.

Business level Strategy /
Generic Strategies
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Table of Contents
Company’s Background..............................................................................................................................2
External Analysis – Porter’s Five Forces.....................................................................................................2
Analysis to Address Complements..............................................................................................................3
Internal Analysis - VRIO Framework..........................................................................................................3
Strategic Suggestions to Turn the Company on a Profitable and Competitive Advantage Track.................4
References...................................................................................................................................................9

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Company’s Background
Spotify Technology (Spotify) is a music streaming organization founded by Daniel Ek
and Martin Lorentzon in the year 2006. It was re-introduced on 7th October in the year 2008. Its
head office is in the city of Stockholm in Sweden, and its current CEO is Daniel Ek. According
to the latest reports published on 14th November in the year 2018, it is operational in 78 nations.
The company provides both the facilities of the free version and premium version. The basic
facilities are free along with commercials and restrictions, whereas the extra services like the
new quality of streaming music and downloads are all paid services.
The organization has offices in most parts of Europe like USA, New Zealand, Australia,
Middle East, South Africa and some parts of Asia. The services of Spotify is accessible in
Windows, Linux, and Mac computers, Windows smartphones, iOS, and Android phones as well
as in tabs and TVs. The music could be searched in Spotify by parameters like album, artist, or
genre. The customers could share their playlists in social networking sites, and create playlists
with other customers. Spotify has 191 million active customers along with 87 million paid users,
as per the reports of November 2018.
External Analysis – Porter’s Five Forces
Industry Rivalry – There is medium industry rivalry compared to high risk which has
increased after Apple has bought Beats Music. But after Apple has bought Beats Music for $2.6
billion with the target to invest more $400 million, the threat of industry rivalry has suddenly
become huge and a severe problem for Spotify.
Bargaining Power of Suppliers – At this point of time, the bargaining power of
suppliers that are faced by Spotify, in their operation, is relatively low. Generally if an artist does
not want to stream their music, they do not permit it to be streamed by any other music streaming
provider. After Apple bought Beats Music, the future of Spotify has been in risk (Ahearne, Lam
and Kraus, 2014).
The Threat of Substitutes – At present, the threat of substitutes is very low for Spotify.
The significant risk of substitution for Spotify is those customers continuing with the free facility
in place of upgrading it to the Premium version (Arasti, Khaleghi, and Noori, 2017).

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Advertisements are playing on the free facility to produce profits for Spotify, although their final
aim is to get more paid customers.
Bargaining Power of Buyers – There is low bargaining power of customers and Spotify
fully manages this field. The company have the regular and free service given to every customer
and propose the facility of premium version for the persons who want to listen to songs offline.
(Bentley-Goode, Newton and Thompson, 2017). The bargaining power of the customers could
be increased in future, and so Spotify has to remain competitive to tackle Apple.
The Threat of New Entrants – The threat of new entrants is very low for Spotify. The
market of the streaming music is relatively down, and the acquisition of Beats Music by Apple
would most probably discourage entry the new competitors (Campbell, 2017).
Analysis to Address Complements
The complements have a powerful effect on the industry, and it is sometimes taken as the
sixth force. The services provided by Spotify differ from other companies of music streaming.
Spotify is comparatively constrained in a matter of alternatives. Rdio and Beats Music offer
more search options, and Rdio is nearly open of all its information to their developers (Dyer and
Song, 2015). All the three companies have the potential to manage and save information with the
help of API, starting from managing and rating the playlists up to assessing and managing every
personal knowledge of the customers.
Internal Analysis - VRIO Framework
Value – Spotify has some resources or plans which could use the opportunities and
protect the organization from future dangers. The funds are also necessary when they give
satisfaction to the users and increase the value of the users. This value is built to enhance the
differences in current plans of music streaming or decrease the service costs of the paid
subscribers (Engert and Baumgartner, 2016). If these are not fulfilled, the organization might
lead to competitive disadvantage. So, it is essential to evaluate the actions and resources values
of Spotify constantly. The company values the customers, so the client has the power to select
their services, but they certainly not have the ability to control Spotify in any other means.
Rareness – If any other organization does not utilize the resources of Spotify, it might
lead to rarity. Rare and important resources increase the competitive advantages of the company.

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But if more than one organization utilizes the same resources and gives competitive equality,
then also it is called rare resources of Spotify (Foss and Saebi, 2017). If the competitive
advantage is not a suitable place, then even the organization would not lose their essential
resources. The entry of new competitors will analyze the market by Blue Ocean systems before
entering the market of the streaming music, or else they would be failed or only able to get a
small market share.
Imitability – The products of Spotify are very expensive for imitation, and the other
companies could not copy it. Imitating is carried on by two methods. One is direct imitating, and
another is indirect imitating. As Spotify has important and rare resources and these resources are
expensive to emulate, they have gained their competitive advantage (Gerow, Thatcher and
Grover, 2015). The causes of imitation of funds to be expensive are historical circumstances,
casual uncertainty, and social complication.
Organization – The benefits could be gained for the company unless it is arranged and
use to do so. A company such as Spotify have to organize their management procedures,
structures, plans and strategies to ultimately use the potentiality of the resources so that they are
valuable, rare and expensive to imitate (Higgins Omer and Phillips, 2015). There are some artists
those who refuse to release their songs by streaming for the fear of piracy, but these decisions are
generally taken by the management and it is not related particularly to one facility (Adamides,
2015).
Strategic Suggestions to Turn the Company on a Profitable and Competitive Advantage
Track
The free version of Spotify comes with several ads which are frequently repeated, and it
consists of same commercials for joining the Premium version of Spotify. While the businesses
are required to produce revenue, there are many other music streaming organizations like Songza
which permits the clients to listen music for free with some or no advertisements (Holmes Jr et
al., 2018). Spotify wants to develop their Premium version customer base, but retaining the users
of the free version of their facility is still vital for generating profits.
The company could not cut back their commercials and advertisements which are
interrupting the listening to music of their users. Thus, if a user is not satisfied by the service of

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Spotify, they might shift to other organization which would fulfill their requirements at a low
price (Leonidou et al., 2015). Their key advantage of providing customized playlists is also their
weakness. All their improvement strategies go in improving their customized playlists, and the
company is after their competitors by recommending the option of the personalized playlist.
The other companies have no systems for customizing the playlists, so the listeners have
to find new songs on their own or with the help of other sources. Spotify Technology is the best
music streaming company in their area of customizing the playlists. But the company lacks a
general recommendation process, and it is pushing their target market to utilize the services of
other companies (Matt Hess and Benlian, 2015). They have to utilize their weakness as their
strengths. They have to attract their customers by providing more options for music to listen so
that the customers become loyal to them. It might also be possible that some the customers of the
free version may shift as to use their Premium version.
Spotify also has to deal with the unfriendly behavior of the artists. The company is clear
and open regarding their royalty payments and is very generous with the share of their profits
which directly goes to the artists, the industry of music streaming is perceived negatively by the
same artist and spreading the news that the company is trying to take them to court (Mazzei and
Noble, 2017). The industry of music streaming is a new industry, and at present, it is acceptable
if the company makes some profit shares from the artist. Earlier, if a user wants to listen to a
music, they have to pay the download charge, or they might download it illegally. The artists
were not paid for illegal downloading, but the artist used to get the revenue for paid download
which was transparent from the company’s side and the artist also knew the number of users had
bought their songs.
As the songs of Spotify and other services of music streaming considerably listen more,
the charge of each song for the individual artist is too little, and several artists are against the
new trend of music streaming. While the efforts of Spotify to be transparent and their
communication strategies are much better than the other companies, but it is still struggling to
reach most of the artists (McAdam Bititci and Galbraith, 2017). The company has some high
chances to work directly with the artists. They have begun to sell the music straight to the users
with the help of BandPage, but they have to work more to spread this system. Both the users and
artists would be benefitted by this system, as the users would feel more connections with their

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favorite artists and the artists would gain more profits. This would also help Spotify to earn more
profits.
The company could directly sell their music to reduce the gaps between the offline and
online music world, with the help of BandPage. Some of the artists are already utilizing it. It
could be another means of generating profits for the company as well the artists. Music piracy
might have decreased, but it is still a threat for the industry of music (Olson et al., 2018). There
are several options of free downloading, but they are not available in every place of the world.
Spotify has to fight this threat unless each music listeners have new options besides illegal
downloading.
The royalty payouts of Spotify every month is 70% of their net monthly revenue. The
users have several free options, and Spotify have to earn profits by commercials or monthly
charges, or it might lead to further losses in their earnings (Osiyevskyy and Dewald, 2015).
Based on the contracts with the artists, the revenue can go straight to the company in place of
70% of their net monthly income which goes straight to the artists.
Porter's Five Forces framework deals with the competition. Goods which are generally
used together such as music provides methods of cooperation. At present, the biggest reason for
concern for Spotify is the Apple acquisitions of Beats Music (Parnell, Long and Lester., 2015).
Beats Music at present has paid subscribers of only 250,000 available only in the USA, whereas
Spotify has paid subscribers of about 10 million with more than 30 million free customers. But
after Apple has bought Beats Music for $2.6 billion with the target to invest more $400 million,
the risk of industry rivalry has suddenly become large and a severe problem for Spotify.
Spotify has to create new and attractive offers for the customers. While the higher profit
could be an advantage for everyone, the participants of the market still compete for the highest
profits. Apple acquisitions of Beats Music has affected the bargaining power of the buyers for
Spotify. The client has the potential to select their services, but they certainly does not have the
ability to control Spotify in any other means. The bargaining power of the customers could be
increased in future, and so Spotify has to remain competitive to tackle Apple. The company
have to carry out a detailed evaluation of the possible effects and have to be ready to fulfill the
demands of the customers to remain in the competition.

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The industry of music streaming needs lots of promotions. Most of the companies
provide the options of free streaming and promotions are essential to make money. Most of the
companies permit a free version and developments are necessary to gain profits. The industry
also has to improve their social media networks, as most companies does not have music
streaming facility in platforms like Facebook and Twitter. Spotify has been criticized for their
absence of profitable strategy, which has left the investors and other stakeholder connected with
the company concerned for their total sustainability.
The present statistics show that paid services produce nearly three times of profits than
the commercials supported services. At present Spotify has only 1/4th of paid customers or the
users of Premium version. Apple has recently bought Beats Music, but it has a policy of free
services. So to maintain a business strategy of sustainability, Spotify have to takes steps to shift
their customers of the free version to users of Premium version, or search for other means of
earning profits to handle the paid customers of other companies.
Different services of Spotify also faces buffering of songs. Although it mainly occurs due
to slow internet services, the company has to improve this area. The company offers substitute
commercials to the users of Premium version, their function of free version faces similar
negative factors like the services of other companies. Spotify has no options for objectionable or
unwanted songs, and their users could customize their playlists, while the other companies of
music streaming have no possibilities of creating their playlists. They also have no buffering
issues, as they also have options for offline listening and their only issue in this area is slow
internet services.
Spotify is located in 78 nations and continuing to expand their operations in new nations.
The launch of smartphones at low price in various developing markets would give new
opportunities to access music at a reasonable price. This would help to raise the revenue of
mobile music all over the world by 1.5% in the year 2018 along with 21% in Nigeria, 10% in
Malaysia and 8.5% in China (Saebi and Foss, 2015). The growth of the company to new markets
would bring several legal and cultural problems, and Spotify have to deal it efficiently. The
expansion of new nations would bring more profits and could act as a test market for new
services.

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To further take advantage of their brand, Spotify can start to sponsor music concerts and
other events that might bring together all the public of the country. The Neilson report of the year
2013 has presented that music streamers are 50% more interested in spending on the tickets of
the event (Spieth, Schneckenberg and Matzler, 2016). The company has 40 million customers,
and they have the possibility to spend on event tickets. The company also the data to make sure
that they are targeting the right people. The hosting of music concerts and events could be
another means of generating revenue and will also help to connect more with offline customers.

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