Innovation Strategies: Analyzing Spotify's Disruptive Innovation Model

This report examines Spotify's application of the Disruptive Innovation Theory. It begins with an introduction to innovation and innovation management, followed by a detailed explanation of the Disruptive Innovation Theory, including its core concepts and benefits. The report then analyzes Spotify's historical development through the lens of this theory, providing a company overview, vision, mission, and a business canvas model. Finally, it explores the theory's application in both the historical and future development contexts of Spotify, evaluating its strategic implications and potential for continued success in the audio streaming market. The report concludes with a summary of key findings and implications for innovation management within the context of a rapidly evolving digital landscape.

Managing Innovation

Table of Contents
INTRODUCTION ..........................................................................................................................3
MAIN BODY...................................................................................................................................3
Disruptive Innovation Theory.....................................................................................................3
Application of the Disruptive Innovation Theory in the historical development
context........................................................................................................................................7
Application of the Disruptive Innovation Theory in the future development context..............10
CONCLUSION .............................................................................................................................12
REFERENCES..............................................................................................................................13

INTRODUCTION
Innovation is the new business, that means creativity brings in new concepts, products for
people and fresh opportunities in the market place. Innovation is the idea of developing
something fresh that can substitute existing goods with higher efficiency or adds new value to
customer satisfaction and need fulfilment by providing a fresh product (Szutowski, Szulczewska-
Remi and Ratajczak, 2019). Innovation management is a systematic procedure that includes
promotion of the new developed ideas in organisation and in external environment for higher
level of recognition and promotion of the idea in the market. The presented report is developed
on Spotify a Swedish audio streaming and media service provider which was founded in 2008
and headquartered in Stockholm, Sweden. The organisation was developed with the purpose of
rendering a unique and best quality platform to user to stream their interest of music, podcasts
and several other audio media. The assessment includes a thorough discussion on the Disruptive
Innovation Theory for understanding its concept and associated benefits as well as limitations to
the firm. Moreover, the theory is applied on historical development and future development
context of Spotify.
MAIN BODY
Disruptive Innovation Theory
Disruptive Innovation Theory is basically a process of bringing the product in market
and establishing its presence. Disruptive innovation is a buzzword that describes the concerns for
existing company's or businesses in market causing due to new entrant. In recent years of
business trend is changing and leading to innovation and creativity which have given birth to
several new start-up's that enters or emerges in market with a primal goal of changing the
respective industry by offering a new and better substitute for existing goods or by addressing an
unattended need of the social groups.
Therefore, Disruptive Innovation Theory revolves around the concept of how businesses
either existing or new entrants can form an alliance for understanding the presented fresh
opportunities and threats for spotting out their potentials and how can they become more and
more value adding to customer needs and goal achievements. The Disruptive Innovation Theory
is defines as a process of initially introducing the product and service in market in lower cost and
offering higher level of accessibility to the potential buyers and general public. Once the product

is established in the market place it moves up gradually by displacing the position of competitors
and similar or substitutive products or service offering rivals.
According to the process of Disruptive Innovation Theory there are four key concepts
which are most commonly used by individuals for effective application of theory in business
organisational context. The process and related steps are as follows:
 In present business environment innovation is trendy and one basic tool which leads
businesses to change and grab presented opportunities. Thus, organisations develop,
innovate and upgrade their products and services in regards to address market demands
and gain portability. The companies ignore the preferences and needs of the downmarket
customers (Ottosson, 2019).
 The new business entrants most commonly start-up's focus on those downmarket social
groups and their needs by making them their target market segment and gain traction by
addressing their needs in lower cost as compared to before and in more effectual
manners.
 The companies already existing and being focused on highly profitable customer base
and audiences ignore the new entrant and do not consider them as a competitor.
 Then the entrant which made use of Disruptive Innovation Theory gradually moves
upward in their respective industry by offering better solutions to other segments and
social groups which includes the high profitable customers as well.
 Once the market is attracted and presence is made the new entrant becomes the disruptor
causing disruption for the Incumbents and becoming their potential competitor for longer
period which leads to change of attitudes and firms core competencies by innovation and
development or maintaining the competitive edge.
In context of the theory the Disruptive Innovation when applied is not a attempt made for
bringing better goods and services in market on the contrary it is placed for disruption and
redefining the mechanical phenomenon of the business and the industry by building offerings
which are of lower value in comparison to the already present in the market and offer them in
lower cost and becomes more and more accessible to the customer that is the lower market
segment (Leminen, Nyström and Westerlund, 2019). The theory also has attached four key
aspects with it that are addressed as relevant tips for the innovation notions. These are elaborated
underneath:

 Not all innovation are Disruption- According to experts the exact mean of the word
“Disruption” is interpreting the theory in different manner and in regards to which any
thing which is new and successful will be addressed as disruption. But in business and
industrial context Disruptive Innovation Theory is applicable when the Incumbent
company concentrates its focus on a single particular segment for pleasing them and
misjudge the needs, preferences and desires of other sectors of social groups. This leads
to an opportunity being created for fresh developers like start-up's and small businesses
(Alexander and Joe, 2019).
 Disruption can be low ended or new market- The theory has two aspects of disruptions
which are used by new entrants to enter and establish their presence. The first is low end
disruption, where the business enters the market at the bottom level and serves customers
offering ample of satisfaction by addressing their needs. These the lower profit markets
and social groups who's needs are ignored by the incumbent and they express their
concerns for fulfilling the needs of segments with greater profit margins. The second one
is New market disruption is where businesses keep their focus to compete against non
consumption in low profit margin sectors of the social environment. The goods and
services which are offered are good enough to keep the customers happy and in lowest
prices. Both of the disruption types are different as one concentrates on over served
customers and the other concentrates on under served customers.
 Disruption innovation is process, Rather than a product or a service- The Disruptive
Innovation Theory is based on and defined as a process. The theory is applicable in
implementation and entering stage of a fresh company in the market rather than on the
products and services. The innovation aspects is more concerned and emphasised on the
process of entering and capturing the market being innovative and creative rather than
developing an entirely new offering.
 Chose your battles wisely- New entrants as mentioned are not all of them are disruptive
but the incumbent have to be very attentive and keep on looking for emerging businesses
of different form (Gasparin and et. al., 2020). Thus, the existing business organisation
have to be critical for understanding and knowing the influence and impacts of fresh
businesses being entering in the market and need to make wise decisions by
understanding the actual impacts of disruptions taking place, are they going to affect or

going to bring in better opportunities in the market place with higher benefits being
offered to industry and respective business owners.
BENEFITS OF DISRUPTIVE INNOVATION THEORY:
 One basic and most significant advantage of Disruptive Innovation Theory is the benefits
it will deliver is of new opportunities and growth options to the whole industry. The
industrial development and enhancement will be highly influential for population as
needs of customers are being successfully addressed. Also, the benefit will be established
for the industry so the competitor is encouraged too having better growth opportunity and
more critical perspective for serving customers will be developed (Hofer and et. al.,
2020).
 The Disruptive Innovation Theory, also proves to be advantageous to be undertaken as it
offers long term vision to new entrant or the start-up's. Along with it, the far sightedness
enables users or practitioners to become competitive even enough to fight and compete
with the large corporates who are bigger in size, scope and other related aspects.
LIMITATIONS OF DISRUPTIVE INNOVATION THEORY:
 The major limitations or disadvantage attached with disruption innovation theory is it
requires a unique process to be developed for building a effective and strong strategy.
Along with the it the procedure established and determined have to be majorly focused on
those opportunities and problems of social groups which are unanticipated and can
effectively lead the way of the firm towards success and development.
 The phenomenon of Disruptive Innovation Theory is more specifically concentrated on
the far ahead ideas, needs and development of products or services by understanding real
far away needs of population. The disadvantage involved with using Disruptive
Innovation Theory is the results that is profitability will be offered of such practices to
the new entrant in future for which the business owners will be needing ample amount of
money, resources, motivation and patience (Havins, 2020).
 Lack of financial support is another disadvantage attached to the phenomenon of
Disruptive Innovation Theory. The process of Disruption innovation is slow and futuristic
as its nature is defined. Thus, with this concept goals determined in the beginning will be
fulfilled slowly and steadily. But the finance houses from which these new emerging
business owners collect money for their operations are inpatient and expects earlier

returns for their investment. Thus, the business model developed with Disruptive
Innovation Theory leads to long term returns and new start-up's needs huge cash for it
which is a disadvantage.
Application of the Disruptive Innovation Theory in the historical development
context
COMPANY OVERVIEW:
Spotify is a Swedish brand which operates in market offering a transformed platform for
music lovers by changing the music listening concept entirely with its launch in 2008. the
company developed an application for users in which they can discover, manage and share over
50 million tracks and music audio for free (Erdogan, Rondi and De Massis, 2020). The Spotify
application has premium membership for those who wishes to enjoy uninterrupted music and
other related benefits of the premium membership. Spotify is a leading brand in the industry
today in audio streaming field and service provider. It has around 299 million of subscribers
form which 46% of subscribers belongs to various markets around the globe.
VISION:
The vision statement of Spotify is developed on its objectives, the statement states that
the company is aiming to provide a common platform to all cultures and people of societies for
reducing the borders and making them experience all artistic work and empathize with one
another.
MISSION:
The mission statement of Soptify is highly concentrated on transforming the goals and
aims determined into reality and direct the organisation towards achievements of all respective
objectives with taking up broader perspectives and notions (Hilbolling and et. al., 2020).
BUSINESS CANVAS MODEL:
Key Partners:
 Record
Labels
 Rights
holders
 Independe
Key Activities:
 Platform
developm
ent and
maintenan
ce
Value
Proposition:
 free music
streaming
service
(with ads)
Customer
Relationships:
 streaming
on
demand
 micro
Customer
Segments:
 free users
 people
who love
music

nt artists
 third party
integration
 internet
service
provider
 cloud
providers
 acquisitio
n
 online
web
 desk and
mobile
applicatio
n
 Product
roadmap
 Music
Library
manageme
nt
 content
acquisitio
n
 marketing
 legal
 contract
negotiatio
ns
 access
(Anywher
e,
Anytime
and Any
device)
 Spotify
providers
access to
over 30
million
songs
 personalis
ations
 Discover
weekly
playlist
 effective
advertise
ment
platform
segmentati
on
 automated
 enhanced
sound
quality up
to a
320kbps
bitrate
 online
 on
demand
 communit
y
 co-
creation
 fans
 students
 advertisers
 developers
Key Resources:
 1,600+
employees
 brand
 talent
 innovation
 contracts
 company
culture
 big data
Channels:
 spotify.co
m
 web-app
 Desktop
app
 App store
 Google
Play
 Apps
available

 playlists
 long tail
music
catalog
 active
customers
or users
for
Microsoft
Windows
 IOS
 Android
 entertainm
ent
systems
 TV's
 cars
 smart
watches
and other
digital
platforms
Cost Structure:
 Royalties of number of artists
 offices
 Bandwidth
 Salaries
 Licensing fees
 copyrights
 IT Operations
 Product Roadmap
 Legal fee
Revenue Streams:
 Spotify operates under freemium model
that is basic services offered by the
brand are free but additional services
are paid via paid subscriptions of
premium accounts.
HISTORICAL DEVELOPMENT OF SPOTIFY:
Spotify is the name of the organisation which developed a music application offering
common ground or a platform for music lovers and explorers to enjoy best music around the
world by all cultures the users wishes to listen. Spotify follows Freemium model of business in

which the company offers uses full accessibility to all kind of music, podcasts and other products
of audio industry. In case for enjoying other benefits the membership is offered of premium
where the music or any audio will be available to users without any advertisements and breaks
(Lütjen and et. al., 2019).
The Disruptive Innovation Theory fits the purpose, functioning and development of
Spotify. In present time the application renders all music to uses without any breakages and
advertisement with premium membership. But those who wish to enjoy music free of cost, they
have the accessibility too with some less features like advertisements will be played in between.
The Disruptive Innovation Theory is applied as first the company identified the needs of people
which were unaddressed that is of enjoying free music of all cultures.
Then Spotify developed the application rendering a common ground to all here the
competitor like Apple music is incumbent kept their focus maintained on high profitability
market by only providing music through application to subscribers. Spotify changed the
dynamics of market by entering into business with full accessibility to all without any cost to be
paid (Stubbs, 2019). Thus, The Disruptive Innovation strategy was is developed and used by the
brand for establishing its presence in market and now have captured around 92 market places of
the world. Today, Spotify is known as the world's leading organisation in audio music industry
as it has around 30 million users attached with the company who uses Spotify as solution to their
cravings for music.
Application of the Disruptive Innovation Theory in the future development context
The Disruptive Innovation Theory is a process which encompasses various steps that
enable the companies or the applicant to reach to a specified and value adding solution to enter
the market, build their presence and make best use of their marketed research for engaging in the
competition with their unique selling points and sectors. In context to future development and
innovation with the offering of Spotify the company is enlarging its work areas form music to
other audio related services.
Presently, market trend of audio industry is gathering their focus on new segment of
customers that is book readers and other related shows through podcasts (Gurca and et. al.,
2020). This is a episodic series of spoken words and digital audio for users which can be
downloaded through internet and can be listened as many times as the user wishes to and
whenever they wish to. Spotify identified the unaddressed need of market segment of book

readers and others who wishes to explore other cultural aspects other than music, like who enjoy
listening to different news, books, stories and many other entertaining materials like stand-up
comedy.
These podcasts are available to all users around the world like music with no cost or any
subscriptions but will be having advertisements in between the episodes of the series, books and
entertaining materials. The premium members of Spotify can enjoy their music and podcasts
without any interruptions and can even create their own content and upload on the application.
Here, the Disruptive Innovation Theory is applied and Spotify became the first music streaming
application which started streaming podcasts on their platform. The market segment that will be
attracted here is very small and unprofitable but with marketing and effective promotions
company established its presence and now being collecting the customer base through its (He
and et. al., 2019).
Several content providers around the globe is being engaging in the podcast business, the
benefit is provide to the whole audio industry where a new market segment is targeted of those
with lack of time and wishes to be entertained in little time they can spare. Another, benefit of
podcast service being introduced to the application is in increasing number of subscribers. Now
the customer portfolio of the brand have been increased people who enjoy, music, stories, books,
stand up comedy and other audio of entertainments are subscribing the channel for advertisement
free enjoyment of their preferred content.
The Disruptive Innovation Theory is also enabling the company to expand their podcast
portfolio as now new podcasts of several discoveries, news and even for kids is being
established. This opportunity is for growth and development created with the premium feature of
the application where now even general public can also post their content online on the
application that is their podcasts online by following all guidelines and ethical regulations issued
by the company. This plan will be bringing new subscribers, content of entertainment and larger
customer base towards the brand. The Disruptive Innovation Theory enabled the organisation a
unique and extraordinary power to develop, expand and most importantly gather higher customer
base (Huang and et. al., 2020).
CONCLUSION
The above report concludes the needs and efficiency innovation and creativity offers to
the businesses, new entrants and most significantly to the industry. The report was established

on managing innovation where the Disruptive Innovation Theory was discussed in thorough
manner and applied to the historical and futuristic ideas of the company for extracting maximum
benefits of it. The Disruptive Innovation Theory is a process which identifies and creates a new
strategy for entering the market strategically and with initially aiming at developing its presence
in the competitive market place. The theory opens the door of innovation and development with
offering numerous growth options and expansions possibilities.

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