Innovation Theory and Spotify: A Business Development Report

This report delves into the application of the diffusion of innovation theory within the context of Spotify, a prominent audio streaming service. It begins with an introduction to the concept of innovation and the diffusion of innovation theory, emphasizing the importance of understanding adopter categories and their characteristics. The main body explores the theory in detail, including its principles, benefits, and limitations. It then examines the application of the theory in Spotify's historical development, focusing on its freemium business model and the stages of product development, from introduction to market growth. The report also analyzes Spotify's business canvas model, highlighting key aspects such as customer segments, value propositions, revenue streams, and key activities. Finally, it provides recommendations for potential future pathways for Spotify based on the insights gained from the analysis, concluding with a synthesis of the key findings and their implications for business development and innovation strategy. The report aims to provide a comprehensive understanding of how innovation theory can be applied to real-world business scenarios, using Spotify as a case study.

MANAGING INNOVATION

Table of Contents
INTRODUCTION ..........................................................................................................................3
MAIN BODY...................................................................................................................................3
Innovation theory.........................................................................................................................3
Application of the theory in historical development ...................................................................6
Recommending possible development future pathways .............................................................8
CONCLUSION .............................................................................................................................10
REFERENCES..............................................................................................................................11

INTRODUCTION
Innovation refers to any new idea, thought, product, processes or introducing something
new. It gives stress over the differences between invention and innovation. Innovation is always
one step forward with invention. Innovation acts in a such a way to give positive outcome (Cirus
and Simonova, 2020). Diffusion of innovation theory is one of the oldest theory suggested by
E.M. Rogers. It focuses on how to spread or communicate ideas among group of peoples.
Individual does not adopt the new ideas or innovations at the same time instead it takes time to
start using the new idea. Individuals will adopt new idea or innovation only when human
interaction will take place through interpersonal networks. The diffusion of innovation theory
focuses on centring the conditions that increase or decrease the adoption of new idea, innovation
or product. This report is in context of what innovation theories are used by Spotify, that can be
adopted by potential adopters. It contains process, principles, benefits, limitations along with
historical and future development of the diffusion of innovation theory.
MAIN BODY
Innovation theory
Diffusion of Innovation theory
The diffusion of innovation theory suggests or aims to spread the new idea, thought,
product or process among group of people or population or social system. The word diffusion in
theory depicts how the innovation is communicated via different channels among the population.
Innovation is any new idea, product, or practice adopted by the company. This theory is
suggested for the communication of details related to the product that how any product get its
momentum and then suddenly diffuses through specific channels to population or social system
(Farmer and et.al., 2018). The result of this is that people start adopting new idea, product,
process rather than focusing on the old one or previously used. Generally individuals does not

adopt the new ideas or innovation easily and the individuals who adopt idea at early stage have
different characteristics. While spreading the information related to the innovation or idea, it is
necessary to know the characteristics of the target population.
The five adopter categories of the theory are as follows:
Innovators- Innovators are the individuals who use or tries the innovation for the first time, or
they are the people who want to be the first for trying the innovation. These people are
adventurous and always willing to take risk, they try new ideas and from them develops new
ideas or thoughts. The innovators have features like they are adventurous, venturesome, willing
to take risks, daring (Kahn, 2018). Very little strategy is required to appeal this category of
people. They play an important role in the introduction of innovation and are very quick to
accept the ideas, thoughts and innovations.
Early adopters- The early adopters are represented as a leader. They always know that there is
need to change the idea and are very much comfortable in adopting the new ideas. The early
adopters do not require any information or convincing factor which convinces them to change.
The strategies used to appeal this population is done by providing them manuals and information
sheets. They are the most respected individual in the whole system which advices information
about the innovation to others.
Early Majority- This category includes individuals who adopt new idea before the average
person adopts. They require various evidences in relation with the innovation, if it is working or
not before adopting the new idea. The strategies to appeal this group of individual is to provide
them with success stories and evidences. They act as a link between very early adopters and late
adopters.
Late Majority- This category involves individuals who are doubtful in adopting the new idea.
They adopt the new idea only when the majority of people have used or started working on it.
Strategies to appeal this group of individual is to provide information of the people who have
used the idea or innovation and adopted it successfully (QaziRaza and Shah, 2018). They
adopt innovation just in peer pressure and not by motivation of adoption.
Laggards- This category involves people who are conservative and follows tradition strictly.
They are very doubtful and fearful of change. They are hard to convince to adopt the innovation.
The strategies to convince or appeal these type of individuals is to give fear appeals and pressure

from people. These are the five adopter categories in which major of the population generally
lied in the middle category.
Application of diffusion for innovation theory:
When applying the diffusion for innovation theory, the most important part is to understand the
adopters and their final decisions in relation with the products to purchase. There are basically
three types of innovation decisions namely optional innovation decisions, collective innovation
decisions, authority innovation decisions.
Optional innovation decisions- In this type of decisions, individuals make their own decisions
regarding the innovation.
Collective innovation decisions- in this type of decisions, majority of individuals make collective
decision in relation with innovation.
Authority innovation decisions- in this type of decisions, very few individuals take decisions for
the entire population or social system.
Process of diffusion for innovation theory:
Knowledge- It is the first step in diffusion for innovation theory. It is the step in the which the
future adopters are exposed to the innovation. These adopters don't have much knowledge in
relation with innovation to make purchase decisions. This is the stage where marketer increases
awareness for the product and information is to be provided to the prospective adopter.
Persuasion- It is the step in which adopter has some idea to purchase the product. They find the
information which help in taking eventual decision for the purchase of product.
At this step, the marketers convey the benefits and details of the product. Marketer must be in the
position to market their products and put some conscious efforts for the diffusion of innovation.
Decision- In this step the adopters are at the stage of taking decisions, they will evaluate the pros
and cons in relation with innovation and will either accept or reject the innovation.
Most of the people does not make rational decisions, and there decisions are based on feelings
and emotions. This is the most challenging system in the whole process.
Implementation- This is the step where the decision related to adopt the product has been made.
In this stage, the adopter will make a decision that if product is useful for them or not.
Individuals will try to understand about the product and will get more and more details. This is

the most interesting step of the process, as marketer will get an environment before its products
is sell.
Confirmation- This is the final step where adopters decide to keep using the product or will
change it or abandon the use. This step has only two essential points that whether the adopter
will abandon the product or continue using it. This phase is generally based on personal and
social examination of the product. The adopters will take information from their friends,
colleagues, peers, etc.
Evaluation of the diffusion for innovation theory.
Benefits of the theory:
Explains the rate: The theory helps in finding the rate at which adopter or consumers will
purchase a product or service, which is one of the most important thing for the marketer. By
knowing the rate, the marketer will able to evaluate about their sales and margins. With the help
of this the occurring trends in the market can be understood (Lien and Jang, 2017). It also
helps in explaining the rate at which the products, services, processes are spread to the
population.
Help in predicting the customers- This theory helps in understanding the customers or adopters,
what they will prefer or what they are planning to purchase and then the marketer can make
effective marketing strategies.
Limitations of the theory:
The major limitation is that the consumers are not risk takers, so it is a disadvantage for the
companies who are in the mood to launch innovations or ideas. There are high chances of
failures for the companies bringing new ideas to the market. There is no guarantee of success.
The companies launching innovations, most of the time does not take culture into consideration,
which is also one the limitation.
The data suggest that there are more number of early and late majorities and much more
laggards. Consumers are not risk takers, they fear from the change.
Mainly the diffusion for innovation theory works much better when adoption of behaviours
system is followed and not when the prevention of behaviours takes place.
There is an implementation in the theory that the innovating products or services is a positive
aspect and if the innovation receives failure, then it is the negative aspect. This is one of the
limitation of innovation bias.

This theory blames the individuals who did not adopt the innovation is because of their lack of
responses and not accept their fault in the innovation or new idea.
Application of the theory in historical development
There are various things which accounts with historical development of services of the
company which is being in consideration with diffusion theory
Spotify is the the Swedish audio streaming and media service provider which is being
launched in the year 2008 and which is being operated as company which is being publicly
traded all across.
The company accounts to freemium business model which accounts with the basic
services of the company are being free where the additional features are being offered via
subscriptions that are being paid where by Spotify generates revenues by selling streaming
subscription that are premium to users and advertising placement to third parties.
The business canvas model is the strategic management and lean template for
developing documenting and existing business models, which highlights the segments of the
customers that provides with highest revenues, value proposition of the services of the company,
it accounts to highlighting top revenue streams for Spotify, channels of communicating with the
customers, accounting with maintaining relationship with the customers, various key activities of
the company which is being run day to day by company, key resources such as people, means
and knowledge and money which is being needed by the company to run its business. Key
partners without which business can not be able to run which does not include suppliers and
lastly identifying the cost structure by looking at resources and activities of company (Joyce,
Paquin, 2016)
The historical development of the products and services accounted with earlier the
songs were being listen on radio and various traditional methods but now it is being developed
that services of the company are just away from the one click where the historical development
of the product accounts with development stage which is the first part and which is not
accounting build the services and product but accounts with researching and testing whether it
will work or not which leads to diffusion of innovation or not in social system of the economy or
not which accounts with market research and competitors analysis which accounts to get ideas
for the growth of the services of the company

it accounts with introduction where the services were initially promoted where the
awareness about the services were being spread where if audience not knowing will not account
to use the same and buy the services whereby effective promotion can account with spreading of
innovation in marketplace whereby it can account to use of skimming strategy where prices are
being set high and then gradually lower down which accounts if there are few competitors and
also accounted with penetration strategy which accounts that company in its initial stage charged
low prices to attract large customer for Spotify (Lartey,2019).
The historical development also accounts with market growth where the market share of
the services starts to grow where the company has accounted to spend large amount of money in
advertising campaign to various target audiences which is being through promotion on various
media platforms which helps the business of the company to grow and people adopting to new
things to listen to music where by the diffusion of innovation accounts at various stages.
The next relates with the maturity where by the company accounts to have boost up of
sales and market share starts to get stabilise. It accounts that company was offering
differentiating services as compared to its competitors where the company accounts with
innovating and adding to new features in services which helps the company to stay competitive
in the marketplace (Woo,2016).
The last accounts with if the company not focuses on its strategies than its historical
development may lead to decline stage where the sales of the company starts to get decline
where the innovative products are being created by the competitors which can serve as the
means of loosing the market share. Where lastly it suggest that ideally between decline and
maturity stage it accounts restarting the service development cycle to accounts to success of the
company and diffusing of innovation in the company
Recommending possible development future pathways
There are various things which can be accounted on the end of various improvement in
technology which could relates with the continuous updating of technology which would
account to getting valuable insights on the end of company that helps in catering and serving the
needs and wants of its target customers in a manner which is being highly beneficial for the
company in terms of getting high profit margin in the company and boosting up of sales revenue.
This will helps the company with the company with reduction in wastage of time and helps in
effective and efficient allocation of resource of its product and services and accounts with the

company to creative ideas which helps in diffusion of innovation in the manner which is being
highly suitable for the society at the large. With the continuous innovation in the technology it
will account the company to get the edge over its competition (Mull, 2020).
The company can also accounts with the diffusion of innovation through bringing and
generating awareness through social media platforms which accounts with company
promotional and marketing efforts to make the services of the company reach towards the end
customers more prominently. This will helps the company with the mass reach which is being
highly cost effective and time saving which helps the company innovation to get spread and
diffuse in the social system of the company. It helps in getting information that how many
customers are being responding and in what manner where the company can account to take
corrective actions which helps the company to account to its innovation and fostering the growth
of the company (Leitner, Warnke, Rhomberg, 2016).
The company can do this by not hiding information from the public and accounting to
provide corrective information on various platforms which will assist the spread of innovation
among the society and adapting to the same in a manner which is being beneficial for all as it
accounts with leading with the understanding that company operations are not on the grounds to
cheat and disregards the public as a result helps the company to build and account to positive
brand image and goodwill in the marketplace.
It needs to account with hiring and selecting qualified professionals who know how the
businesses are being run which accounts to understanding various things in the marketplace and
accounts meeting the same in order to achieve the business target which accounts with the
application of diffusion theory and which helps in assisting business with minimum flaws and
errors and it also accounts with training the existing ones which help in bringing more efficiency
and accounts with effective leadership and team work which helps in ideas which invites and
spread of ideas of innovation that accounts with the diffusion (Daim,2016).
For the application of future development it is being recommended that company should
account with strategic partnership with various companies that account with handling and with
the ease of operation which will helps the company to undertake various challenging tasks and
activities that support business dynamics as a result helps in effective merging, distribution and
utilisation of resources which will help the company to achieve the targets as a result leads with
the formulation of strategy that accelerate and foster the growth of the company and helps with

coming up with the innovative solutions to support decision making and problems which comes
in its way.
It could also be by the ways where the company can opt out for offering free premium
services in order to capture large customer base which as a result will account to diffusion of
innovation in the company and will account to customers building more loyalty and trust towards
the company as a result helps the company to retain its potential customer and accounts to make
and experiencing the innovation which the company is in regards with the diffusion and serve as
the techniques for the same as a result account to spread of innovation
The company can accounts with organising contest that helps in identifying customers
who are being loyal to the company and accounts with the building favourable image of the
company.
CONCLUSION
From the above report it is being understood that innovation is vital for the company and
plays a very important role in meeting up various challenging tasks and supporting various
business dynamics. It is being understood that innovation in products and services helps to attract
the large number of potential customer and dose not account to loosing the same inn terms of its
competitors who can weakened the company position. It has laid to the understanding of
definition, process and principals of innovation theory where by it has also accounted with its
advantages and disadvantages. It has accounted with the application of theory of diffusion in the
context of historical development which accounts with how services and products of the
company developed and evolved. It has also accounted with the innovation theory in context of
future development which accounts to managing the future plans and creative ideas which assist
the theory of diffusion.

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