Innovation Report: Analyzing Spotify's Business Model and Theories

This report provides a comprehensive analysis of Spotify's innovation strategies, focusing on disruptive innovation and the business model canvas. It begins with an introduction to innovation and its various theories, specifically highlighting the Disruptive Innovation theory and the Business Model Canvas. The report then delves into the application of these theories within Spotify, examining the company's background, historical development, and current business model, including network effects, freemium models, and subscription services. The report also evaluates the advantages and disadvantages of the theories. The study further explores the application of these theories in the context of Spotify's historical development, detailing key milestones and strategic decisions. Finally, the report considers the application of these innovation theories in the context of Spotify's future development, anticipating potential growth strategies and challenges. The report concludes with a summary of key findings and insights regarding Spotify's innovative approach to the music streaming market.

Managing Innovation

Table of Contents
Introduction......................................................................................................................................3
Spotify Innovation theory................................................................................................................3
Definitions, principals and process of the theory........................................................................3
Evaluation of theory (advantages and disadvantages)................................................................4
Application of Spotify innovation theory in the historical development context............................6
Company background ................................................................................................................6
Historical development ..............................................................................................................7
Application of Spotify Innovation theory in the future development context. ...............................8
Future development ....................................................................................................................8
Conclusion ....................................................................................................................................10
References .....................................................................................................................................11
Books and journals ...................................................................................................................11

Introduction
Innovation is the process of practically implementation of the ideas which an individual
have innovate. This innovation can be in products and services company is selling or offering to
the public. Innovation focus on the standards which have define new and creative ideas to gain
competitive advantage in the market. There are various types of innovation theories which are
being used by the organisations to take new steps in the company. In this report the two theories
which are taken are Disruptive innovation and Business model canvas (Dürr, Nisch, and
Rohlfing-Bastian, 2017). Disruptive innovation is the most important theory of innovation which
is being used by the company. Then business model canvas is the another theory which is being
used by company to design, describe and challenge the business model. In this report the
company which is taken is Spotify Technology as it is a Luxembourg based holding company
that owns the Spotify AB which is a Swedish audio streaming and media service provider. This
report covers Spotify innovation theories, application of these theories in historical development
and application of these theories sin future development context.
Spotify Innovation theory
Definitions, principals and process of the theory.
Disruptive innovation
It is the innovation which helps the company in transforming expensive products and
services into the high end so that it can be accessible to every customers and wider population. It
is not considers as a process of improving and enhancing products rather it is something which
involves technologies that are being used by company to make use of their products and services
to large group of people. This theory is important because it provides explanation of the large
companies get over to the smaller ones and then there is a innovation of this technology
(Fitzmaurice, 2018). As in case of Spotify Technology, it is owning Spotify AB. In some of the
case, small companies introduced new technologies which are being used by them to perform
better in the market and also this impacts in lowering of the prices of products and services. Over
the time, these new technologies have begin to improve the handle of more demanding use of
products and services.

Disruptive innovation is the technology that is being expensive and its products and
services are being accessible to large group of people. Most of the start-ups and aim is to be
disruptive and or to disrupt a specific industry. This theory generally says about how large
corporation were disrupted and how a small scale company can success its guarantee which is
being faced by the larger competitors. Due to this disruptive innovation most of the people jut
misrupt it (Most important Innovation Theories, 2021). The most important problem is that
disruptive innovation is a force and not considered as a tool.
Business canvas model
It is a tool or technique which is used for visionaries, game changers and challengers. It is
a strategic management template which is used for developing new business models and
documenting existing ones (Ingram, and et.al., 2020). It offers visual charts that contains
elements which describe company product value, infrastructure and customers etc. it is testing
out of the business model which is being used while developing innovations. The authors have
carried out that how the components and new offering will fit together to form a business model.
This innovation allows company to see what are the hurdles and issues that are coming in the
market. However, it can give a clear view of how an offerings can be like traditional business
cases. This model is used at the initial stages of any project when a company neds to look on the
full picture and how this business model will be fit together. Also, it will helps in knowing what
customer value proposition.
Evaluation of theory (advantages and disadvantages)
Disruptive innovation theory
Benefits
Disruptive innovation provide growth opportunity to the company and business and helps
in adopting new trends. It can benefits both customers and competitions by providing company
lower prices and more qualitative products and services. Disruptive innovation helps the small
enterprises in competing with large enterprises and corporate strategies. Also, in helps them in
growing in the market segment and results in increasing their profitability (Karlsson, and Björk,
2017). New innovations and ideas can be patented and protected as rational property. In many of
the case, large enterprises will offer low prices to the customers in order to gain competitive
advantage in the market. In addition, company can also be benefited by the ways in creating and
sustaining a system that looks for disruptive innovation. Employees and feedbacks of customers

can generate new ideas to the company and results in gaining competitive advantage in the
market. Employee could have ideas related to the technologies which will helps the company in
increasing their efficiencies and on the other hand customer will focus on the trends which
company is introducing in the market. For this companies has to make use of disruptive
innovations, engagement of the employees and future revenues stream. Customer safety and
privacy are the major concern which are being concern about the government of the country and
companies. In context of Spotify, they have introduced many of the schemes which helps the
customers in attracting towards their products and services (Kerstens, and et.al., 2019). This may
be providing varieties of song list, subscription of the model. And other discounts feature that are
provided by the company to the customers.
Disadvantage
The major disadvantage of this innovation theory is that its offering is already existing in
the market that can provide solution of the problems to the customers. It is considers to be the
most risky because in this success is not guarantee of the organisation. There can be many of the
hurdles and obstacles which are being coming at the time of innovation and this need to be
overcome from the innovations to be success.
Business model canvas
Benefits
There are certain benefits of business model canvas that it is more focused- most of the
company try to make different strategies that how they should get their products and services to
the consumer and to the target market. This can be completed by Business model canvas theory.
It helps the Spotify company in gaining competitive advantage of the company to launch and
introduce it profitable business not only through innovation of products but can also be designing
of the business correct manner (Liang, 2017). Then another benefits of Business model canvas is
that it is clear and concise- because it helps the company in documenting this start-up journey so
that it can easily identify how much company can grow. The business model is the blue print that
defines a business initial stage that includes business teams, partners and investors and
employees which are being involved in the business for long run. Another benefits which is
given by this theory is that it target customer needs and demands- sometimes the biggest reason
of failure of organisation is the failure of Market fit or product fit and not on the particular
product. But the company mainly focus on the awesomeness of the products. So, this business

model canvas helps the organisation in focusing on beyond their products. This provides the
information as what all products are resources are being necessary for the company to target
more customers and to satisfy their requirements. This theory also helps the company in reducing
their risk and failure. This model helps the start-ups in executing all steps and requirements of
the ideas which is innovated in the market. It connects with the value propositions, customer
segments and inputs which are being used by company to increase its sales.
Disadvantages
The major disadvantage of this model is that it does not accommodate businesses in
initial stage of development (Nagano, Stefanovitz, and Guimaraes, 2019). Then it can be risky
for the organisation to implement business model canvas theory into the business without having
clear way to verify them. It focus on the end shape of the company without defining the
strategies to get there.
Application of Spotify innovation theory in the historical development
context.
Company background
Spotify technology is the Luxembourg based holding company which owns the company
Spotify AB. This company is the Swedish audio streaming and media service provider to the
customers which includes various types of musics. This company was founded in the year 2006
by Daniel Ek. Spotify. It is operating currently in more than 17 countries in all over the world. It
is considers to be the one of the biggest music streaming service platform which are having more
than 345 millions people active on this application. Also, out of them there are 155 million
people who are paying for the subscription of this application. Spotify consist of digital
copyright of recorded music and podcast. It concluded more than 70 million songs in it
application from record labels and media companies.
Company is providing various innovations and facilities to the customers like freemium
service, basic characteristic like offline listening, (Petkova, 2018). Free with advertisements and
commercial free listening of the songs. These are being offered by the company via paid
subscriptions. Users and customers can search for the music of any type like genre, artist, album,
latest trending etc. and can create their playlist. Spotify uses business model and growth strategy

to support multinational expansion and attracting customers (Spotify’s Business Model, Generic
Strategy & Growth Strategies, 2021). In further, company generic strategy are directly based on
the business model. The model which are being used in the company are:
 Network effects business model: The network effects in Spotify business design is
noticeable in the value of raising company base. Network effects concern with the
positive effects which can benefit to the individual user, who can be artist or subscriber.
This network model increase the use of music streaming customer base, economics of
scale that is important to support Spotify generic strategy for gaining competitive
advantage.
 Freemium business model : This model is related with the revenue model as this defines
how Spotify company gains revenue from its users. There services offers in two types
these are advertisement supported by free tier and another is supported with premium tier.
Foe example- Spotify user can choose the songs which listens them to be free but with
advertisements (Saleem, 2017). But on the other hand, subscribers who has taken a
premium service has been enjoy music without advertisements. They can also enjoy
premium features and functions.
 Unlimited subscription business model : This consist of two factors which are
Unlimited access to the service and Subscription to Spotify premium service.
Historical development
At the time of October 2008, Spotify was introduced with providing variety of music and
subscribers with the advertisements. At that time, Spotify deals with various other brands like
Universal music group, Warner music group and Sony BMG. In 2009, company has expanded in
the other countries also like UK, France, Spain and Reached about 6 million songs in its lists. In
2012, company has reached over 20 million total active users and 5 million people as a premium
customers which are in all over the world (Spotify’s Business Model, Generic Strategy &
Growth Strategies, 2021.). They have launched their application on smartphones also. In 2015,
company has added more music and clips in its platform and offered many of the other services
to the customers. They have also introduced their webpage which is more vibrant and of creative
style. In about 2018, company became available in 13 markets. In addition, Spotify have

acquired music listening platform Loudr, The podcast network Gimlet Media and Anchor FM
Inc.
In recent times, Spotify is one of the music industry which provides variety of music to
the customers and its user. Now this industry is growing faster by providing various services to
the customers. They are offering 3 months freemium subscription to the users as family plan.
In context with disruptive innovation, this theory is used in the company by providing them
sustaining innovation and products becomes simpler. In this products become more affordable
and cheaper. As in Spotify, company is offering freemium subscription to the user as in t5his
user can download the music free and there is unlimited skips. Then in case of premium
subscription, user can play any songs and there is no interruptions of advertisements in between
listening songs (.Satyarini, 2017). Then in Business model canvas, Spotify make money by
introducing new and premium accounts and Advertising. As by having premium subscriptions,
user can able to listen music without disturbing with advertisements. The business model canvas
explains various aspects like customer segments, key partners, cost structure, resources and
revenue stream and channels.
Application of Spotify Innovation theory in the future development context.
Future development
Spotify is already a music streaming company which consist of various types of music
and entertain customers towards their brand. There is one of the biggest company which are
creating new introduction in its services to enhance customers towards their products and
services. To increase its company and customer base, company can introduced new innovation
which is called Premium Mini. As by this users should not have to pay more amount or it does
not have to take full subscription. This can be revised daily and weekly plans which helps the
customers in purchasing its more reduced prices. Now in this Mini Premium plan, customer
should have to pay $7 for one day plan and for weekly they have to pay $25. previously
company is charging $13 on daily basis and for weekly it cost $39. In this plan customer did not
have to pays more and they did not have to spend more (Simmers, and McMURRAY, 2019). In
this Mini Premium plan, company can target more customers and increase their centromere base.
This idea of Premium Mini subscription can be related to disruptive innovations as in this
company will innovate new subscription plan for the customers. And they are offering their

products and services at lower prices. As disruptive innovation is the innovation which creates
new market and results in interrupting existing market. As in this innovation company is trying
to innovate new technology in the market which can enhanced customers towards their brand.
This results in increasing of company profits and revenues. Company is using this theory of
innovation in order to reach to more customers. In this company offers various packages of
conception which are valued in emerging markets. Company is focusing on altering the customer
about the data breach. Company says that they protect with the personal information and taking
steps towards them. Company is focusing on contacting with all business partners and that have
any private information and personal information about the customers.
The business canvas model explains the various aspects of business models. These are
customer segments, relations, cost structure, key resources and partners and channels etc. In this
premium mini subscription, Spotify will target the audience which do not like to pay for services
more. They target to those people who are a music lover and people studying. Then the value
propositions is that what dies company have in its store- it so practically providing music at low
cost and huge variety of songs which can provide personal experience to the user (Zhang, and
et.al., 2021). They provide playlist in which user can select a song and put it in that playlist
which they can list anytime and anywhere. Then how Spotify reach to its target audience. It can
be through various channels these are website of the company which is Spotify.com. Then next
is can play on television, also it can be connect to one system to another and also it provides
Spotify family plan which is used by the customers. Then customer relationship can be through
streaming online and offline. This is user friendly and HD sound is also played by the speakers.
The revenue stream for this company, as in this company is providing Premium mini
subscription from which company will be able to manage its revenue and increase its customers
base. Another source of revenue for the company is advertisers who pay amount to host their
advertisements in between. Key resources are there are about 1600 employees working in a
company currently. It is having huge collection of music and 50 million paying subscribers. By
having this innovation, the target of a company is to increase it with 80 millions.

Conclusion
From the above report it is concluded that Spotify is the largest company which creates
many innovation in their technologies in order to gain competitive advantage and attracting them
towards their products and services. Sometimes they offers many of the discounts to the people
at the time of subscription which can be used by customers when they become a VIP member of
the application. Company is using disruptive and Business model canvas theory in there project.
These theory have benefits and disbenefits both when they applied in the company. There are
various application and Business model canvas which are being used in the company. Some the
model which Spotify company is using is Network model, Freemium model, Premium model.
These are the certain model which are being used in the company to attract customers and
increase their customers base. Then company has developed over the years in effective manner.
For the future innovation company is focusing on the Premium Mini subscription which is being
used by company to increase its customer base.

References
Books and journals
Dürr, O.M., Nisch, M. and Rohlfing-Bastian, A., 2017, May. Incentive Provision and Optimal
Team Size for Managing Innovation. AAA.
Fitzmaurice, L.C., 2018, June. Managing Innovation at the Source: Investing in Basic Research.
In ISPIM Innovation Symposium (pp. 1-11). The International Society for Professional
Innovation Management (ISPIM).
Ingram, J and et.al., 2020. How do we enact co-innovation with stakeholders in agricultural
research projects? Managing the complex interplay between contextual and facilitation
processes. Journal of Rural Studies, 78, pp.65-77.
Karlsson, A. and Björk, J., 2017. Establishing and managing a network for continuous
innovation: Invoking organizational pressure. Creativity and Innovation Management,
26(2), pp.128-141.
Kerstens, N and et.al., 2019. Bringing space technology and applications to the energy sector:
Managing innovation across boundaries. In 70th International Astronautical Congress,
IAC 2019 (pp. IAC-19_D5
Liang, L., 2017. Managing innovation networks: a case of information system transformation in
Chinese hospitals (Doctoral dissertation, Kingston University).
Nagano, M.S., Stefanovitz, J.P. and Guimaraes, T., 2019. Assessing some important factors to
reduce obstacles in product innovation. In Managing Innovation: What Do We Know
About Innovation Success Factors? (pp. 303-331).
Petkova, I., 2018. Fashion Companies: Organizational Responses to Managing Innovation in E-
Commerce Practice. In Engineering Legitimacy (pp. 49-84). Palgrave Macmillan,
Cham.
Saleem, F., 2017. Decision support framework for managing innovation portfolios.
Satyarini, R., 2017. Managing Innovation Capability and Innovation Performance in Moslem
Fashion Industry Bandung.
Simmers, C.A. and McMURRAY, A.J., 2019. Organisational justice and managing workplace
innovation: How important are formal procedures?. International Journal of Innovation
Management, 23(03), p.1950026.
Zhang, S.K and et.al., 2021. The ambidextrous patterns for managing technological and
marketing innovation. Industrial Marketing Management, 92, pp.34-44.
Online
Most important Innovation Theories, 2021. Available through
<https://www.ideatovalue.com/inno/nickskillicorn/2017/07/15-most-important-
innovation-theories-your-company-should-be-using/>
Spotify’s Business Model, Generic Strategy & Growth Strategies, 2021. Available through
<https://www.rancord.org/spotify-business-model-generic-competitive-strategy-
intensive-growth-strategies>