Hatching a billion dollar startup – advice from Spotify » SMEInsider

Hatching a billion dollar startup – advice from Spotify

Spotify has come a long way since 2006, when founder Daniel Ek started to confront major record labels with a problem – piracy. At that point, 95 per cent of music of all music was pirated, said Adam Williams, UK and Benelux managing director for Spotify, at StrategyEye’s How to Hatch a Billion-Dollar Startup event at Wayra UK last week.

Understandably, music industry bigwigs were threatened by a solution that would completely change the existing business model. But Ek and his team persisted.

In 2014, with ten million paying subscribers, forty million active users, and twenty million licensed tracks available to stream, Spotify can offer some useful advice to aspiring startups hoping to make their own mark.

1. Identify a problem – and create a ballsy solution.

“Spotify started because Dan saw a problem in the market,” said Williams. Artists weren’t being paid for their work. Arguably, some could afford it – but some couldn’t. Controversially, Ek’s solution was to keep giving their songs away for free.

“He developed the technology and took it to the boards of all the big major labels,” Williams added. “He goes in and says ‘Hello, I’m Dan, I have nothing to do with music normally…’”

“You can imagine that the labels at the time probably thought he was a lunatic. But the tech was so good that actually in the end people began to test it. It started to work – and here we are.”

2. Focus on the consumer experience.

Throughout their journey, Williams said, Spotify has had a single vision, focusing on their product and user experience.

“If you have a look at what Facebook has done,” he said “it’s all about the consumer. It wasn’t about making money, but about making the consumer experience better. At Spotify that’s what we’ve always done from the very start. Anytime we make any changes it is always about how we can do more – how we can enrich the user experience. From the product, the customer service, the marketing and events that we do – we have the same focus.”

That focus has been pretty specific. Spotify’s number is 0.3 – a song must be downloaded in 0.3 seconds, or a user will think it hasn’t worked.

Contrary to popular belief, Spotify’s offering was not on mobile. At first, the streaming service had an awkward premium product on mobile, which users were allowed to trial for 48 hours before being directed to the free desktop service. Thirty per cent of people coming into the mobile app never made the leap.

“We would lose all those people because it was a useless user experience,” Williams said. “Launching our free mobile service last year doubled our figures in the UK in four months. Again we looked at our audience, saw what they wanted, licensed it, built it, and sent it on.”

3. Grow or die

While Spotify’s growth has been huge, its biggest obstacle on its path to profitability might be its royalty payments. Out of all the revenue Spotify generates – mostly from the £9.99 per month paid tier – 70 per cent of it is paid out as royalties to artists.

Last year, Spotify had posted losses of around $200 million since it was founded. While paying out so much of its revenue to artists will keep the music industry on board, in order to keep its margins positive the music streaming service must keep innovating.

“We’re still putting the consumer at the centre of everything we do,” said Williams. “We want to be able to give you music before you know what you want – understand the place, your mood.”

While some users have been surprised by the choices Spotify has made for them, many have found the service to be much more accurate since it acquired music data firm The Echo Nest.

“Data is the way forward for us – a way to understand our consumer and give you what you want,” Williams added.

With some luck along the way – an anti-trust suit between Apple and Google that inadvertently helped launch Spotify’s premium mobile service, and a famous tweet from Justin Bieber that eclipsed all its other marketing efforts – the streaming service is becoming a trusted alternative to album sales. With few music legends still holding out – AC/DC signed up with iTunes last year after a decade of refusing all streaming, but has yet to have the same agreement with Spotify – the streaming service has definitely changed the music industry’s business model, possibly for good.

Adam Williams spoke at an event run by StrategyEye Digital Media, an executive intelligence platform helping teams monitor and interpret all corporate activity across the technology industry, which we were kindly invited to cover.

Find out more at StrategyEye.