The proliferation of the personal computer, the high speed internet connection and the personal listening device have all have a dramatic change on the way that consumers acquire and use music. The inception of digital media and file compression has changed the rules of music acquisition for the artist, the consumer and the retailer alike. For the consumer, the acquisition of music is now mediated by the web, which features a wide range of avenues both free and on a subscription fee basis through which consumers can acquire songs and albums. For the artist and the retailer, this has created a new and pressing demand to find ways of distributing its output while still maintaining profitability. And after a period of steady economic decline, the recording industry has seen a technology-driven shift in hierarchy, with web and computer-based firms like Apple leading the charge both in terms of commercial robustness and innovation. Still, as the research conducted hereafter will show, there are yet tremendous gains to be made by new entrants in the field. With a proper emphasis on the types of technological and business processes required to compete in a constantly shifting market, a company such as the Swedish-based Spotify may be in a position to challenge the dominance of Apple's iTunes and related iPod device.
Before proceeding to a discussion specifically on Spotify, it is appropriate to identify the current business problem that drives not just this discussion but the very relevance of services such as Spotify. Namely, today, the music industry is in a state of reinvention, with those technology-based firms such as Spotify representatives of the next phase in the evolution of our music usage. It does so, however, in the context of a highly unstable industry which is also notoriously resistant to change. It is this very orientation of resistance that has delivered the music industry to its current state of decline. Since the innovation of Napster, the music industry has been in something of a financial free fall. According to the study by Hong (2011), "systematic file sharing began with Napster. After its introduction in June 1999, Napster quickly became popular among Internet users. The number of users grew extraordinarily, and numerous music files were exchanged via Napster. Though only minor file sharing programs appeared during the Napster period, Napster was undoubtedly the dominant file sharing service until early 2001." (Hong, p. 4)
This program not only facilitated the massive exchange of digitized music files through a single shareware program, but it also fundamentally altered the supply chain in the music industry. The role of middle men such as distributors and stores were being undermined by this new technology. And eventually, because the record industry worked so hard to resist said technology, the role of the record companies and recording artist associations would also be significantly undermined. The consequence was a rapid decline in the once robust marketplace. According to Hong, Napster suddenly allowed for unfettered, free access to digital music. Hong reports that "this event coincided with the start of the ongoing slump in recorded music sales. According to the Recording Industry Association of America (RIAA), the total real value of shipments in the United States had reached its peak of $14,270 million in 1999. After Napster appeared, the total real value of record sales decreaed by 5% in 2000, 6.7% in 2001 and 9.6% in 2002, and continued to decline through the 2000s. Accordingly, the recording industry concluded that this decline was largely a result of file sharing. Subseqent legal action the recording industry based on these grounds succeeded in closing Napster in 2001 and other file sharing services later in the 2000s." (Hong, p. 5)
However, these lawsuits and legal precedents could do nothing to change the fundamental new business problem for participants in the music industry. Traditional participants are still being forced to recast themselves even as new entrants emerge as pacesetters in the field. Today, the primary objective for firms prospecting new fortunes in the music industry is to find ways to offer something greater than simple access to digital music files. Following the iTunes model, companies have worked to craft the kinds of acquisition and consumer experiences that listeners will be willing to pay for, just as they were once willing to walk into a store and pay for a compact disc. This is the business problem that companies such as Rhapsody, Pandora and others have struggled with, navigating a host of copyright laws and technological hurdles in order to respond to the demands demonstrated by music consumers. This inclines a consideration of the exciting entry of Spotify into this technology-mediated music distribution market. Here, Spotify enters into a marketplace distinguished by a number of innovative firms. Accordingly, For example, Ludwig (2011) reports that "Rhapsody has been around for 10 years, but it is now fighting fiercely with newer competitors like Spotify, MOG and Rdio. Spotify in particular has been agressive and recently announced it now has 2.5 million subscribers. However, don't let that number fool you, as Spotify is actually in 13 countries, while Rhapsody is only available in the U.S." (Ludwig, p. 1)
This denotes an extremely challenging marketing mix for Spotify. Indeed, this marketing outlook will be a central dimension of the plan intended to address the problem of gaining a foothold in the music industry.
For some basic background on Spotify, we note that the firm was founded in Sweden in 2006 and has spent much of the time since then forging deals with record labels and hurtling copyright barriers to operations in the United States and other notably restrictive environments. Today, Spotify is taking its first steps into these simultaneously more restrictive and more potentially profitably consumer markets such as the United States and the United Kingdom. And because the Spotify model utilizes many of the most successful dimensions of the innovations rendered by its predecessors, and simultaneously pushes forward with many of these innovations, it may be in a position to seriously challenge other providers of the music consumption experience. This is because Spotify combines the social networking parameters of Facebook, the file-sharing aspects of Napster and the library compiling and storefront properties of iTunes. This new entrant into the U.S. market offers a music listening format that will refine the way online music consumers experience the process of acquisition. To an extent, what each of the above-noted competitor platforms does alone, Spotify converges with the others and improves. According to Bell (2011), "put simply, you tell your computer what you want to hear, and it plays it for you...for free, and without limitations for up to six months. It doesn't play something similar to the song you want (like Pandora), or a 30- to 60-second clip of the song you want (like iTunes) -- it plays you the whole song or album, just as if it were in your personal music collection." (Bell, p. 1)
It also allows the listener to seamlessly move between streaming online digital media and personally-maintained music libraries, as well as to create playlists selecting from either file type. The ability to recall at will the songs offered in a streaming service is new to online users and Spotify's strategy of channeling users through their Facebook accounts connects it to an already powerful approach to community expansion. Spotify's technological platform is as a Digital Rights Management (DRM) company which offers its customers a highly sophisticated, streamlined and ergonomically appealing way of using the digital media in question.
Benefits of Problem Solving:
With that said, Spotify must overcome the primary problem of gaining ground in an American market with established marketing principals such as iTunes, Pandora and Rhapsody. Though Spotify's model is a better one from a technological standpoint, each of these services has an established community of users as well as persisting relationships with record labels and artists. Therefore, there is a distinct economic benefit to finding ways of improving Spotify's marketing outlook through technologically-mediated company strategies. An article by Giusto (2011) indicates that the primary benefit to a concentrated marketing strategy is the capacity to gain customer loyalty and eventual subscription commitment. Accordingly, Giusto reports that "Spotify's music service has finally made it to the U.S. And there appears to be a showdown in the making. U.S. consumers can now listen to up to 15 million songs for free on their PCs for six months. There is a cap of 10 hours per month and you can listen to one song up to five times, but subscribers who enter during the invitation period are exempt from the monthly limit. To lift these limits, subscribers can pay $5 per month or buy individual tracks much like they do on iTunes." (Giusto, p. 1)
However, Giusto notes that because iTunes has yet to successfully negotiate an agreement with the record labels allowing for the streaming of media -- an accomplishment already under…