Technology Business Processes Technology Mediated Organizational Improvement:

Technology Business Processes

Technology Mediated Organizational Improvement: Spotify's Marketing Mix

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.

Part I:

Business Problem:

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.

Company Background:

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 Spotify's belt -- the biggest benefit to an intelligently targeted marketing campaign would be the chance to court away some iTunes users. This could help Spotify to make inroads in the American music consumer market at a juncture when it has achieved something of a singular set of agreements with man industry partners. As our research shows, these terms may have a limited shelf-life. Millan (2011) reports that there are some entities in the record industry that have objected to Spotify's merging of streaming and internally maintained media files. Millan goes on to report that "from a small office in Stockholm, Sweden, Spotify quickly spread its tentacles across Europe. But during the past couple of years, the company has been caught in a web of bureaucracy. Record-label executives have expressed concern that Spotify's free offering devalues music and doesn't drum up significant revenue." (MIllan, p. 1)

This is a challenge to which Spotify will like have to answer frequently. If it can gain some traction with consumer groups in the U.S. though, especially those inclined to pay for its subscription services, Spotify can also access the legal resources to weather such challenges.

Business/Technical Approaches:

The business approach which will best serve Spotify as it attempts to navigate the problem of gaining a marketing foothold in a damaged marketplace is that of partnership and affiliation. This has already been proven with its singular streaming media partnerships and will be further highlighted as the service becomes the standardized channel through which the music listening experience of media consumers is transmitted. For instance, groundbreaking partnership now will broadcast Spotify into a multitude of American homes through Virgin. Media's TiVo. This will give TiVo users immediate access to the more than 15 million songs boasted by the Spotify library. (Thinesen, p. 1) According to Lamkin (2011), "Last month, Virgin Media came clean with the details of the deal, announcing that it would be bundling Spotify Premium deals in with mobile and broadband contracts. Anyone taking out, or renewing, a Virgin Media fibre optic broadband plan will be entitled to 6 months of the music streamers top service - a deal worth the princely sum of £59.94." (Lamkin, p. 1)

These partnerships must be paired with a concerted strategy for the improvement of targeting marketing efforts. This would be a technologically-mediated process driven by the adoption of IT systems specifically designed for this purpose. Because Spotify is a Swedish-based firm that has dedicated a great many resources to overcoming legal obstacles in its entrance to the American market, it might benefit from the outsourcing of its marketing strategy. Here, an IT-driven strategy is recommended that concentrates efforts on identifying the needs of and reaching out to specifically valuable customer bases.

Solution:

The solution recommended here, therefore, is the outsourced implementation of a Customer Relationship Management (CRM) system that can help Spotify to identify the demographics and access points to its key buying demographics.

For firms such as Spotify, there is a distinct value in appealing to systems which can help to distinguish customer needs and interests according to well-defined segments. This provides the basis for the approach to be taken by Spotify, which will attempt to court buyers from an extremely broad array of cultural, ethnic and economic backgrounds using highly varied product output. By dividing its customers into distinct groupings, Spotify will be able to better categorize and differentiate the level of attention, interaction and consultation required for different types of buyers. This strategy reports to the value of an outsourced approach, which allows the organization to make as one of its central priorities the differentiation of customers. Indeed, one of the core values of the customer-driven approach, the Day research indicates, is that it will provide Spotify's leaders with the data to craft its day-to-day operations according to an array of different listener needs, whether these relate to preferred genre or preferred format of digital media acquisition.

Weber (2009) notes that "increasingly, the choice businesses are making include an outsourced model. Apparently, the siren call of hosted CRM offerings -- lower total cost of ownership, quicker ROI, etc. -- is a seductive one. Gartner Inc. estimates that by 2009, businesses will be spending nearly $1 billion in CRM as a service, and that 33% of all small to medium businesses (SMBs) will have chosen a hosted model." (p. 1) This denotes that maintaining an in-house CRM system can be prohibitively expensive and that this cost and a lack of operational know how are often responsible for impelemetnation failure. This is one of the primary imperatives for the recommendation that Spotify engage in a process of outsourcing for the installation and usage of a new CRM system.

Part II:

Solution Augmentation:

One of the best ways to improve the expected outcomes of this solution is to magnify the emphasis on social networking. In addition to the marketing refinement which will be possible through the use of a comprehensive CRM system, social networking allows for a more organic and exponential way of growing the community of Spotify users. According to the text by Sinsky (2011), "we've been lucky enough that 99% of our users say they'd recommend us to friends,' a Spotify spokesperson tells VentureBeat. Naturally, the company's marketing plan capitalizes on that. 'We're launching an amazing music service and if our users like it as much as we think they're going to, we encourage them to tell their friends and we'll do everything we can to optimise this network effect,' said the spokesperson." (Sinsky, p. 1) Therefore, any marketing solution employed at the IT level would be buffeted by the more organic marketing opportunities made possible by the conditions defining social network.

Example:

A prime example of how this marketing solution can be augmented through the inclusion of social networking strategies is through Facebook. This offers Spotify an extremely powerful platform for individual usage and one which has already become ingrained in the daily usage and communication habits of individuals. There is especially a great deal of cross-over between those who trade digital media files and those who engage regularly in social networking activities. The use of Facebook as a way of expanding its initial user base is an extremely important way of augmenting efforts at CRM-directed target marketing. This is because Spotify's effectiveness and functionality will depend on how large its initial community is. Therefore, the social networking strategies at Facebook, combined with Spotify's initially free offering, are important as way of helping Spotify gain traction in the early going. According to Sinsky, "this do-or-die strategy is risky. Music licensing requires streaming companies to pay labels and publishers for all the songs users stream, even if the streaming service isn't charging its customers. Offering a free music service for six months, even with millions of listeners, is risky, but it could result in significant rise in market share for Spotify, and right now market share is exactly what the company needs in the U.S., where other streaming music services, like MOG, Rdio, Grooveshark, and Pandora, have a multi-year head start." (Sinsky, p.1)