Situational Analysis Spotify
Number of words: 2574
Spotify started in 2008 in Sweden but covers over 73 countries in 2020 as a podcast and music-streaming service company (Lindblom, 2015). The music streaming online company has changed the way consumers can access music online by providing digital solutions. The shift from physical to digital music streaming libraries has created a competitive advantage for the company since it offers two types of subscription models. Individuals that do not pay can access music but have to see adverts, which bring in revenue for the company and increase its competitive advantage. The situational analysis provides the external and internal factors that affect Spotify’s business operations across the globe.
Strengths (Internal Analysis)
Spotify maintains a high reputation among both free and paid users for streaming music and podcasts. Spotify’s digital music-streaming service attracted 365 million monthly active users in 2021, which represented a 22% growth that represents 9 million more users (Spotify, 2021). Premium subscribers grew by 20% to 165 million during the second quarter of 2021 (Spotify, 2021). The company gained 7 million new subscribers in Europe and North America (Peoples, 2021). The company maintains the highest position in the music-streaming sector and the brand is top in the world. Similarly, Spotify has established a critical music library with an international reach, which makes it possible to sell in different markets. The company has created a simple business model with extensive libraries of audiobooks, podcasts, and music that keeps customers engaged whenever they visit the platform (Peoples, 2021). Spotify raised over $1.6 billion in seven rounds of investment between 2008 and 2016 (Vonderau, 2019). The company reported 320 million users with 144 million paid subscribers in 2020, which remains higher than that of Apple Music’s 72 million users (Gaille, 2021). A large number of subscribers clarify the company’s high capacity to grow and expand.
The company spent $795.5 million on licensing music (Gaille, 2021). Spotify maintains an active research and development department to support its music libraries. Spotify adds about 60 million tracks and 1.9 million podcasts daily with 40,000 songs, which makes its platform the most expansive music-streaming company (Gaille, 2021). So far, Spotify has paid over $23.3 billion to content creators since 2008 (Gaille, 2021). The company works closely with artists and creators to maintain good relations.
Spotify has integrated advanced technology application that is available to a variety of devices, which makes it easier for clients to access its platform. Spotify’s app exploits an algorithmic recommendation system to create automated decisions that use data feed, mobile machine-learning, and artificial intelligence (Tofalvy & Koltai, 2021). The system has made it possible for Spotify to run a weekly program where it offers new songs based on a client’s taste during Mondays. Similarly, users can find new songs released during the week in the Release Radar every Friday based on their preferences. The two programs make it easier for consumers to exploit technology to navigate through the system to create and update their playlists with the possibility of inviting friends to share their discoveries.
Weaknesses (Internal Analysis)
Spotify does not create content, which means that it depends on licensing agreements with artists to make profits that undermines its business. The company has to pay royalties besides the high operating costs. Artists earn less and have signed an online petition to force Spotify to triple the rates of royalties paid (Yang, Terry, Mubayi, & Bellini, 2020). The approach creates challenges as some artists feel they earn less than they anticipate for their work. Spotify spent 74.54% of its revenues in 2019 to pay royalties (Gaille, 2021). However, a majority of people in the world still do not have access to the internet, which limits the capacity to access such services.
Spotify faces stiff competition from others streaming companies that have a stronghold on specific market niches across the world. All streaming apps provide similar services that include a library of music and related content that users can access at a fee or free with ads. The most threatening weakness that Spotify faces is the fact that it pays content creators less than most of its competitors (Yang, Terry, Mubayi, & Bellini, 2020). Some musicians have left the platform because of the low pay, which limits the capacity of Spotify to expand to specific markets. Competitors like Amazon Music Unlimited, Napster, Tidal, YouTube, and Google Music pay almost double the fraction that Spotify pays in royalties (Gaille, 2021). The company has to start paying higher royalties but that would increase its costs and make it unprofitable.
Opportunities (External Analysis)
The company can expand to new markets across the world. Expanding technology across the globe is creating new markets that Spotify can tap into and grow its business. Similarly, the company has the opportunity of expanding its business from audio into the video sector. Spotify can expand its revenue by adding video streaming that can provide videos of its associated audio music (Yang, Terry, Mubayi, & Bellini, 2020). The approach could potentially increase its market penetration rate market and double its revenue.
Threats (External Analysis)
Spotify has recorded more losses with time more than profits, which threatens the longevity of the company. The company declared losses from 2016 to 2019, which makes it quite unsustainable despite paying the lowest rates of royalties to artists. Similarly, the company faces high competition from tech giants that include Apple Music, Pandora, and YouTube Music that use extensive technological advantages (Gaille, 2021). Followers of artists that pull from Spotify are likely to stop their subscriptions, which will eventually take away the company’s profits (Yang, Terry, Mubayi, & Bellini, 2020). A major concern that faces the company is the consistent cyber attacks against its system where hijackers take over the company’s pages and even sell passwords to non-subscribers. Piracy is another factor that will keep Spotify’s profits dwindling with time. Users can download the music and listen elsewhere away from the licensed system.
Spotify Segmenting, Targeting, and Positioning
Spotify’s customer demographic segment is estimated hat has the capacity to to be persons aged between 16 and 64 years (Amalina, 2019). This represents a tech-savvy generation that can use the internet and music-streaming applications.
Targeting clarifies that 62% of the company’s customers comprise millennials, which represent the generation of persons born between 1982 and 2000 (Amalina, 2019). Spotify targets this category of people that is mostly in urban areas.
Spotify positions its digital music and podcasts to both non-paying and paying consumers. The approach provides millions of people with access to content across the world.
Product: Spotify streams digital music and podcasts where consumers can access over 35 million songs and content. Users can use devices such as computers, phones, tablets, speakers, TVs, and game consoles to access Spotify through an internet connection. A user can access their best albums, artists’ works, and stream within a stable network. In 2021, the company reported 2.9 million podcasts from 2.6 million at the beginning of the year (Bursztynsky, 2021). Spotify’s premium services like Duo supports two individuals while Family can support up to 5 users, which makes it cheaper for families.
Price: The price of accessing premium products in the company has increased significantly with time due to operational costs. Spotify’s Family increased from $14.99 to $15.99 per month in the U.S. (Warren, 2021). However, the company maintained the prices for the Duo, Premium, and Student categories. In Europe, Duo increased from 12.99 to 13.99 pounds, Student increased from 4.99 to 5.99 pounds per month, and Family jumped from 14.99 to 16.99 pounds a month (Warren, 2021). Subscribers across the globe will pay $1 more for accessing each category of the premium services. However, new subscribers can access a free trial for three months before starting to pay.
Place: The company engages in a global business where every consumer with the Internet can access and use its products. Spotify is available for free and paid subscriptions and accessible through a diversity of devices. The company accepts different forms of payments that include bank transfers, online transactions, ATM, cash payments at stores and retail chains, and Doku Wallet.
Promotion: The Company ran promotional campaign cycles that last from 4 to 6 weeks that exceeded expectations in attracting a large number of users. Spotify increased its promotional partnerships that included exploiting Samsung’s offer of 3 monthly trials that opened up 73 new markets in 2021. Microsoft Gamepass promotions also offered 3 months trial in 15 different markets (Spotify, 2021). PayPal offered a similar promotion in 10 markets, Vivo in Brazil, and TikTok provided 7 countries in the Middle East (Spotify, 2021). The promotional cost across the world cost about 620 million euros in 2018 up from 567 million in 2017 (Amalina, 2019). The company has doubled its promotional activities through collaborations.
Spotify focuses on personalizing music and podcasts for its consumers but competitors have also a similar approach. Pandora Media stands at the top of the music sector with 79 million subscribers that pay a higher premium compared to Spotify (Trainer, 2020). Apple, Amazon, and YouTube have included audio streaming platforms that have disrupted Spotify’s previous solid market niche (Pinochet, Nunes, & Herrero, 2019). Statistics indicate that Apple increased its market share by 18%, Amazon by 14%, Tencent Music by 11%, YouTube Music by 6%, Pandora by 1%, and Deezer by 3% compared to Spotify decrease from 36% to 32% between 2018 and 2020 (Trainer, 2020). Likewise, Spotify offers 50 million songs on its platform while the American-based competitors have each over 60 million songs each. Another downtown is the fact that Spotify pats artists $0.0032 per stream compared to Apple Music at $0.0056, and Amazon Unlimited at $0.012 (Trainer, 2020). This means that Spotify has to pay more to maintain more artists and increase its content.
Consumer Condition Analysis
Assessment of the consumer condition based on the unified theory of acceptance and use of technology (UTAUT) reveals different levels of reactions from consumers. Evaluation based on UTAUT2’s component of performance expectancy (PE) asserts users perceive Spotify as a sensible service that improves their entertainment needs (Chandra, Christian, Juwitasary, Atmojo, & Febrianto, 2018). The effort expectancy (EE) element reveals that most users find Spotify easy to use. The social influence (SI) element indicates that families and friends expect each other to use premium products (Park, 2020). Facilitating condition (FC) as a construct asserts that a person with a device and internet can easily use Spotify (Amalina, 2019). Hedonic motivations (HM) indicate that people see Spotify as an enjoyable service (Pinochet, Nunes, & Herrero, 2019). Price value (PV) assessment reveals that most people find the streaming service reasonably priced. Habit (H) clarifies that people that use Spotify become easily addicted to the service.
SWOT analysis reveals that Spotify maintains an extensive and expensive music library that makes it the most reliable music streaming company. Even when consumers have varied internet connections services, they can still connect using a variety of streaming quality options that reduce lag time during the playback experience. Unlike listening to physical music products, Spotify depends on the internet connection for clients to stream music, which is a major weakness. Spotify will continue to record legal disputes over streaming rights when a conflict stems from a label, artists, producers, and market. Some musicians have terminated their licensing agreements with Spotify concerning low payouts, which creates a negative brand image among users.
Spotify segmentation, targeting, and positioning should find measures that can increase market niche and increase millennial targeting when positioning its streaming service.
Under market mix, the company’s product adds value. Spotify has a vast collection of music, podcasts, and audiobooks makes the company favorable among users. The availability of its products online everywhere makes it easier for anyone with a device and internet to use them at a reasonable price. The company exploits promotions through collaborations to access larger markets.
Competition analysis reveals that Spotify is losing its stock market share price due to slowing premium subscribers, long-standing competitors, and dependence on premium subscribers’ revenue.
Assessment of consumer condition based on UTAUT2 reveals that Spotify is reasonable, easy to use, addictive, and generally acceptable among tech-savvy generation.
Advertising Objectives for Spotify
The company can collaborate with several worldwide apps to expand its networks, increase its niche, and attract more customers to achieve the objective of creating brand awareness.
Spotify can exploit celebrity endorsements to enhance attitudes and influence intentions that can increase consumers for its services. Spotify can increase its market niche by using celebrity endorsement as a greater opportunity of expanding its business. Celebrities can endorse the company by creating playlists and sharing them with their followers, which has the potential of converting followers into customers.
Spotify can facilitate purchase by convincing its free users to become paid subscribers by giving offers instead of bombarding them with ads that disturbs their listening experience (Vonderau, 2019). Spotify’s overreliance on the system to send ads has failed and requires the utilization of personal data to targeted ads (Donlin, 2020).
The company needs to use alternative platforms to attract new customers instead of depending on its app by building category wants. Spotify can micro-target ads to convince consumers to purchase and introduce video streaming to attract and maintain customers.
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Donlin, V. (2020). The use of personal data as content in integrated marketing communications, an exploratory case study. The Ohio State University.
Gaille, B. (2021, Jan. 11). Spotify SWOT analysis for 2021: 26 strengths and weaknesses. BrondonGaille. Retrieved from https://brandongaille.com/spotify-swot-analysis/
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Park, M. (2020). Factors affecting consumers’ intention to use online music service and customer satisfaction in South Korea. Royal Institute of Technology.
Peoples, G. (2021, July 29). The good and bad of Spotify’s Q2 2021 earnings: Analysis. Billboard Bulletin, 1-25.
Pinochet, L. H. C., Nunes, G. N., & Herrero, E. (2019). Applicability of the unified theory of acceptance and use of technology in music streaming services for young users. Brazilian Journal of Marketing, 19(1), 147-162.
Spotify. (2021, July 28). Spotify Technology S.A. announces financial results for second quarter 2021. Spotify. Retrieved from https://investors.spotify.com/financials/press-release-details/2021/Spotify-Technology-S.A.-Announces-Financial-Results-for-Second-Quarter-2021/default.aspx
Trainer, D. (2020, Oct. 13). It sounds like Spotify is in trouble. Forbes. Retrieved from https://www.forbes.com/sites/greatspeculations/2020/10/13/it-sounds-like-spotify-is-in-trouble/?sh=1793a697813b
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Vonderau, P. (2019). The Spotify effect: Digital distribution and financial growth. Television & New Media, 20(1), 3-19.
Yang, L., Terry, H. P., Mubayi, P., & Bellini, H. (2020, May 14). The show must go on. Goldman Sachs. https://www.goldmansachs.com/insights/pages/infographics/music-in-the-air-2020/report.pdf
Warren, T. (2021, April 26). Spotify is raising prices for lots of its plans. The Verge. Retrieved from https://www.theverge.com/2021/4/26/22403813/spotify-price-increase-subscriptions-2021