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My love affair with Spotify

Thus begins the second in the series of things to which I want to make sweet passionate love.

Spotify is taking the music industry and music fans by storm. Though it's not available in the US, and though it hasn't shown profitability yet, Spotify is paving the path for the future of online media distribution.

Spotify is a streaming music service, which eliminates the need for downloading music, and recentralizes the distribution of music. In an industry running rampant with piracy, Spotify has used technology to not only legitimize the distribution, but also to quell the demand for pirated music. Digital rights management (DRM) is maintained centrally at the distributor and simplifies the complexities that iTunes faces on a daily basis. From a consumer standpoint, it eliminates the limitations of digital storage, and places the burden on the digital pipeline, which is rapidly expanding and is a shared cost among consumers. It eliminates the need for consumers to backup media files and to manage their personal, digital libraries.

In short, it's the future of music, books, and film. For me personally, it's practically rendered iTunes completely obsolete. I haven't bought an album off iTunes in months and it feels great. Spotify is a light, lightning-fast client application which you download. The user interface is easy-to-use. For free you can listen to Spotify's entire catalogue and every few songs you hear ads. Users can also pay 99 SEK per month (around 15 USD) to get a wide range of premium options, including: no ads, higher bitrate quality, offline playability, and early access to music. For me this is worth it, because these are features I use AND it's still cheaper than what I would spend on iTunes to buy albums of the course of a year. I also don't have to back anything up or worry about losing music. I can create playlists and email my friends links to any of the music from a catalogue that is the best among all streaming applications and frankly has just about everything my wide taste in music seeks (though iTunes catalogue is still bigger). There's also a 24-hour premium option for those that want to have a wide music catalogue for an event like a party, and don't want to hear ads (brilliant, btw). Furthermore, there's a Spotify application on the iPhone which allows you to stream on-demand music to a portable device. This is awesome and ridiculous.

It's not the first time we've seen streaming music services. Rhapsody, Pandora, Last.fm, Blip.fm, Lala, etc. etc. etc. However it seems to be doing it more successfully than anyone else. This likely has to do with significant investments in early business development, securing distribution deals with major music distributors and building a large music catalogue up front.

Though this early widespread success doesn't come without struggle. Spotify is 7 million strong in Sweden, Norway, Finland, the UK, France, and Spain. Only 250K of these are paying subscribers (3.5% - 4%). And although in Sweden, Spotify generated more revenue for the major music distributors than iTunes did in 2009, it's likely because most Swedish consumers were getting their music for free. My true belief here is that Spotify simply gives too much away for free, and provides little reason to go premium, unless you are a tech geek who is really into music.

Spotify is attempting to make its entrance in the US market in 2010, but rumor has it it's going to be very difficult unless they get rid of the ad model. Distributors simply don't believe in it. However I do believe that if Spotifycan create a content-based ad model (similar to Google), tailored to different listener segments (heavy metal v. classical v. jazz v. pop) they could be successful. Furthermore, if this ad platform can allow for local ads, I can imagine it would be essentially on-demand internet radio station. I do believe the ad model can work, and I do believe that this can be profitable (as it appears to be for radio), but Spotify needs to make some significant short-term investments in its ad platform for longer term profitability, and furthermore to sell the distributors on it.

Spotify is top-notch, cutting-edge, and smart. But the next few years will be critical to determining its long-term success in Europe and eventually abroad...especially with Rdio just around the corner.

Spotify is currently invite only, but I have three outstanding invites and I get two every month, so if you or anyone you know needs one (and you live in the aforementioned countries), let me know.