case
SPOTIFY ECHNOLOGY
lN 2022: WILL ITS
STRATEGY LEAD TO
PROFITABILITY WITH
GROWTH?
OIANA R. GARZA U iyersit) d the I c.arnate Wonl
JOHN E. GAMBLE Tb.ras A&M Uni,ersit.N-Cotpus Christi
Spotify Technology S.A. was founded in Luxembourg
in 2006 and grew rapidly as the music industry transi-
tioned from physical products sales to audio stream-
ing. As of 2022, Spotify was the world's most popular
streaming service with its acceleration in growth be-
ginning in 2015 when industry-wide streaming reve-
nues began increasing annually at double-digit rates.
By 2020, streaming seruices accounted for 62 percent
of total global music industry revenues. At year+nd
2021, the company had 406 million monthly acrive
users (MAUS) and 180 million Premium subscribers
in 184 countries. The success of Spotify's business
model and strategy had allowsd the company to re-
cord revenues of approximately €9.6 billion and pay
musicians and music publishers more than €26 billion
in music royalties through 2021.
Spotify's business model included free ad-supported
services and premium subscriptions. A significant el-
ement of Spotify's growth strategy was keyed to stra-
tegic acquisitions. The company's founders, Daniel
Ek and Martin Lorentzon, knew well that to remain
competitive the company would need to differentiate
its services, but they also saw value in groMh through
acquisitions. Spotify paid more than $340 million be-
tween 2019 and 2020 acquiring podcast companies
to build a differentiated audio portfolio needed to
maintain a lead in an industry projected to grow from
approximately $8 billion in 2019 to over $17 billion
fficonnect'
by 2024. Partnerships with media and technology
firms such as Disney, Xbox, and Samsung helped
drive rapid growth in users and subscribers.
While the company's audio portfolio had expanded
and its users, subscribers, and revenues had grown at
impressive rates, as ofearly 2022, the company's busi
ness model and strategy had yet to yield profltability.
In addition, as of April 2022, Spotify shares had
fallen by approximately 50 percent from their 2021
high of nearly $325. The company's founders would
need to closely examine the company's business
model, strategy, and op€rations to reach break even
and provide returns to shareholders.
Exlibit I tracks the performance of Spotify Tech-
nology's common shares between its April 2018 public
offering and April 2022.
Company History
Daniel Ek and Martin Lorentzon founded Spotify as
a small startup in response to a growing piracy prob-
lem in the music industry. Ek and Lorentzon knew
there had to be a better way for artists to monetize
their music and give consumers a legitimate and sim-
pler way to listen to music. ln 2008, Spotify launched
its streaming service, offering listeners access to a
library of music rather than making users pay for
downloading albums or tracks. The music industry,
 Case 5 Spotify Technology in 2022: Will lts Strategy Lead to Profitability with Growth? 323

'l

Performance of Spotify Technology S.A.'s Stock Price, April 2O18 to April 2022
(a) Trend in Spotlfy Technology's Common Stock Price
325
300
275
@ zso
.! 225
:z 200
3 17s
150
125
100
2419 2420 2021 2022
Year

(b) Performance of Spotify Technology's Stock Price Versus the S&P 500 lndex

+105%
+90%
+7 5%
+60% Spotify Technology's
Eo Stock Price
o5 +457"
EA +300a
9A
< +15%
-(r
+o%
s&P 500
-15%
-30%
2019 2420 2421 2022

stock Price s&P

- -
So.rre

which had been suffering from spending declines, re-
sisted this new business model of offering "unlimited
access," and favored the current digital download
model used by Apple iTunes. Spotify began by offer-
ing its free subscription by invitation only as a way
to manage growth; paid subscriptions were open to
everyone. At the same time. Spotify also announced
licensing deals with music labels.
In early 2009, Spotify opened its free registration
tier to the public in the United Kingdom only. Due to
a surge in registrations following the Spotify mobile
app's release, Spotify closed its open registration in
late 2009 and returned to invitation only. ln 2010,
Spotify integrated with Shazam to figure out who
was singing a particular song and would then
populate a playlist. Spotify was launched in the
United States in July 201l, allowing users a six-month
free ad-supported trial period to listen to unlimited
music. By 2012, lhe trial period expired. and users
were limited to l0 hours of music each month and
five-song replays. By March 2012. Spotify removed
all limits and introduced its free ad-suppotted tier.
ln 2014, Spotify employed a dual revenue source
business model by offering a free ad-supported ser-
vice to attract new users with the goal of converting
them into paid subscribeff. The company was able to
convert l0 million users to Premium subscribers
from its approximately 40 million active users.
324 Part 2 Cases in Crafting and Executing Strategy
In 2017, the company announced expansion plans
to move to the United States, adding approximately
1,000 jobs in New York City. In November 2018,
Spotify announced a total of 13 new markets in the
MENA region (the Middle East and North Africa),
including a new Arabic hub and several playlists.
Spotify's success has also seen a few bumps along
the way. Taylor Swift was one of the first artists to
speak out against the company and its unfat com-
pensation to artists, calling the music platform an
"experiment." Three years later, the feud between
Spotify and Taylor Swift ended, and the artist put
her music back on the platform. Jay Z, a hip-hop
music mogul, also claimed unfair compensation to
artists and launched Tidal in 2016 as his own music
platform, becoming Spotify's competitor. Other art-
ists who kept their music off Spotify included The
Beatles, Adele, and Pink Floyd.
Podcasts, long dominated by Apple, became Spo
tify's next strategic move. In 2021, Spotify signed a
reported $60 million licensing deal for Alex Cooper's
Call Her Dadd.y and $100 million for The Joe Rogan
Expetience, followed by partnerships with Barak and
Michelle Obama, Prince Harry and Meghan Markle,
Kim Kardashian, and filmmaker Ava DuVernay.
From podcasts to digital audiobooks, Spotify's
next move was the acquisition of Findaway, a global
leader in audiobook distribution. The acquisition was
completed in 2021 and brought with it a technology
infrastructure that enables Spotify to scale its audiG
book catalog and proyide avenues for publishers and
authon to reach new audiences.
Spotify's Growth in Users
and Audio Content
By March 201l, Spotify had a customer base of I mil-
lion paid subscribers across Europe, and by the end
of September 201l, that number had doubled. By
August 2012, the company reported 15 million active
users, of which 4 million were paid subscribers. By
2013, the company reported 20 million actiye users
with I million customers in the United States. The
growth for Spotify was exponenlial year after year
reaching 286 million users, inctuding 130 million
subscribers across 79 markets, with 50* million
tracks, 1 million+ podcast titles, and 4 billion* play-
lists as of 2020.
At year-end 2021, Spotify had 406 million monthly
active users (MAUs) and 180 million Premium sub-
scribers. The company reported having 3.6 million
podcasts on its platform and gross margin finished at
26.6 percent in the fourth quarter. Spotify also ex-
panded across 184 markets and managed and shared
82 million tracks, making Spotify the world's most
popular audio streaming subscription service.
Growth Through Acquisitions
Spotify strengthened its competitiye position through
a series of targeted and timely acquisitions. Each
acquisition resulted in a stronger competitive posi-
tion and new market oppoftunities. A list of Spotify's
acquisitions between 2013 and 2022 is presented in
Exhibit 2.
2013 In 2013, Spotify acquired the Sweden-based
music discovery app Tunigo. Tunigo was a music app
powered by API. The company's mission was to prG
vide a single button that users could hit to get the per-
fect playlist based on realtime data. The acquisition
fit Spotify's strategy focused on music discovery.
2014-2016In March 2014, Spotify acquired The
Echo Nest. The Echo Nest was a music intelligence
and data platform for developers and media compa-
nies. The company developed and personalized mu-
sic applications. In June 2015, Spotify also acquired
Seed Scientific, a data science consulting firm, to
lead an advanced analltics unit within the company.
CrowdAlbum, a startup that collected photos and
videos of performances and shared them on social
media, was acquired in 2016. The work created by
CrowdAlbum would enhance and tighten the connec-
tion between artists and thet fans. In 2016, Spotify
acquired Cord Project and Soundwave. These compa-
nies focused on messaging and sharing. These acqui-
sitions would allow users to share new music. build
profiles, and message friends and followers without
leaving the Spotify app. Preact was the last acquisi-
tion of 2016. Preact was acquired to find trends and
behavior patterns through machine learning and ana-
li,tics to grow the premium customer base.
2017 In March 2017, Spotify acquired Sonalltic-
Sonalltic was an audio detection technology that
identihed songs, mixed content, and audio clips and
tracked copyright-protected materials. This acquisi-
tion improved the company's personalized playlists
and the company's publishing data system. MightyTv
 Case 6 Spotiry Technology in 2022: Will lts Strategy Lead to Profitability with Growth? 325

Spotify's Acquisitions Between 2013 and 2022

Company Year Company Business
Tunigo 2013 lJsers find, create, and share music and playlists

The Echo Nest 2014 Music intelligence and data platform company develops music applications

Seed Scientific 20't5 Data science consulting lirm

Crowd Album 2015 Company collects photos and videos of performances

Cord Project 2016 Social messaging and sharing

Soundwave 2016 Social app focused on finding and sharing music

Preact 2016 Cloud-based service focused on helping companies acquire and retain subscribers

Sonalytic 2017 Audio detection technology company

MightyIV 2017 Company provides video recommendations

MediaChain Labs 2017 Company focused on leveraging blockchain technology to solve problems with attribution

Niland 2017 Company provides search and recommendation options for music

Soundtrap 2017 Online music studio

Loudr 2018 A music licensing platform

Gimlet 2019 Podcast network

Parcast 2019 Podcast network

Anchor 2019 Podcast network

SoundBetter 2019 Music and audio production and collaboration marketplace

The Ringer 2020 Sports and entertainment podcast

Megaphone 2020 Advertising and publishing platform

Podz 2021 Personalized audio newsfeed and podcast clips

Betty Labs 2021 Creator of sports-focused live audio app Locker Room

Whooshkaa 2021 Podcast technology platf orm

Findaway 2021 Audio technology company

Chartable 2022 Podcast analytics platform

Podsights 2022 Advertising measurement service

Source: Spotiry, hllps rhf$/!r.0nr rpotify.oml?s=..q! !il orr,.

was a startup company focusing on yideo recommenda-
tions. The company was acquted and shut down. As
part of the deal, MightyTVs founder and CEO Brian
Adams became Spotify's vice president of technology,
focusing on marketing and advertising. In the same
year, Spotify acquired MediaChain, a startup that
focused on leveraging blockchain technology. The
goal for this company was to deyelop technology to
connect artists and other rights holders with the tracks
hosted on Spotify's service. Niland was Spotify's fourth
acquisition of 2017. Niland was an A.l. company
focused on providing personalized recommendations
for users. SoundTrap, an online music studio staftup,
was Spotify's last acquisition of 2017. SoundTmp, was
the maker ofthe freemium (paid and free) cloud-based,
collaboratiye music podcast recording studio. Spotify's
plans for the company were to assist artists by using its
platform, including offering realtime streaming data
thrcugh a mobile app.
20t8-2019 In 2018, Spotify acquired Loudr, a mu-
sic licensing platform that built products and seruices
for content creators and digital music services to iden-
tify. track. and pay royalties to music publishers,
providing a more transparent and efficient music
326 Part2 Cases in Crafting and Executing Strategy

publishing industry. In 2019, Spotify acquired the Growth f hrough Partnerships

podcast networks Gimlet Media and Anchor FM
Spotify also relied on strategic partnerships to
Inc., establishing itself as a significant player in pod-
strengthen its competitiye position. Each partnership
casting. Gimlet added its best-in-class podcast studio,
expanded its market access and strategic collabora-
production, and advertising capabilities. Anchor
tions mostly through bundling of services. A list of
added its platform oftools for podcast creators. Later
Spotify's paflnerships between 2011 and 2022 are
that year, Spotify also acquired Parcast, a podcast presented in Exhibit 3.
network that specializes in crime, mystery, and sci-
2014-2015 Spotify's partnership with uber started
ence fiction shows. Parcast added its curated library
in 2014. Riders were allowed to control the driver's
of highly produced shows and its loyal audiences. To
sound system by connecting to their Spotify accounts
round off the year, the company acquired SoundBet-
and streaming their tunes while riding in an Uber. In
ter, a music production marketplace where people in
2017, Spotify considered ending its partnership with
the music industry collaborate on projects and distrib-
Uber after mounting scandals concerning Uber's
ute music tracks for licensing. SoundBetter brought
CEO. Also in 2014, Spotify joined forces with the
with it a strong reputation and commitment to sul} musician profile service BandPage so artists and
port all creators worldwide; the company joined Spo
groups could engage more directly with their fans
tify with 180,000 registered users in 176 countries.
and offer concert tickets, merchandise, and \rIP
2020 Spotify acquired Bill Simmon's The Ringer
experiences.
in February 2020. The funger was a creator ofsports,
In January 2015, Sony announced Playstation
entertainment, and pop culture content. The addition
Music, a new music service with Spotify as an exclu-
of The Ringer expanded Spotify's content offering
sive partner. With this partnership, Spotify was in-
and audience reach. Megaphone was Spotify's last ac-
cluded in Sony's Playstation 3 and Playstation 4
quisition for the year. Megaphone provided podcast
gaming consoles and Sony Xperia devices. The plat-
publishers with the necessary tools to help them earn
form was introduced in 41 markets around the world.
more from their content. These acquisitions were one
This partnership allowed subscribers the conve-
more example of Spotify's growth strategy.
nience oflinking their accounts between Playstation
2021 Spotify's focus on unlocking audio's poten-
and Spotify.
tial led to the acquisition of Betty Labs, the creators
In the same year, Spotify also partnered with Star-
of Locker Room. Locker Room was a live audio app
bucks and was integrated into the Starbucks app. The
focused on sports. Whooshkaa was also acquired as a
Starbucks and Spotiry partnership encouraged active
way to modernize ad monetization for podcasts; this
participation among members who could create their
acquisition was integrated into the Megaphone suite.
own in-store playlists. Spotify and adidas also formed
The acquisition of Podz complemented and acceler-
a slrategic partnership lo creal,e a premium app
ated Spotify's focused efforts to drive discovery and
called adidas go that tracked running metrics and se-
deliver listeners the right content at the right time.
lected music based on running speed. At the time,
Spotify's strategy of market penefation and diversifi-
the app introduced a seven-day trial period to Spotify
cation led to the acquisition of Findaway, a global
Premium with the goal to convert runners to Pre-
leader in digital audiobook distribution.
mium subscribers.
2022 With its sights on owning the entire podcast
2017 In March 2017, Spotify partnered with South
supply chain, Spotify acquired Chartable and Pod-
by Southwest (SXSW). Users were able to access
sights. Both companies offered insights into the ef-
SXSW genre-specific curated playlists on Spotify's
fectiveness of podcast advertising and listener SXSW 2017 hub on desktop and mobile devices as
engagement. Chartable was a podcast measurement
well as the SXSW Go app. Two more partnerships
company whose top clients include Vox Media,
were announced in March, one with W].IYC Studios
iHeartMedia, Wondery, and Cadence 13. Podsights
and one with Waze. WNYC was the most listened to
connected podcast downloads to onsite activity, public radio station and mother station for podcasts
providing advertisers and publishers insights into
like Radiolab, Studio 360, and Freakonomics. Waze
the effectiveness of podcast adyertising campaigns.
 Casc 6 Spotify Technology in 2o22twill lts Strategy Lead to Profitability with Growth? 327

Spotifyl Partnerships Between 2011 and 2022

Company Year Company Collaboration Scope

Facebook 2011 lntegrated into the Facebook page, users can listen simultaneously wilh friends.
Shazam 2011 Leading mobile discovery company.

SoundHound 2011 Sound and discovery search company.

coca-Cola 2012 Global partnership to share music with consumers around the world.

Harman 2014 Premium global audio and infotainment group.

BandPage 2014 Artists and qroups engage directly with fdns.

Sony 2015 Added to Sony Playstation 3 and 4 consoles and Xperia devices.

Starbucks 2015 lnteqrated into Starbucks App.

uber 2014 Riders can listen to their playiists while riding in an Uber

adidas 2015 lntegrated into the adidas go app where streaming music was fused with fitness metrics.
Tencent 2017 Spotify and Tencent acquired shares from each other

Microsoft 2017 Provide access to streaming music.

South by Southwest 2017 Access to SXSW genre-specific curated playlists on Spotify hub.

Waze 2017 ljsers can access Spotity playlists from Waze navigation.
WNYC Studios 2017 Podcast available throuqh Spotify.

Discord 2018 Ljsers can hiqhlight and share music.

Hulu 2018 Premium bundle of music and W.

Ellen Deceneres 2018 Create opportunities for undiscovered talent.

Samsung 2019 Spotify preinstalled in new Samsung devices.

AT&I 2019 Collaboration allows AT&T LJnlimited & More customers to choose Spotify Premium as an
entertainment option.
Xbox 2019 Spotify can be played in the background while playing video games.
Bouygues Telecom 2019 ln France, Spotity and Bouygues offered a six-month free trial for customers of Bouygues.
Magalu Conecta 20'19 Brazilian customers of lllagalu Conecta were offered a free four-month trial of Spotify premium.
Vodafone 2019 Eligible Vodalone Australian users recelved a free 30-day trial of Spotify premium added to their
mobile plan.

Disney 2019 Disney Playlists on Spotify aimed at boosting family memberships.

Higher Ground 2019 President Barack Obama and Michelle 0bama's production company will produce podcasts
exclusive to the platform.
ESPN 2020 Spotify created music and podcast playlists lor viewers to watch after fre Lost Donce
docuseries offormer Chicago Bulls player MichaelJordan.
The Joe Rogan 2420 Popular podcasts in diverse topics such as neuroscience, sports, comedy, health, and
Experience ever-changiflg culture.
Chase 2020 Eligible Chase customers of select credit cards who are new to Spotity Premium could take
advantage of six months ol free Spotify Premium.
Warner Bros 2020 Warner Bros. and DC produced and distributed an original slate of narrative scripted podcasts
and DC exclusively on Spotify.
Riot Games ?420 Riot Games, the video game developer behind teogue of Legends, a\dSpolify created a hub
with new and existing music, podcasts, and playlists inspired by the gaming community.
The Unbothered 2021 The t nbothered Netwo.k seeks to elevate the voices, stories, agency, and nuance of
Network Black women.

(Continued)
328 Parl2 Cases in Crafting and Executing Strategy

Company Year Company Collaboration Scope

Ava Duvernay 2021 ARRAY will partner with Spotify's Gimlet studio on a number of scripted and unscripted
ARRAY narrative podcasts.

Peloton 2021 Workout h!b showcasing playlists from world-class instructors.

Shopify 2021 Shopify online store allows artists to list merchandise.

FC Barcelona 2022 The partnership made Spotify the official Audio Streaming Parher of FC Barcelona and added
the Spotity logo to the tront ofteam shirts beqinning with the 2022-2023 season. ln addition,
FC Barcelona's Camp Nou stadium would be rebranded as Spotify Camp Nou.
Moonbug 2022 This partnership leveraged beloved stories allowing Cocomelon fans to interact with the brand
Entertainment in a creative way.

Walmart 2022 This partnership gave Walmart+ members six months of free premium access.

(o.pvi.o (po a .. F.
1

was a navigation app that allowed users to access
Spotify playlists from its app. In October of the same
year, Microsoft and Spotify entered into a new part-
nership. Microsoft ended its collaboration with
Groove and allowed subscribers to move their playl-
ists and music collections to Spotify. This partner-
ship allowed Spotify to be downloaded to Windows
for PC and Xbox gaming consoles.
ln
December 2017, Spotify and China-based
Tencent agreed to partner by acquiring shares from
each other. Tencent operated the largest social media
platform in China and provided an extensive catalog
of music services to hundreds ol millions ofusers.
2018 In April 2018, Spotify partnered with the
gaming{riented voice chat service Discord to be dis-
played on desktop clients. This partnership allowed
users to display their currently playing songs as a
presence on their profile and invite other premium
Spotify users to group "listening parties."
In April of the same year, Spotify and Hulu an-
nounced a partnership. The two companies bundled
their seryices and offered them through a single sub-
scription plan of $ 12.99-a-month bundle. This part-
nership was the first time Spotify paftnered with a
streaming TV platform, and it came at a time when
the company was rethinking its video offerings. With
Tom Calderone, head of video and podcasts, depart-
ing the company, Spotify decided to focus on expand-
ing video offerings on Spotify playlists. In August
2018, the company introduced an upgraded Spotify
Premium for Students plan bundted with Hulu's
streaming library and SHOWTIME's premium enter-
tainment content for $4.99.
2019A groundbreaking partnership was that of
Spotify with E1[en DeGeneres in late 2019. Ellen
DeGeneres was known for not only loving music but
also for creating opportunities for new talent. This
partnership expanded these opportunities and tapped
into new markets. Also in 2019, Spotify and Samsung
announced the expansion of their collaboration.
Samsung provided users with access to Spotify on
Samsung mobile devices, and all new Samsung mo-
bile devices globally would include the Spotify app
preinstalled. The new devices included the Galaxy
S10, S10+, Sl0e, S10 5G, Galaxy Fold, and select
Galaxy A series. Eligible Samsung owners qualified
for six months of free Spotify Premium. Following
this partnership, Spotify and AT&T teamed up in a
new relationship that allowed AT&T Unlimited &
More Premium Wir€less customers to choose Spotify
Premium as their entertainment option, initially in a
trial period and afterward at a rate of $9.99.
In 2019, Spotify also entered into four global part-
nerships; the first was with Xbox. Xbox and Spotify
teamed up to deliver value in gaming and music. Spo
tify offered gamers in the United States and United
Kingdom who joined Xbox Game Pass Ultimate or
Xbox Game Pass for PC (Beta) for the first time a
six-month trial of Spotify Premium. The company
also entered into a partnership with French company
Bouygues Telecom Broadband; customers on mobile
tariffs of > I GB could add Spotify Premium to their
existing mobile plan. A second partnership included
Brazilian Magalu Conecta, a country top retailer that
offered technicat support, cloud storage, phone pro-
tection, and Wi-Fi spots. Customers received a free
 Case6 Spotify Technology in 2022: Will
four-month Spotiry Premium trial. The last global part-
nership was with Vodafone, Australia's largest mobile
network; customers received a free 30day trial of
Spotify Premium.
To boost family membership, Spotify and Disney
entered into a partnership that created a Disney Hub
with Disney playlists featuring soundtracks from
Disney, Pixar, and Marvel movies, Star Wars instru-
mentals, classics, sing-alongs, and more.
2020 Chase and Spotify announced a partnership
to help shared customen unlock more value. The goal
of this partnership was to introduce Spotify Premium
to new audiences. A new multiyear partnership
between Spotiry and Warner Bros. was formed to prG
duce and distribute an original slate of narrative
scripted podcasts featuring DC's superheroes and vil
lains exclusively on Spotify. On May l, 2020, Spotify,
ESPN, and Netflix teamed up to curate podcasts
around Netflix's The Last Dance docuseries of former
Chicago Bulls player Michael Jordan. The partnership
built upon every brand's respective strengths, and for
Spotify, it was on content curation and playlists.
During this very busy yeal Spotify also teamed up
with Riot Games, the video developer behind League
ol Legends. The goal ofthis pafinership was to create
a hub with new and existing music, podcasts, and
playlists inspired by the gaming community. To
round off the year, Spotify partnered wilh The Joe
Rogan Experience, a podcast with a loyal and engaged
fanbase around the world. The podcast debuted on
September l, 2020.
2021 Spotify continued to seek partnerships in
2021, joining forces with Jemelle Hill and The
Unbothered Network. This new partnership eleyated
the yoices, stories, agency, and nuances of Black
women. A partnership with Ava Duvernay's ARRAY
platform also added scripted and unscripted original
audio programming. Spotify and Peloton knew how
to get subscribers moving; the goal of this partner-
ship was to create a Workout Hub. Peloton created a
dedicated Curated by Peloton shelf showcasing playl-
ists from their world-class instructors. To round off
2021, Spotify announced a new integration with
Shopify, giving artists opportunities to grow addi-
tional revenue streams.
2022 The year 2022 stafted with a paflnership be-
tween Spotify and the Cocomelon producer Moon-
bug Entertainment. CoComelon included videos with
lts Strategy Lead to Profitability with Growth? 329
catchy songs and eneGetic, colorful stories featuring a
kd named JJ and his friends. Spoti& and Moonbug
Entertainment introduced a new podcast, CoComelon
S/ory nm4 and olher homegrown shows. FC Barcelona
and Spotify announced a long-term partnership. Spotify
became the main partner of the club and the official
audio streaming partner The Spotify brand appeared
on the front of both men's and women's team shirts
and training shirts fot the 2022-2023 season. An added
partnership was formed between Spotify and Walmarti
customers who signed up for a Walmart+ membership
received a free Spotify Premium trial for six months.
By tapping into Walmart's impressive scale and reach,
Spotify had the opportunity to reach more people
across the united states.
The many strategic acquisitions and partnerships
Spotify formed strengthened the company's competi-
tive position as the most significant and leading mu-
sic streaming global platform. Through market
penetration, the company was able to grow its number
of users. Economies of scale are evident as new users
and artists are added. Product development was also
part of Spotify's growth strategy and can be seen in
lhe latest acquisitions of podcast companies.
Spotify's Use of Big Data
Spotify was continuously looking for new "habits in
their streaming intelligence" to learn more about
how people stream content. The company called this
"understanding people through music." The compa-
ny's use of innovation and technology created supe-
rior products and services to meet the growing
demand ofexisting and potential subscribers. Spotify
intoduced Spotify.me, a data analytics program to
capture a subscriber's listening habits. The captured
data allowed the company to generate content that
users consider in line with their tastes, creating a
unique user experience and keeping users engaged.
Spotify's use of artificial intelligence and machine
learning algorithms was a driving force behind the
company's success.
It all began in 2012 with the company's "Discover"
feature, which started as a playlist of a user's favorite
artists and soon became a sort of recommendation
engine, [n 2019, Spotify updated to "Discover
Weekly," a feature that creates custom playlists
unique to each listener's activity, which was curated
by machine learning algorithms. The algorithm
330 Part 2 Cases in Crafting and Executing Strategy
further analyzed other users' playlists to find com-
mon music themes and use that information to
develop new playlists. Users had a "taste profile" of
microgenres that were used to further customize
playlists. It was not only about what music users lis-
ten to but also about the user's interaction with the
song. Spotify's program was able to recognize if a
user changed the track within 30 seconds, giving it a
thumbs down and removing it from the playlist; but if
a user added a song to a playlist and listened to the
entire song, the song was aligned with the "user's
taste," a factor that helped the algorithm develop the
user's ovemll taste profile.
In addition to "Discover Weekly," Spotify also
used a function called "Daily Mixes," playlists sepa-
rated by genres that the user grayitated toward, in-
cluding songs the user either saved or added to a
playlist, songs written by the same artist, or songs
from new artists or albums the user did not know of
yet. Spotify algorithms change the songs of these
playlists as well as introduce a few extra new songs.
Spotify used analytics to understand a user's
music tastes and also used data to improve cus-
tomer experiences. The data generated by consum-
ers was used for ad campaigns and to better target
consumers. Some examples of successful ad cam-
paigns include a display ad in Williamsburg, New
York, where the company used listening history to
develop funny ads. The first ad read, "Sorry, Not
Sorry Williamsburg, Bieber's hit trended highest in
this zip code." This ad was displayed in a'hipster
area" known for its notoriously high concentration
of music snobs. Other popular campaigns included
holiday ads, a set of 2018 Goal ads, and a set of
"meme-inspired" ads.
As of April 2018, Spotiry announced that free users
would have access to explore 15 of Spotify's most pop
ular playlists, including "RapCaviar" and "Discover
Weekly." While this was great news for free users, the
company had a data-driven reason behind this deci-
sion. Spotify would now generate data from the lis-
tening habits ofover 124 million more users, allowing
for better-customized experience using data and
algorithms.
Data leads the way to understand trends, and this
includes the music industry. Music streaming has
outranked music purchases, and the only way to un-
derstand how the public responded to music, artists,
and albums was by using data. Spotify understood
this well and continues to focus on meeting user
preferences through unique, differentiated services
based on what the company has learned through
user data.
Originals & Exclusives (*O&E") Content
In April 2021, Spotify introduced a new version of
its library to all Spotily mobile users. giving users a
more streamlined way to explore their collection
and find music and podcasts faster. Podcasts could
be managed in three distinct sections: episodes,
downloads, and shows. The episodes tab allowed us-
ers to find or resume podcasts. The downtoads tab
served as a repository for downloaded podcast epi
sodes that users could listen to offline. The shows
tab allowed for users to quickly manage podcasts
that they followed.
The company launched 78 Originals & Exclusives
("O&E") podcasts globalty and completed its acqui-
sition ofThe Ringer. The Ringer was a platform rich
in popular sports and media podcasts. Gimlet, a
Swedish digital media podcast network that focused
on narrative podcasts, was acquired by Spotify in
early 2019. The company brought with it a dedicated
IP development team, production, and advertising
capabilities. Parcast was a premier stor),telling-driven
podcast studio based in Los Angles, California, potr
r.lar for Unsolved Murders, Cult, Serial Killers, and
Conspirqc-t podcasls. Spotify acquired Parcast in the
second quarter of 2019.
Spotify has over 2.9 million podcasts available
on its platform, with more than 70 percent powered
by Anchor. Anchor was a podcasting platform that
has added its suite oftools for podcast creation, dis-
tribution, and monetization to Spotify's community
of more than 406 million users. Anchor joined
Spotify in early 2019 after discussions of joining
lorces and the similarities of their company mission
statements: "to unlock the potential of human
creatiYity."
Spotify experienced a shift in listening patterns
in the first quarter of 2020 due to COVID-t9, but
the company remained excited about its growth
trajectory and adoption ofpodcasts at a global level.
The company saw an increase of 3 percent from Q4
2019 to Q4 2020 in podcast engagement, and con-
sumption continued to grow at tripledigit rates year
 Case 6 Spotify Iechnology in 2022: Will lts Strategy Lead to Profatability with GroMh? 331

after year. Podcast listening hit an all-time high in As of December 31, 2019, Spotify paid more than
Q2 of 2021. $ 16 billion in royalties to labels, publishers, and col
Spotify positioned itself to become the premier lecting societies for distribution to songwriters and
producer of podcasts and the leading platform for recording artists, an increase of 30 percent from
podcast creators. 2018. As of 2020, Spotify paid over $23 billion in roy-
alties to right holders.
Customization by Country ilarket In 2021, the company unveiled "Loud and Clear,"
a straightforward explanation ofhow its payment sys-
Spotify took the design of their website very seri-
tem and related factors worked. This new process
ously. The company belieyed in designing for be-
aimed to increase transparency by sharing new data
longing. The company knew that millions of people
on the global streaming economy and breaking down
around the globe open Spotify, so its focus was on
the royalty system, the players, and the processes.
localizing content. People can easily find Bollylvood
Spotify became the biggest driyer of growth in the
in India, Malay Pop in Malaysia, and Sertanejo in
music industry and the biggest source of overall
Brazit. While playlists may share a theme, they fea-
music revenue in many places.
ture different songs in different parts of the world,
Performanc€ Royalties Performance royalties are
so happy songs in the United States are different
payments made to a songwriter or publisher for
from those in Taiwan. Every word on Spotify was
a public performance. Public performance refers to
also translated into the local language(s) wheneyer
playing a song on the radio, television, in bars, night-
possible. Spotify wanted to "look just right" no
clubs, concerts, and other public places. The perfor-
matter where users access the app. The company
mance rights organizations collect the songwriting
spent time making sure users relate to the images,
royalties from music use$ and distribute them to the
and so they focus on the emotional content of
legal owners. These organizations include ASCAP in
images, the approach to cultural sensitivities, and
North America and SACEM internationally.
how they handle image localization. This is the
Mechanical Royalties A mechanical royalty was
Spotify experience of allowing people to feel that
earned through the reproduction of a copyrighted
they belong.
work either in digital or physical form. The scope of
Music unites people and yet it is highly localized
mechanical reproductions coyers any copyrighted au-
and a personal experience; therefore, Spotify's focus
dio composition that was rendered mechanically and
was on delivering a country-to-country, culture-to-
includes: compact discs, vinyl records, tape record-
culture, and person-tGperson unique experience that
ings, music yideos, ringtones, MIDI files, D\lDs,
varied but was equal in measure. A group of editors
compuler games, and downloaded tracks.
worked together to minimize localization challenges.
By 2019, music streaming accounted for 80 percent
The Spotify relevance started with translating the ex-
pedence into the appropriate language(s), followed by
of the music industry revenue and included industry
leaders such as Pandora, Apple Music, Spotify, and
using the same or different images based on the coun-
others. The Industry Association of America reported
try. Connections were created when users opened
total revenues of $5.4 billion in the first half of 2019.
Spotify and found images that were releyant and
The increase in revenue can be traced back to more
resonated with them. For Spotify, representation
consumers signing up for subscription services and
matters, this could be the connection to a particular
sales from downloads. Streams generate both mechan-
playlist and added users.
ical and performance royalties.
In 2020, the music industry lurned its best per-
Royalties and Artist Compensation formance, with revenues jumping 54 percent to
Spotify was created in response to piracy to protect $21.6 billion; streaming accounted for $13.4 billion.
artists and to compensate them for their work. But In 2020, music streaming accounted for 83 percent
the road to a business model that makes sense for la, of the music industry revenue.
bels, music producers, and recording artists has been Streaming Payouts Most streaming services use a
challenging. "platform{entric" payout distribution model. Digital
332 Part2 Cases in Crafting and Executing Strategy
streaming proyiders negotiate payout rates with con-
tent owners, mainly major labels. The negotiated
rate was then applied to all services revenue result-
ing in the total sum that the streaming service will
pay to rights holders. Spotify does not pay artists
directly, rather they pay distribution companies and
performance rights organizations. Payout, however,
depends on multiple factors such as how many ways
th€ royalty was divided and in what country the
stream occurred.
On average, the per-stream payout will vary de'
pending on the types of streams the artist gets; this
payout was also dependent on the artist's contracts
with labels and distributors. If a stream payout was
calculaled at $0.00437, then the rights holder(s) of
the musical work will earn $4.37 per 1,000 streaming
plays of the song on Spotify.
Spotiff Spotify's largest expense has been royalties
paid to different companies. The company was once
ranked as the worst royalty payer but increased its
payments, and as of 2019, they began paying between
$0.00331 and $0.00437 per stream to rights holders.
In 2020, Spotify increased its pay-per-stream, with
approximately 70 percent of the total revenue earned
per stream going to the artist and the rest absorbed by
the platform itself. It was estimated that on average,
artists can make anywhere from $3,300 to $3.500 per
I million streams. These new figures fluctuated
between 2020 and 2021.
"Spotify for Artists" and
'ilusic for You' Platform
Supporting artists on the Spotify platform became a
focus for the company. Spotify built a powerful suite
of tools for artists to maximize their presence and
help them find and connect with an audience.
The company launched "Spotify for Artists" in
2017: it was a place where artist teams, labels, and
distributors could manage their profiles. see and ana-
lyze their data, and pitch playlists. Artists and their
teams came together to make decisions about release
strategies, tour schedules, and to connect with fans.
Spotify Analytics was also launched for labels and
distributors to access and create playlists as they sutr
port their artists. Artist Pick, a separate tool, allows
artists to know who was playing their music and
where they were listening. After music was released,
artists could see streams in real time and watch their
fan base grow.
Spotify's innovative ideas continue to surprise the
music industry. At the end of 2019, the company an-
nounced that record companies would soon be able to
pay to have their artists promoted to targeted fans
within the Spotify platform via "Music for You" visual
popup ads. The goal of the ads was to alert fans to
new releases, and for labels to manipulate which fans
see what by digging into their wallets. Premium users
could turn offthe alerts, but free users would not have
this option. Recommendations would be based on lis-
tening tastes. This paid-for promotion began as a test
in the United States only. This new source of income
from advertising came from Spotify's biggest suppli-
ers of music. Charging record companies to promote
their artists on the platform increased the company's
profit margin generated at the end of the year.
Spotify's Rivals in Audio
Streaming Services
Apple lrlusic Although a newcomer, Apple Music
was one of Spotify's biggest rivals, with an extensive
library, human-touch radio, and full integration into
Apple's iOS ecosystem. Apple reached over 60 million
Premium subscribers worldwide as of mid-2019. The
company claimed to have oyer 60 million songs, out-
doing contenders such as Amazon Prime Music and
Jay-Z's Tidal. With Apple Music, users listen to local
radio stations around the world, download and
stream music lo an Apple Watch. enjoy music in a
car with CarPlay, and ask Siri (Apple's A.I.) to
search for songs. Apple offers three subscriptions,
a student, an individual, and a family tier. Because
Apple does not have a free tier, other ihan its initial
three-month free trial, they have secured more exclu-
sives with artists.
As of June 2021, Apple Music had 78 million sub-
scribers worldwide, up by 6 million from the previous
year. As of 2021, Apple Music accounted for 19 percent
of subscribers worldwide, yet Spotify remained the
market leader with a subscriber share of 35 percent.
Amazon Prime Music Amazon Prime Music
gives users access to over 90 million songs in HD.
The company has an individual plan, family plan,
student plan, and a single device plan (Echo or
Fire Tv). A Prime Music subscription was free with
 Case 6 Spotify Technology in 2022: Will lts Strategy Lead to Profitability with
Amazon Prime membership with access to 2 million
songs, and Prime Unlimited was its paid subscription
with access to up to 90 million songs. As of January
2020, Amazon music reported 55 million subscribers
worldwide.
Amazon also offers a standalone paid subscrip-
tion service. called Amazon Music Unlimited. This
subscription service offers four plans, a trial period,
and prime members receive a discount.
Pandora Pandora was a leading music and pod-
cast discoyery platform. Pandora was a subsidiary
of Sirius XM and boasted that it was the largest
streaming music provider in the United States with
an industry-leading digital audio advertising plat-
form. They offered their more than 52 million userc
a highly personalized listening experience through a
proprietary Music Genome Project and Podcast
Genome Project Technology through its mobile app.
Pandora experienced a year-on-year decline in
monthly active users (MAUs) between 2018 and
2019 of 8.7 percent. In Q3 of 2021, the company had
52.6 million monthly active users, down from
55.1 million in Q2. Pandora also experienced a
decline in its paid subscribers, with 59,000 leaving
the company in Q3 of 2021. According to the com-
pany's quarterly financial results for 2021, the com-
pany saw its revenue grow by 9 percent year-on-year
to $2.2 billion. Pandora offers two tiers, Pandora
Plus and Pandora Premium, with discounts for fami-
Iies, students, and the military. The free ti€r was
ad-supported and asked users to yiew video ads, a
drawback for many users.
Tidal Tidal was a streaming music service owned
by hip-hop mogul Jay Z. Artist empowerment was
a core tenant of this ptatform and was created in
response to Spotify's perceived unfair payout to art-
ists. The company claimed to have over 60 million
tracks in lossless audio quality and 250,000 videos.
It offered subscribers exclusive music and videos,
behind-the-scenes documentaries. and events in-
cluding live experiences, presales, and ticket giye-
aways. As with many companies, subscribers get a
3O-day free trial. The company's subscription tiers
include a premium family plan, and a student and
military plan at discounted rates. The company also
has HiFi subscription tiers at higher rates. Tidal has
GroMh? 333
not updated its number of subscribers since 2020.
From January 2020 on, the number of daily active
iOS users of the music app decreased in Norway,
while the number was over 7,000 at the beginning of
2020. In March 2021, the company was acquired
by Square allowing Jay Z to rctain a stake in the
music streaming business and joining Square's
Board of Directors.
YouTube ltlusic YouTube Music was a streaming
music service lhat allowed subscribers to find
albums, live performances, and remixes by searching
lyrics or describing songs. Subscribers received rec-
ommendations based on their tastes and searches.
YouTube Premium allowed users to listen to music
ad-free, offline, and while their device screen was
locked (desktop or phone). YouTube Music had two
tiers, the free ad-supported tier, and the premium
music service, which includes benefits like back-
ground play, ad-free music, and audio-only mode.
YouTube Music was the successor to Google Play
Music. Google decided to put its marketing empha-
sis on the YouTube Music platform since YouTube
had billions of viewers. As of 2021, Google reported
that it had 50 million users subscribed or trying
YouTube Music and YouTube Premium, an increase
from the 30 million subscribers that it reported in
December 2020.
Spotify's Strategic Situation in 2022
Spotify ended 2021 with strong MAU growth, con-
tinued momentum in subscription business, and
meaningful advertising revenue. MAUs grew l8 per-
cent year-over-year during the fourth quarter of
2021, and premium subscribers grew l6 percent
year-over-year during the fourth quarter of 2021.
The groMh had allowed the company's reyenues to
more than double since 2017 arLd achieve a gross
margin of 26.5 percent during its last quarter ofthe
year. However, while the company's net losses had
been reduced, the company had yet to achieve prof-
itability. The company's income statements for 2017
through 2021 are presented in Exhibit 4. The com-
pany's balance sheets for 2020 and 2021 are pre-
sented in Exhibit 5.
Spotify's fastest growing platforms were TV and
video game console users, while car and commute
consumption decreased as COVID-19 had led to
3:14 Fdrt2 Cases in Crafting and Executing Strategy

I 4
Spotify Technology S.A. Annual lncome Statemenls,20'17 -2021 (€ in millions, except
share and per share data)
2021 2020 2019 2018 2017

Revenue € 9,668 € 7,880 € 6,764 € 5,259 € 4,090

Cost of revenue 1,011 5,865 5,042 3,906 3,241

Gross prolit 2,591 2,015 1,122 1,353 849

Research and development expenses 912 837 615 493 396

Sales and marketing expenses 1,135 1,029 826 620 567

General and administrative expenses 450 442 354 283 264

Total operating expenses 2,491 2,308 1,795 1,396 1,227

0perating income (loss) 94 (293) (73) (43) (378)

Finance income (costs)-net 155 (416) (s8) 0 301 (8ss)

lncome (loss) before tax 249 (709) (131) (173) (1,233)

lncome tax benefit (expense) (283) 128 {55) 95 t2)

Net income {loss)attributable to owners ofthe parent (34) (581) (186) (78) (1,235)

Weighted average shares outstanding-basic 191,298 187,583 180,961 177,154 151,669

Weighted average shares outstanding-diluted 193,943 187,583 180,961 181,210 151,669

Year end shares outstanding 192,152 190.213 184,326 180,856 167,258

Net earnings (loss) per share-basic €(0.18) €(3.10) €(1.03) €(0.44) €(8.14)

Net earnings (loss) per share-diluted €(1.03) €(3.10) €(1.03) €(0.s1) €(8.14)

Source: Spotify Technology S.A. 2021 Form 1 0'(.

greater work-from-home listeners. Also, podcast lis-
tening grew in popularity in 2021 and 2022. The
company achieved doubledigit growth during 2021
in all geographic markets, led by strong results in In-
dia and Indonesia. Latin America also outpedormed
expectations.
Revenue from premium subscriptions accounted
for 87.5 percent of total revenues in 2021, although
ad-supported revenues had grown by 62 percent
between 2020 and 2021 to reach €1.2 billion. ln
addition, the gross margin for ad-supported reve-
nues had increased from I percent in 2020 to
l0 percent in 2021. Exnibit 6 presents Spotify Tech-
nology's revenues, cost of reyenue, gross profit, and
gross margin by revenue source for 2019 through
2021.
Beyond Spotify's flawed profit formula and cost
structure, seyeral internal and external issues
needed managerial attention. Spotify capitalized on
a strong brand image, unsurpassed innoyation, an
expansive music library, a strong international pres-
ence, and the advantage of being an early mover in
this industry. Howeyer, it also had weaknesses, such
as limited options for artists to build their popular-
ity because of the platforms licensing deals with re-
cord labels. The company's groMh in expenditures
was not likely to become lessened as the company
continued to pursue emerging markets, acquisitions,
partnerships. and continued to locus on user experi-
ence. Also of concern was competition from other
streaming platforms, which also offered subscribers
and listeners an appealing mix of features and
broad audio libraries. The company's chief manag-
ers were required to continue pursuing its aggressive
growth strategy, provide enhancements to its user
experience, and address growing competition and
flaws in its profit formula to meet the expectations
of investors.
 Case 6 Spotify Technology in 2o22:Will lts Slrategy Lead to Profitabjlity with GroMh? 335

Spotify Technology S.A. Balance Sheets, 202O-2O21 (€ in millions)

2021 2020
Assets
Noncurrent assets
Lease right-of"use assets € 437 € 444
Property and equipment 372 313
Goodwill 894 736
lntangible assets 89 97
Long-term investments 916 2,211
Restricted cash and other noncurrent assets 71 78
Deferred tax assets t5 15
2.798 3,960
Current Assets
Irade and other receivables 621 464
lncome tax receivable 4
Short-term investments 756 596
Cash and cash equivalents 2,144 1,151
other current assets 246 151
Total Cu rrent Assets 4,312 2,366
Total assets €7,110 € 6,326
Equity and liabilities
Share capital
other paid in capital 4,7 46 4,583
Treasury shares (260) (175)
Other reserves 853 1,687
Accumulated deficit (3,220)
]T9E
Equity attributable to owners ofthe parent 2,119 2,805
Noncurrent liabilities
Exchangeable Notes 1,202
Lease liabilities 579 511
Accrued expenses and other liabilities 31
Provisions 1 2

1,825 621
Current liabilities
Trade and other payables 793 638
lncome tax payable 9
Deferred revenue 458 380
Accrued expenses and other liabilities 1,841 1,7 48
Provisions 22 20
Derivative liabilities 105
Total Current Liabilities 3,226 2,900
TotalLiabilities 5,051 3.521
Total equity and liabilities €1 ,110 €6,326

!, source: SpollyTechno ogys.A.2021 forml0K

336 Part2 Cases in Crafting and Executing Strategy

I 6

Spotify Technology S.A. Revenues, Cost of Revenue, Gross Profit, and Gross Margin by
Revenue Source,2019-2021 (C in millionsl
2021 2020 2019

Revenues

Premium €8,460 €7,135 €6.086

Ad-Supported 1,208 145 678
Total €9,668 €7,880 €6,764

Cost of revenue

Premium €5,986 €5,126 €4,443

Ad-Supported 1,091 739

Total €7,071 €5,865 €5,042

Gross prorit

Premium €2.414 €2,009 €1,643

Ad-Supported 117 6 79

Total €2,591 €2,015 €1 ,122

Gross margin

Premium 29v. 28% 21v"

Ad-Supported 10% 10,6 12%

Total 27% 26%

Sourcer Spolity Techno oqyS.A.2021 Form 10 (.

Copyrlght O 2022 by Diana R. Gana and John E. Gamble

All ghts reserved.