Problem Statement
Spotify is an on-demand music streaming service launched in 2006 by Daniel Ek and Martin Lorentzon in Sweden. The company quickly expanded its services in many countries over the world and acquired a considerable number of subscribers within a comparatively short time. However, the company has yet to post a profit since its debut, as the equivalent losses accompanied the rapid growth of the company. The reason for it is the competition from other streaming music services, as well as the company’s policy of paying high, compared to similar services, royalties to the right holders. Yet, the company experiences increasing criticism from the artists for the share of the company’s revenues they receive. In given circumstances, the company needs to develop an appropriate strategy for the improvement of its financial situation.
Applied Concepts
Several concepts related to the competition are to be used in the analysis of the problem.
- Competitive strategy is the way to acquire an advantage over other industry actors that should be developed by the company.
- Competitive advantage is the combination of capabilities and circumstances that allow the company to acquire better outcomes than its competitors.
- Competitive, or market positioning is related to the company’s identity on the market, its chosen way of self-presentation, acquiring a specific niche by offering something unique, different from other companies.
- Differentiation is the method to reach the right competitive positioning by offering the products or services that would be preferred by the consumers over the other offers because of their unique qualities and affordable price.
- Blue ocean strategy is the concept developed by Kim and Marburg in 2005 (Wunder, 2016, p. 219). It defines the “strategic gaps” in the market that are “not being exploited by competitors” (Wunder, 2016, p. 219). While other companies’ performance is driven by rivalry (“red ocean”), thinking of something unique would bring the company to the field, unexplored by its competitors.
- Vertical integration is the joining of upstream or downstream companies (former suppliers or consumers).
- Social trends monitoring is the analysis of the social context and the tendencies that could be successfully used by the company for creating or modifying its products or services.
- The key driver of success is the identified area that can bring tangible results and achieve the company’s goals.
Evidence
Qualitative Data
Spotify is embraced by the consumers, giving preference to it over the other streaming music services. One of the reasons is the extended song catalog, as the company has signed agreements with all major labels, as well as several independent producers (Wroom & Sastre, 2016, p. 7). Another reason is Spotify’s social features, as an outcome of integration with Facebook and Twitter (Wroom & Saster, 2016, p. 7). It allows the users to follow the artists and interact with them, communicate with each other, sharing playlists via social networks even with those who are not Spotify customers.
In its business model, the company promotes autonomy and creativeness that allows the implication of innovations, sometimes experimental. This culture “enabled Spotify to be agile and react quickly to changes in the environment” (Wroom & Sastre. 2016, p. 9). Aiming for it, the company introduced so-called “hack time,” during which the employees are encouraged to elaborate and implicate their new ideas.
Quantitative Data
The company was launched in 2008 and quickly gained a large number of users. In early 2016, it had about 100 million users, including 30 million premium service subscribers with monthly payments. It expanded its services to more than 50 countries in the Americas, Europe, Asia, and Oceania. Spotify’s song catalog included about 30 million songs, including all major recording labels (Wroom & Sastre, 2016).
Analysis Results
Spotify experiences the absence of profits, despite its popularity among the consumers. The reason for it is the company’s high royalties and quick expansion to new markets that require considerable investments. On the other hand, Spotify’s strengths are the extended song catalog and unique social features. An additional factor that may influence the company’s strategy is the emerging trend of producing by online streaming companies their own music and video content with the major artists as the participants. The competition in the industry is high, and there is a risk of losing the company’s position in case of an incorrect strategy.
Possible Actions
In given circumstances, the company may increase its financing, decreasing its expenses, or acquire a higher level of revenues. The first strategy seems not to be appropriate as the level of investments is already high; the second would result in the loss of certain positions. The third is the most appropriate strategy, and the action plan is required for its implementation.
Preferred Action Plan
Considering the fact that the company has such a unique character as various social features, it may further develop this field, applying a blue ocean strategy. Such market positioning, with the implication of the differentiation method, would allow gaining a competitive advantage. Considering the new social trend of music and video shows, the company may apply the method of vertical integration, starting a collaboration with major artists. Taking into account the company’s corporate model, through innovative experiments, one or more of the aforementioned methods may be chosen as key drivers of success.
References
Vroom, G., & Sastre, I. (2016). Spotify in 2016: Facing increased competition. IESE Business School, University of Navarra. Web.
Wunder, T. (2016). Essentials of strategic management effective formulation and execution of strategy. Schäffer-Poeschel.