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Summary:

Before web music service Spotify launched, serial entrepreneur Martin Varsavsky called it “Joost for music.” Indeed, Spotify would be well-advised to learn from Joost’s mistakes — or it could wind up suffering a similar fate.

Before web music service Spotify launched, serial entrepreneur Martin Varsavsky called it “Joost for music,” drawing a comparison with the once-promising web video provider. Now that Joost has sold off its assets for a pittance in a deal that came to light this morning, the comparison is no longer flattering –- but there are still plenty of parallels between the two companies. And the online music’s press darling of 2009 would be well-advised to learn from Joost’s mistakes — or it could wind up suffering a similar fate.

As Om wrote this past summer, Joost had everything going for it less than three years ago: tens of millions of dollars in funding, serial entrepreneurs as founders, a hype machine, proven technology and big media partners eager to take equity. But the hype turned into backlash, media partners lost their love, key personnel including the CTO departed and early adopters tuned out as browser-based services rather than Joost’s desktop client prevailed.

Could the same things happen to Spotify? The four major record labels have taken equity in the much-buzzed startup (alongside Joost backer Li Ka-shing and other investors), but are now stalling a planned U.S. launch over royalty rates. Its CTO left last month. And in the meantime, browser-based alternatives in a variety of models are also getting attention. (One of them, Rdio, is the new project of Joost’s co-founders — and tellingly, there’s a browser-based version.) The bloom, it seems, is already falling off the rose, and Spotify hasn’t even reached the U.S. — what should be its most lucrative market — yet.

Although the two have plenty in common, their problems aren’t all the same. Spotify is already far more popular than Joost ever was — in fact, its free service is too popular, giving Spotify an expensive monthly bill that’s not nearly offset by advertising rates or paid user conversion. Joost’s content library wasn’t as deep as rival Hulu’s, while Spotify’s extensive library and slick user interface are among its great selling points. For now, people love it — perhaps too much for it to be sustainable.

That said, Spotify appears vulnerable for other reasons beyond the cost of its popularity — and in other ways that felled Joost, too. We’ve yet to see how its technology will handle more massive scale, and with offices in Stockholm, London and New York, it’s already geographically very spread out for a startup. The perception that it’s overhyped could leave first-time U.S. users underwhelmed, especially if the U.S. version isn’t as good as the European one. What’s more, Spotify’s battle to engage users in the mobile sphere among cheaper or free alternatives could be 2010’s version of Joost’s failure to deliver a browser-based product in time to head off Hulu and YouTube. In the fast-changing landscape for digital music, Spotify would be wise to look for Joost for a precedent — and a reminder that nothing is a sure thing.

  1. I think Spotify is toast like Joost thanks to labels. Probably, the only reason why labels took equity in it is to kill it like they did imeem.

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  2. Joost suffered from bad execution without solving a problem that users actually had.

    Spotify on the other hand is a brilliantly executed product, which incredible user experience. Spotify is the one company who’s experience doesn’t detract from enjoying music. Joost on the otherhand forced a vision on the market but didn’t actually understand what users wanted. Simple but very powerful.

    So, Paul, without even using the client its reporting like this which is tainting the consumer perception in the US. Which is basically tabloid reporting.

    The fact of the matter is, spotify won’t be seeded in the tech community in the US but instead by mainstream users because it solves a real problem. The last company to satisfy user love and overcome the labels was pandora, now thats the kind of success spotify will surely eclipse.

    This is not another joost, and superficial reporting (which is actually contrary to gigaom’s reputation) won’t dent the success its going to have. Use it you’ll see what i mean.

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  3. It is a scary comparison for something that is so good and so on the up right now. However the point has some validity. When I look at services such as Grooveshark and even the Napsters of the world – the one thing we know is that it will be extremely competitive!

    There are some big differences and content is a big one. Hulu or some of the European services that now give you all the movies you truly want in a simple format – is key. Joost never had anything I wanted to watch.

    I do believe the streaming model will prevail in some way though.

    In the meantime – I am one that Spotify converted to a paying user!

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  4. I agree with the comment above. Seriously, this was one of the worst articles I’ve ever read.

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  5. I totally agree with Sumon Sadhu. Really, really poor reporting

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  6. spotify looks much better than joost in case of features, its music library looks good and its handling the traffic pretty well uptill now . .

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  7. [...] alarming parallels between Joost and Spotify, admitting however that Spotify is much more popular.Close Forward this [...]

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  8. Yes, I did coin the phrase. But allow me to explain. Other than being the CEO of Fon which is now profitable and growing fast I am also an investor through my fund called Jazzya in several companies that appear in my blog http://www.martinvarsavsky.net. Our biggest hit so far is Eolia Renovables now highly profitable and worth over $1bn. But we have had other exits like Dopplr, Plazes, Xing. And other companies such as Tumblr are doing very well. But indeed Joost failed. It had the right business model but it failed. Why didn’t Joost become Hulu? Mainly because management was unable to get the right content. The site is great. But the key content was not there. Now let’s move to Spotify. I disagree with the tone of your article. I still think Spotify can be a big success. Why? Very simple, because it has the content. And the Spotify experience is phenomenal.

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  9. There’s a very very basic problem with this argument: Joost was hugely hyped because of the founders, but never got to first base – it never had content anyone wanted. That is, the product was crap.

    Spotify, on the other hand, is a great product with great content. The questions are around the business model. Joost had a great model with no product – where would you prefer to start?

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  10. Comparison is off.

    1. Joost in its distributed version was a terrible experience for the users. And the content was not there. Spotify has a great user experience and content to boot.

    2. Spotify innovates by making music free, whilst getting the labels on side. They will not suffer the fate of imeem.

    3. The real issue is not whether Spotify will be succesful, but how succesful. The stakes are very high for a company that needs to be worth $1bn to provide a decent return for its backers, and this is how it should be measured.

    Are the labels going to let a thousand flowers bloom or will they deal with a few select partners ? What are the real barriers to entry in this field ? Signing the labels used to be one, but that is less and less the case. Paying the MG’s used to be one (a dumb one to overcome), but that is less and less relevant. Spotify may see a 4-5 serious competitors emerge (Radio, Deezer, We7 to name but a few) who all peddle the same catalog.

    I believe Spotify remains the yardstick of excellence for now as a consumer facing music offering. But lack of barriers to entry and an overdue embrace of digital streaming services by the majors may make it tough to achieve that multi-billion $ exit.

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