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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.

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  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.

  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.

  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!

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

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

  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 . .

  7. Will Spotify turn out like Joost? – Viewsflow Wednesday, November 25, 2009

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

  8. martin varsavsky Wednesday, November 25, 2009

    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.

  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?

  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.

  11. That was a bad comparison. Joost was shit from the beginning, and Spotify was excellent from the beginning. Spotify still has to prove their model. But if they fail, then piracy will be back and the whole record, music and artist industry will fail. And that is really bad. I keep my fingers crossed for Spotify, it is a great product.

  12. Thing is, spotify doesn’t make music free. It’s not available in many European countries. A fee of 10 EUR is required for others.

    1. ooooh gimme a break.

      They have to pay minimum guaranteed fees to the labels by region and so they cannot launch worldwide in one go. Rome was not built in a day.

      They need to (a) acquire content (b) acquire users (c) monetize to make the country profitable (d) repeat and expand.

      Never free enough huh ?

  13. Text from spotify’s site:

    “You can invite friends to Spotify Free if they live in Sweden, Norway, Finland, the UK, France or Spain.”

    Not much…

  14. The labels impose draconian terms on geographic access to Spotify’s music catalog. When they added IP-based location detection to their client, being based in Spain meant I could no longer access the much more extensive UK catalog with my UK (paid!!) account. Any music search turned from 30% to 80% of results marked as “unavailable” due to geographic restrictions.

    Being browser-based or client-based doesn’t make one bit of difference if a) the product is good, b) the user experience is first-class, and c) there is an immediate value perception by the user. Take as an example Skype. Being client-based hasn’t stopped millions of users worldwide from installing and using it on a daily basis.

    The problems with Joost regarding my abc above have been well trodden. Spotify is OK in all three counts, but it has a serious problem with content access rights being dictated by labels. This is a Damocles sword hanging over Spotify’s head…

  15. MOG’s on-demand music subscription service, created by music fans and launching next week on December 2nd, will provide unlimited on-demand streaming music with easy search capability, awesome user experience, an optional “similar artists” radio function, and innovative discovery tools. We boast high quality streams and a comprehensive music library too. No software to download, and no ads in our browser-based player. And for $5/month, we keep it cheap but retain licensing from the majors.

  16. I think one of the key aspect of Spotify is the mobile applications.

    You pay for the premium version, then you can have offline access to songs (as much as 3333), and also, you can then use the mobile application (for Android, S60, iPhone).

    As the mobiles applications have an offline mode, you can even use the mobile application to listen to your chosen music when there is no network connection available. If you’re online you can also stream music.

    In my opinion, this really good mix of the online mode and offline mode is a key point in the Spotify experience.

    Furthermore, the fact it’s not a browser based service is a plus point as the other flash based services are computer resources hogs.

  17. MOG for mobile is in development and will be launched at the end of 2009 or beginning of 2010.

    Most modern computer equipment and modern broadband connections see no noticeable hit in performance using MOG and MOG’s flash-based player. MOG has a desktop app following the web release, for those that want a browser-less, desktop application experience.

  18. Thanks to everyone for chiming in.

    I didn’t mean to say, nor did I say, that Spotify and Joost are just like one another. I agree that Spotify’s product is excellent, and that its content library is very strong — at least in the geographies where it’s working already. But until it does secure a content library in the U.S. music market, everything else — price point(s), free component, advertising frequency, mobile extensions — remains in question. The product and experience we get in the U.S. may not be that compelling after all, compared to what many of you are enjoying in Europe already as well as other options in the U.S. And if it isn’t as interesting, consumers will go with something else. On both sides of the Atlantic, there is plenty of room for another company to win in the all-important mobile arena, which is a huge part of Spotify’s revenue strategy as well.

    As a music fan, of course, I wish Spotify the best of luck, and I can’t wait to see what the company delivers in the U.S. I hope it’s a great product that I use every day.

  19. Very weak Joost-Spotify comparison on this article. I was a very early user of Joost and also Spotifys. I continue using Spotify everyday because it gives me the best and more flexible streaming content available right now, I started not to use Joost long ago because the lack of content just made it not appealing anymore to turn it on or visit the site. Beside technical considerations and ease of use on SoftUI/SiteAccess, for me still the most important for an IP service is to give the best solution to a particular customer’s need, Joost did not, Spotify does.

  20. Spotify Names New CTO – GigaOM Tuesday, December 1, 2009

    [...] the U.S. sometime in late 2009, but recently pushed the launch back to 2010 as content owners have stalled licensing deals for their music catalogs. The service is currently available in Sweden, Norway, [...]

  21. How Hot is Spotify? – GigaOM Thursday, December 10, 2009

    [...] labels himself as Spotify’s consigliere. The early buzz is one of the reasons why there have been comparisons with Joost, the failed online video venture started by co-founders of Skype and spearheaded by former Cisco [...]

  22. Still Quiet Before Launch, Rdio Introduces iPhone App – GigaOM Friday, December 18, 2009

    [...] paid version that includes a mobile component, but while its app has been approved, Spotify has delayed its launch in the U.S. And MOG is expected to add a mobile app during the first quarter of 2010, which will [...]

  23. Confidence in Free Streaming Models Is Fading — Fast – GigaOM Wednesday, February 10, 2010

    [...] Spotify’s model is sustainable in some territories, but Bronfman’s quote sounds like a vote of no confidence that the same thing will happen in the States, from someone who can effectively stop a launch [...]

  24. As MOG Goes Mobile, the U.S. Waits (and Waits) for Spotify – GigaOM Monday, March 15, 2010

    [...] allow a sustainable free version. Running afoul of content owners and squandering a head start can really bring a company down, and in Spotify’s case, doing so has given other innovators an opportunity to sign up paying [...]

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