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Last week when Spotify launched its U.S. site, we laid out some of the challenges the music streaming service would have in the competitive…

Daniel Ek And Martin Lorentzon
photo: Spotify

Last week when Spotify launched its U.S. site, we laid out some of the challenges the music streaming service would have in the competitive American market. With the freemium service set to launch Thursday, here’s a reminder of those issues…

What will digital media observers have to ruminate about now that Spotify is finally set to operate in the States? How about Spotify’s chances of success there… ?

On that count, Spotify can wipe some sweat from its brow with relief that neither Apple (NSDQ: AAPL) nor Google (NSDQ: GOOG) ever launched the rumoured unlimited-access subscription services; only remote lockers for existing individual tracks.

That leaves the big new opportunity in digital music in-play for upstarts like Spotify – the notion that unlimited-access consumption will explode, especially amongst reformed pirates, while iTunes Store’s sales lay flat.

Problem is, unlike in Europe, U.S. competition in this space is more plentiful for Spotify, with Rhapsody already on 750,000 paying customers at last count, Mog and Rdio the main other big-name competitors, a host of smaller names snapping at their heels and Pandora (NYSE: P) occupying the non-interactive streaming space.

Another key factor means Spotify may not replicate its European growth pace in America – its customer acquisition strategy has changed. Spotify boomed after its launch in October 2008 not just because its app was slick but also because it offered unlimited free desktop music with ads. European label divisions, which hold equity in Spotify, are fairly happy with the results – a reduction in piracy and, as paidContent confirmed today, 1.6 million new paying customers.

But, met with scepticism from U.S. divisions, Spotify has halved free streaming time after a six-month intro at 20 hours to just 10 hours per month and only five repeat track plays. The “free” plan will be unlimited for invite-only users at first. Spotify was clearly reluctant; it told paidContent in April: “What is driving users to paid is the free service. The ‘free’ experience, in fact, pays big dividends. That’s why it is so vital we continue to make the free service available.” But its consent to labels means freemium is likely to play a smaller role in future.

That has been the cost of a U.S. launch. Whilst it was a condition that has diminished the free European proposition, Spotify appears to have decided it has sufficient scale there to warrant its evolution from a startup in to a proper, money-making business. *Time* to get serious.

On a growing sector like music subscription and in the world’s biggest market, Spotify will see nothing but growth on the consumer front. But Spotify is having to take investment to go global – only time will tell when it will work that off…

  1. Spotify are right to protect the free model. I’m a European user considering upgrading to Premium but I would never have done that without being able to use it free. Things will be very tough for them in the US though. Even in Europe, where it’s really taken off, only a small percentage of users have upgraded to premium. A Facebook deal could offer some hope though.

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