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In the land of the freemium, how much free is enough to convince users to pay?

In the latest refinement to its market strategy, Spotify in…

Sean Parker and Daniel Ek
photo: mpgrigg

In the land of the freemium, how much free is enough to convince users to pay?

In the latest refinement to its market strategy, Spotify in many countries is now abolishing a five-free-plays-per-track limit it introduced last year.

The limit was implemented along with a 10-hours-per-month free listening cap one year ago, apparently at labels’ behest, as they ratcheted up pressure on Spotify to bring them paying subscribers. Even Spotify staff, reluctantly implementing the measure, called it a “very tough day”.

Now, however, the service is dropping the plays limit in Sweden, Finland, Norway, the Netherlands and Spain, according to MusicAlly, and in the United States. The 10-hours limit stays in Europe.

What has changed? In short, Facebook has become a key conversion tool.

Spotify isn’t saying it along with this announcement, but all media services which announced controversial integration with Facebook’s frictionless sharing system last fall have seen a big influx in usage.

Facebook is a massive funnel that is bringing operators hot business prospects – potential customers. These incomers are unlikely to pay immediately – to convert them to pay, developing a free relationship is essential.

That is the mantra Spotify has successfully preached to labels. And it is one which rivals Mog and Rdio adopted in September when, on the same day ahead of Facebook’s announcement, they each introduced new free options alongside their paid services.

The abolition of the five-plays-per-track limit indicates Spotify’s label pay-masters are becoming more and more comfortable with allowing some free, unlimited listening if it ultimately brings them more paid custom. But the free part in isolation is a business concept some artists remain uncomfortable with.

When Spotify launched in the US in June 2011, it gave users a six-month, all-free access period. By year’s end, those free users were due to have hit limits.

But, as paidContent first reported in January, Spotify, fresh from the Facebook implementation, had never actually put these roadblocks in front of anyone. Today’s announcement confirms that this approach is indefinite.

This is the latest in what has been a yo-yoing freemium strategy for Spotify since its 2008 launch.

It initially limited new sign-ups whilst it managed growth. After an initial period of unlimited free, Spotify then introduced a 20-hours-per-month limit before halving it to 10 hours.

Finding the balance between free and paid is an interesting challenge, including finding the tolerance of free users toward free monetisation methods. Clear Channel (OTCBB: CCMO) says it will delay adding in-stream ads to its iHeartRadio service after noting complaints about the frequency of ads in Pandora’s free streams.

“There are a lot of negative comments about in-stream ads,” Clear Channel CEO Bob Pittman says (via AP). “When you’re in your music collection, you want to escape from the world. It’s a completely different experience”

  1. In the land of the freemium, how much free is enough to convince users to pay?

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    1. Staci D. Kramer Friday, March 30, 2012

      @nathalie — That’s a great question. To move from free to pay I think people need to get either a service that they value — for instance, portability and offline listening with Spotify — or they need to want enough access to make content limits matter.

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  2. Isn’t there an argument that this could be due to the Spotify team successfully selling the space within the free to play application. 
    At the very least the yields on the ad space are going to play into the decision. I’d imagine increasing the amount of time that the users can play music will push up ad revenue by a larger factor than the increase in conversion.

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