Will Spotify Turn Out Like Joost?

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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