How Hot Is Spotify?

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Martin Lorentzon and Daniel Ek, co-founders of Spotify. (Photo courtesy of Spotify)

You know how Apple makes its presence felt at CES by not being there? Well, you can say the same for Spotify, a London- and Stockholm-based digital music service that was co-founded by Martin Lorentzon and Stardoll founder, Daniel Ek. At Le Web 2009, Spotify made its presence felt with its omission.

Much like the all-consuming talk of Twitter at pretty much any Silicon Valley event, dozens of Europeans couldn’t stop gushing about the service that only recently launched and only in six European countries. More than a dozen people, randomly (and without prompting) told me how they can’t live without Spotify.

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In less than six months of being availableĀ valuable, the company has become a force of nature, and in the words of an executive, taken on a life of its own. Now, some of it can be attributed to grassroots support and the immense amount of press drummed up for the service by Shakil Khan, who 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 the co-founders of Skype and spearheaded by former Cisco executive Mike Volpi. Joost grew its base at a spectacular speed but then like a meteor, burnt out. It couldn’t get the content or its to-market strategy right.

Spotify has problems, but of a different kind. I like to call them YouTube-caliber problems. The company is getting too popular and as long as it remains so, will almost always face immense infrastructure costs. Sure it’s raised over $50 million at a valuation of $250 million, but that may not be enough.

That said, the grassroots support for Spotify seems to be genuine, thanks to a lot of content. The service’s growth has caught everyone by surprise, including the company. I’m sure even the record labels — including the four majors — that have taken equity in the much-buzzed startup (alongside Joost backer Li Ka-shing and other investors) have been pleasantly surprised by the rise of Spotify, as it’s finally given them a chance to have a counterweight to Apple, which has thus far been a dominant player in the world of music.

My colleague Kevin Tofel will be pleased to know that he is part of a growing posse (at least in Europe) who believe that listening to music via a cloud-based music service is the way we are going to consume music in the future. (Related: GigaOM Pro note, subscription required.) spotify_6220_Classic_player_tilt.jpg

The early popularity of Spotify shows that the service might have come to market at just the right time. As Paul Bonanos explained in his post earlier today, cloud-based music services are being egged on by the availability of high-speed wireless networks (of both the local and wide-area variety) and mobile phones with impressive music playback capabilities. That’s why Spotify, according to its executives, is not just about the desktop but also about making music available on handsets. Unlike Apple, it’s free to offer this service to pretty much any handset maker.

Fredrik Cassel, general partner at Creandum, was the first institutional backer of Spotify and he is confident that the freemium model is going to work for the company. A premium version of the service that costs about 10 euros ($14.63) is ad-free, makes playlists available in offline mode, has higher quality and is available on mobile devices.

Cassel is aware of the challenges posed by Apple and its recent purchase of Lala for a rumored $85 million. He is aware that competition from other upstarts such as Rdio is only going to muddy the waters, but he is confident in the ability of Ek and his team to compete. I agree — the company has an indescribable “it” quality, much like Oliver Peoples has “it,” Bulgari has “it” and Apple has “it.” spotify_desktop_client.png

But for now, everyone at Spotify is focused on getting the company launched in the U.S. Ek, in fact, has been moved to New York to get the job done. The goal is to get the service rolled out by the first quarter of 2009 2010. It might be sooner than later — or at least that’s the impression I got. They have to have that goal — the service needs to gain traction here if Spotify can have a decent exit.

A report in the Wall Street Journal suggests that Google was trying to buy Lala, indicating its interest in the music business. My bet is that if Spotify works in the U.S., then it becomes an attractive acquisition target for Google, which is trying to get a toehold in the music industry. The parallel would be YouTube, which became the video phenomenon that Google could never be.

A lot needs to happen between now and the outcome. The company needs to build a client that encourages more social activities around music. It needs to take a page from Twitter’s playbook and build an ecosystem of innovative services based on Spotify. Some have already cropped up, but they aren’t enough, mostly because the Spotify API is temperamental like a starlet. (If you want me to check out your Spotify add-on service, drop me a note.)

Either way, 2010 is going to be an interesting year for this tiny company, and when next year’s Le Web rolls around, Spotify will have made its mark. And perhaps its team will actually show up onstage to talk about it.

I am now signing off from Paris!

Photos courtesy of Spotify.

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