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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.


In less than six months of being available 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.

18 Responses to “How Hot Is Spotify?”

  1. Ever heard of Grooveshark? Why Spotify when you can listen to free music without the interruption of ads.

    I use Grooveshark on my free account which can be accessed from any computer on earth. Doesn’t matter what country you live in.

    Hands down,Grooveshark is better than Spotify!

  2. Melektaus

    Maybe I’m missing something because I don’t have Spotify in my region, but doesn’t this sort of thing already exist in the US, called, and I’m not kidding, Zune? Seriously, the Premium version sounds just like the Zune Pass. What makes it better, besides the ‘freemium-ness’?

  3. I agree Spotify is going to a service to watch out for. I’ve tried most of the other online music sites and Spotify is the one I use on a daily bases. I’m actually looking forward to buying a premium account so I can use it on my iPhone as well.

    The way things are going Spotify will be acquired in 3-6 months after US launch or just raise a lot of VC money and we’ll still be talking about how awesome Spotify is at the end of 2010. #maybe

  4. Ok, I’m feeling contrarian on this one. Isn’t there a long track record of companies getting huge user bases by giving away music? Spotify’s service sounds great, but if anything that’ll make it even harder to make money. People will use the heck out of the free version, costing the company lots of money, and not enough people will actually pay for it. The true litmus test will be what happens when they degrade/discontinue the free version.

  5. Spotify is great. I’m wondering if they’re not too great for their own good. Let me explain:

    I’m an old fashion music buff. I own 1000+ CDs and I keep buying them. My 160G IPod is filled with 110G’s worth of music and counting.

    When I got my Spotify invite, I expected to go have a look and uninstall within minutes. I searched for some obscure jazz and off-kilter rock. They didn’t have everything, but they had something, and that was more than iTunes ever did with the same searches.

    So I stuck around. It’s not my main player, but I use it to check out albums that might interest me. I’m not sure I even notice the ads. They’re extremely non-intrusive.

    And that’s why I think they may be too good for their own good. How are they going to entice me to pay if I’m not a mobile user ?

  6. jonathan Christensen

    I have ben listening via the private beta for a long time (thanks Daniel). I LOVE Spotify.. I recently bought a Sonos z5 all in one wireless kit. Its also great but the music services (Pandora, Last FM) are no where close to Spotify. I guess I am saying that my music life would be complete if Spotify and Sonos got it together..

  7. OK, worst sentence ever on GigaOm: “In less than six months of being valuable [What does that even mean??], the company has become a force of nature [Dude, not even Google is a force of nature], and in the words of an executive [Jeez!], taken on a life of its own [and what does that even mean?].”

    You must have been very tired :)

  8. “My colleague Kevin Tofel will be pleased to know that he is part of a growing posse (at least in Europe) who like him believe that listening to music via a cloud based music service is the way we are going to consume music in the future”

    I am indeed pleased. :) I actually started streaming my iTunes library (which is actually comprised solely of DRM-free MP3s from Amazon and my own CD collection) with my 1st gen, 8GB iPhone. Why? Because 8GB wasn’t enough storage for my library and apps. With the proper service, connectivity — and possibly a caching feature — the cloud is far more scalable than physical storage. I’m looking forward to Spotify here in the U.S. — can’t wait!

  9. Martin Kuhn

    Om – I’ve been using Spotify for 3 months. The free service (+ ads) is so good, how many folks want to pay 120 Euros/yr for additional features?

    Also, unicast streaming 320kbps music over Mobile WAN is not scalable, so unclear how this is resolved.

    That said (assuming mobile WAN streaming scalability is resolved), XM Sirius (broadcast service) has 18.5m US subscribers, so if Spotify can get into cars, a monthly subscription can work, although lead time with auto OEM’s is long.