Dear Reader,
This profile in Product | Strategy | Innovation
provides some insight into what I envisioned writing long-form profiles on founder/owner/operator CEOs and their companies while I also innovate new products and create new businesses with clients. I thought the two activities would be complementary while I also build an iterate my own retail investment portfolio of their companies and others. Just in the last 2 weeks I have recorded and classified close to 14 million ergonomic movements to help reduce workplace injuries. Later today we meet to expand to a second site. Then a third. Then 10 and next 50. Within 12-18 months, we could be collecting 1 billion movements every week to translate machine learning in the cloud to the edge with direct feedback to the same workers. And that all came together writing about Tesla over the last few months. What would Elon do has become a useful tool?
But true to the concept of a 2-week sprint, this week’s post will be replaced next week with a more detailed final long-form post on the topic. And what is that topic? A founder who I think will transform the world we live in as both an owner and operator of the company he founded. And that founder is Daniel Ek. Who?
Background
Have you used Spotify? If so, then you have experienced Daniel Ek’s vision for CREATORs with corporate operations in both Sweden and the United States. The merging and separation of two very different cultures to innovate what could become the dominant streaming platform not just musicians, but for most CREATORs over the next decade could be the 10x solution to monetize their work across the world. Maybe mothers will finally want their kids to grow up to be a CREATOR as an educator, artist, writer, scientist or entrepreneur instead of just another doctor, lawyer, engineer, accountant or MBA.
And with over 345 million consumers as of Q4 2020 using Spotify worldwide for audio, these CREATORs have access to a massive consumer base and audience. And of those 345 million consumers, 155 million are subscribers to Spotify’s paid premium service. If subscribers pay a monthly subscription for ad-free audio, why wouldn’t they add an extra $1 per month to support a trending young artist? And supporting just a few more CREATORs just means sacrificing Starbucks once a month.
And what if for $5 a month, I get the pre-release for new content and limited-release exclusive content from an artist I choose to support. And by fueling the CREATOR engine, what if a young musician earns $20k a year with their art, but another $60k or more a year with exclusive content, podcasts to highlight their young artist peers and talk about community action projects and social justice, merchandise, etc. all through Spotify.
And what if Spotify provides recording studios in key CREATOR hubs like New York, Los Angeles, Shanghai, Berlin & Tokyo for artists to create new content exclusive to Spotify at no cost until they reach a substantial number of paid subscribers for their content. Spotify is not only freemium for consumers to consume, but CREATORs to create. Workshops can help advance their craft. Spotify becomes the Harvard for CREATORs with no tuition. The only requirement is a passion to create! That is scalable and we all benefit with millions of CREATORs to make our lives plus their lives better. And creation is hard to automate. It is sustainable against the onslaught of automation we will experience over the next decade.
This concept of monetizing CREATORs was somewhat validated today on March 4th, 2021 when Jack Dorsey and Square agreed to acquire a majority ownership in artist Jay-Z’s Tidal Music Service for $297 million in cash and stock. I will be writing more in the future about Jack Dorsey and Square, but this was the right move. Square is not trying to compete with Spotify, Apple, Amazon, Sirius, Pandora, YouTube on music. Square sees CREATORs as a partners who want access to bitcoin, stocks, a digital wallet and Square’s own network of close to 40 million monthly active Cash App users. Before this announcement, I actually saw a major advancement would be Spotify and Square partnering to help monetize CREATORs. With Square’s move today, I now see the two potentially merging to take on Apple. Square and Spotify are actually 2 of my 3 high-conviction, long-term portfolio holdings for 2030 and beyond, so I would welcome that merger. If not, then partnering would help both companies lift all boats.
Company: SPOTIFY TECHNOLOGY S.A., Stockholm, Sweden
Founder & CEO: Daniel Ek, 38 years old
Product
: Mobile App for Music & Podcasts combines Passive (Curated Radio) and Active (On-Demand Streaming); Mobile App for Artists & CREATORs
Strategy
: Audio, 3-sided marketplace & preferred platform for CREATORs, Freemium supported by Ads and Premium Subscription revenue
Innovation
: AI Engine & Machine Learning
We will explore the following in this profile:
Spotify is all-in on music with a 3-sided marketplace (Consumers, Musicians, Advertisers) to provide both freemium (ad-supported) and premium (subscription-supported) business models.
Spotify expands audio with podcasts (and maybe even social audio with Clubhouse features).
Spotify on-demand streaming and platform services for Creators disrupts all traditional media.
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1. Spotify is all-in on music with a 3-sided marketplace
Two-sided marketplaces pair buyers with sellers. More buyers attract more sellers. And more sellers to expand available products and services attract more buyers. So the circular nature of this business model looks attractive, but this is an extremely hard strategy and business model to execute. Three-sided marketplaces for the right products and services can help scale consumer buyers using an ad-supported freemium model. If the products and services can be delivered as a digital solution, the business model is even more effective to acquire more customers and to cost-effectively deliver the products and services. With scale the business model also offers the opportunity to introduce paid services on top of what is available for free. As the freemium and premium models scale, advertisers are attracted to the ability to segment and target specific demographics, regions and markets. Once 3-sided markets achieve a certain scale they almost become self-sustainable with each of the 3 sides supporting the other two.
As far as product, the Spotify mobile app for music and podcasts is well-designed and works well in the background while using your streaming device for other applications. Installing Spotify starts a process to select favorite artists and music. This builds favorite lists and a benchmark for the AI service to recommend content. I’m more of a consumer of my favorite artists, but I do find it interesting to see what is recommended and find the recommendation appropriate for my interests. Sharing playlists is another feature of Spotify.
2. Spotify expands audio with podcasts
Podcasts have been around for awhile and Apple helped advance the concept with iTunes and its podcast app. Podcasters have continued to advance their craft with multiple platforms to support them today. Spotify moved into podcasts aggressively with the acquisitions of Anchor FM, Gimlet Media and Parcast in 2019. Anchor is a popular tool to create, share, grow and monetize a podcast on all popular platforms. Gimlet Media is the CREATOR for the StartUp podcast hosted by Alex Blumberg. Other Gimlet podcasts include Reply All, Science Vs, Heavyweight, Crimetown, Every Little Thing, The Pitch, Mogul, Uncivil and others. The scale of both acquisition allowed Spotify to immediately build a strong podcast presence. Parcast is another media company with multiple podcasts focused on topics like serial killers, unsolved murders, cults and conspiracy theories.
In May 2020, Spotify announced Joe Rogan signed an exclusive license deal for all content to host his podcast The Joe Rogan Experience. The podcast was estimated to be licensed for $100 million. Michelle Obama and Kim Kardashian also brought their podcasts to the Spotify platform in early summer 2020.
Conclusion
Daniel Ek is building a 3-sided marketplace through Spotify that provides substantial value for consumers, CREATORs and advertisers alike. Exclusive licensing deals and acquisitions of leading podcasts has accelerated competing with Apple on this growing long-form audio style for top CREATORs like comedian Joe Rogan who currently has the top podcast. But the ability for a young artist to create their own brand and distribute content is the true upside potential for Spotify. The number of U2s and Rolling Stones created by major record labels will shrink, but that model will be replaced by millions of artists who build their brand and career exclusively with a platform and partner like Spotify. And we all benefit from the breadth and diversity of their creations. Spotify’s AI and machine learning will grow in importance to access these emerging artists based on past listening preferences. The traditional function of the record label will be amplified 100x for CREATORs worldwide.
Nothing in this post is intended to serve as financial advice. Do your own research.