What is Spotify and How Does it Work? {All About Spotify}

What is Spotify?

Spotify Technology S.A. is a music streaming service developed by the Swedish company of the same name and headquartered in Stockholm. 
The service was unveiled about 10 years ago and is now available in 65 regions of the world. 

What is Spotify

Content published on Spotify is provided and distributed under copyright law. 
In this Zummit article on the brand’s 10th anniversary, we take a look at its history and how it became a Unicorn startup.

 Most Spotify services are free and come with some restrictions and ads. 

 Spotify Services Free
 Most Spotify services are free and come with some restrictions and ads. 

By paying a monthly membership fee, users can use more services of this service, such as higher playback quality and music download capability. 
Spotify service is available in most European, North American and some African and Asian countries. 
In addition, the company’s services are offered on a variety of platforms from Windows and Mac and Linux to Android and iOS and home consoles.

 The method of paying music to companies and artists is different from other services. 

The Method of Playing Music to Companies
 The method of paying music to companies and artists is different from other services. 

Instead of paying a fixed fee for each song or album, they pay a royalty to the owner of the work, which is the ratio of the number of songs played by the artist to the total number of songs played. 
Spotify has been listed on the New York Stock Exchange since April 4, 2018 (April 3, 2018) as a public company.

Spotify software development

Spotify Software
Spotify Software Development

Spotify software development was started in 2006 by a team at Spotify AB in Stockholm. 
The company was founded by Dabiel Ek, former chief technology officer of Stardoll, and Martin Lorentzon, co-founder of the startup TradeDoubler. 
Daniel Eck says the company’s name was chosen from a word that was mispronounced by Martin, and later they chose the combination Spot and Identify to describe it.

 Daniel Eck, now known as Spotify’s main character, was born in 1983 in the Rågsved district. He grew up in an almost poor family, but has been involved in music since he was a child. 
Daniel’s grandparents were music artists. 
He started web programming at the age of 14 and in a span of time earned $ 50,000 a month and started a company with 25 to 30 employees.
He started working for Google at the age of 16 but his application was rejected due to lack of a university degree.
Daniel and Martin met in 2005 in Sweden. Daniel wrote about the startup’s initial ideas in a forum on the Quora website:
We explored different ideas together and spent a lot of time in my apartment on the outskirts of Stockholm.
I had a home theater computer, and by examining it we came to the main problem of getting content that was still there despite Napster. 
Ultimately, this challenge of providing our music content led us to Spotify.

 Daniel and Martin in the early days of Spotify

 Daniel and Martin in Spotify
 Daniel and Martin in the early days of Spotify

 The Spotify brand success story is similar to most successful companies in the world: they solved a big problem. 
The problem of illegal file sharing has always been a major problem in the Internet world. 
In addition, the largest company in the field, Pirates B, was in Sweden at the time, and with the launch of Spotify, they were on the radar of entertainment activists in the United States and around the world.

Spotify’s revenue model has not changed much since its inception

 As for the structure of Spotify’s development company, you should know that Spotify eBay is responsible for research and development at the company and is a subsidiary of Spotify LG, based in London. 
The company is also a subsidiary of Spotify SA Technology, which operates in Luxembourg.

Spotify's Revenue Model
Spotify’s revenue model has not changed much since its inception

 After two years of initial research, Spotify application was unveiled on October 7, 2008.  Since its launch, free user accounts have been created as invitations to the service to help it grow as much as possible.  Of course, paid accounts were also added to this application from the very beginning. 
The company that owns the application, from the very first days of its establishment, began negotiations with music activists to obtain the necessary sales licenses.

 Bloomberg figures show that global music industry revenue peaked in 1999 at $ 27 billion. 
The figure was declining to $ 14 billion by 2008.  It was this year that major music producers such as Universal, EMI Music, Sony and Warner decided to partner with a startup to manage a 25-year-old young man and offer him all their products.

 The director of Universal Music Recording Company fell in love with it after seeing the first examples of the Septafia application. 
He said that it is impossible for a service to be offered so well, and that this product will definitely be the savior of the music world.
In his early years, Daniel Eck compared his service to that of Napster, which he used as a child:

Spotify Logo
 Basic Spotify logo

 Napster served the consumer only as a service.  In fact, they did not provide services to people involved in content production. 
Our challenge and goal is to solve the problem of both segments of this market.

 Spotify’s first investors were Li Ka-shing, Creandum, Northzone and Horizons Ventures, which invested a total of $ 21.6 million in the first round of fundraising. 
A year later, Li Ka-shing and several other companies paid Spotify $ 50 million in Series B funding.  In Serie C, $ 161.1 million was paid to Spotify by Funders Fund and Sean Parker (founder of Napster) in 2010.

 The interesting thing about Spotify’s fundraising is that it was not easy in the early days and years, and even Daniel once spent the night outside one of the investor’s offices in the morning to make an appointment.

 Former Spotify Management Center in Stockholm

 International Development

International Development Spotify
International Development

 From February 2009 (February 2009), the registration of the free section for the British region was activated in this application. 
After a while, with the introduction of optimal mobile services, registrations in this application increased rapidly, and the company was forced to cancel it for a while and implement the registration scheme with the invitation in the UK. 
In the same year, the first Spotify discount cards were introduced at Christmas.
One of the first American fans of Spotify service was the famous entrepreneur Mark Zuckerberg, who described it as a great service on his Facebook page.

 Zuckerberg was one of the first Americans to be drawn to Spotify

 By September 2010 (September 2010), just two years after its launch, the number of musicians on the service had reached 10 million, narrowing its gap to iTunes’ 11 million dominance. 
The Swedish company’s next destination was the United States. The service was launched in the United States in 2011 and offers users a free 6-month course with ads and unlimited music usage. 
Before arriving in the United States, Spotify had 6.67 million users, one million of whom were paid users.

 Zuckerberg in Spotify
 Zuckerberg was one of the first Americans to be drawn to Spotify

 The year 1391 (2012) was associated with the continued growth of Spotify in the market, and the company reached 20 million active users and 5 million paid subscribers. 
Many other investors became interested in the Swedish company that year. 
Among these investors, we can name large companies such as Coca-Cola, Digital Sky, Excel Partners and many others, which in several series of capital raising, the total capital raised by this startup reached $ 537.8 million.

 Internal meeting of Spotify staff with Daniel Eck

Internal Meeting of Spotify
Internal meeting of Spotify staff with Daniel Eck

 In 2014, Spotify bought an artificial intelligence and deep learning company called The Echo nest to expand its services. 
The company’s achievements provide tools to better understand the music habits of millions of Spotify users. 
Another company that was acquired for the same purpose was Seed Scientific. 
The company also served on Spotify’s data analysis service.

 Related articles:

 Strengthen the leadership skills in the style of Spotify CEO

 Spotify received an estimated value of $ 4 billion and then $ 10 billion in 2015. 
In 2015, a redesign of the brand was done in Spotify and they added music video to their services. 
By then, they had 50 million active users and 12.5 million paid subscribers.  In 2016, the founders of this startup faced problems in developing their services and products, which were addressed by Swedish government officials to better solve them.

 In a letter to Swedish politicians, Spotify executives called on them to remove the three main obstacles to their better development in global markets. 
These barriers prevented the company from recruiting new and talented personnel. 
In their letter to the Swedish authorities, they said that these obstacles must be removed, otherwise thousands of their talented and professional staff will go to the United States to continue working.

Strengthen The Leadership in Spotify
Strengthen the leadership skills in the style of Spotify CEO

 The next move of Spotify executives in those years was to increase the brand’s popularity and marketing. 
At the end of 2016, they rented huge billboards in major cities around the world to enter a new phase in their advertising campaigns. 
The text and design of these billboards were such as to joke with the users of the service and their habits of listening to music. 
For example, a billboard said to a person who had played “Sorry” 42 times on Valentine’s Day: “What did you do wrong?”

 Spotify has never stopped developing and has always sought to improve services to both buyers and artists. 
In this regard, in 2016 (2016), they bought the startup CrowdAlbum, which collects and analyzes the data of the artists’ works of art, helping them to attract more audiences and generate revenue.

Public offering of shares and current situation

Public Offering of Shares Spotify

 One of the latest startups acquired by Spotify is Sonalytic, which works to improve the user experience of new playlists and offers using sound analysis technology. 
The company also made a purchase to better cooperate with video streaming services such as Netflix and added the startup MightyTV to its collection in 2016 (2017).

 Spotify IPO

Spotify IPO

Blockchain technology was the next goal of Spotify executives, who moved towards it in 2016 by buying Mediachain startup. 
The startup adds a variety of tools to the service to better connect artists and intellectual property owners, as well as make it easier to track company services. 
Niland, an AI startup, joined Spotify later that year to make it easier for users to bid and personalize.

The Swedish company, after a series of successes and increasing popularity among both users and artists, designed a public offering program.  At the time of writing, the company was valued at between $ 6.3 billion and $ 23 billion.

 Related articles:

 Spotify financial report for the second quarter of 2018;  Decreased revenue despite user growth

 Spotify Financial Report
 Spotify Financial Report for the Second Quarter of 2018

 April 3, 2018 (April 3, 2018) was Spotify’s crucial day for the IPO. 
The company announced a price of $ 132 per share at the beginning of the day and ended at $ 149.6 per share at the end of the day.
Eventually, the IPO raised the company to $ 26.6 billion.

 Spotify’s public offering was slightly different from other companies.  In fact, no new sales were made in this program and no new capital was added to the company. 
Explaining this type of IPO, known in the capital markets as Direct Listing, Daniel Eck described it as a way to pay dividends to shareholders and said the event would not change the structure and management of Spotify.

 Spotify Popular Billboards
 Spotify popular billboards referring to users’ music habits

 The latest companies to be added to Spotify in 1397 include SoundTrap and Loudr, the latter of which is a platform for granting royalties to musical works.

 As for Spotify’s revenue style, despite its annual revenue of about $ 5 billion, more than two-thirds of it is paid in royalties to artists and companies, of which Universal Music, Sony and Warner are the main recipients. 
However, Spotify’s revenue from this trend is low and they have almost no profit left. 
In addition, with 90 million free service users, this sector is not able to generate much advertising revenue and accounts for only 10% of annual revenue.

 Spotify currently has 180 million active users and 83 million paid users

 Spotify Active Users
 Spotify Active Users and Paid Users

 Currently, Spotify has 180 million active users, of which 83 million use the company’s paid subscription.  Their annual revenue is reported at $ 4.6 billion but net profit is down $ 426.4 million. 
Spotify has more than 3,000 employees and Daniel Eck still serves as its CEO.

 There have been many rumors and rumors about Spotify’s future plans and ambitious ideas. 
For example, there is a possibility that the company will develop a dedicated voice assistant and smart speaker. 
Of course, these rumors are not baseless and have been taken from the job advertisements of this music streaming service.

 Partnership with other companies

 In recent years, in addition to buying startups and various companies, Spotify has collaborated with various companies on various projects. 
One of the biggest examples of this collaboration was done in 2016 with Sony. 
This year, the Japanese company launched its PlayStation Music service with Spotify to offer its services on PlayStation 3 and PlayStation 4 devices, as well as its Xperia series smartphones.

Partnership With other Companies in Spotify
Partnership With other Companies

 The Swedish company has also partnered with various companies and organizations to provide proprietary content. 
Among them, we can name the South by Southwest conference, which in 2017 broadcast some of its content through Spotify service. 
Another partner was SXSW, which broadcasts its own podcasts on the platform.

 Spotify has also signed a partnership agreement with Waze Routing. 
Under the agreement, users of the service’s Android app will also receive their route from Wiz while listening to music. Of course, this content exchange is also done in the Wise application. 
The next big news about collaborations came in 2017 from Microsoft. 
The Redmondians announced in October this year that they would stop playing music on the Groove streaming service and that all user music would be transferred to Spotify.

 Countries where Spotify is available

Countries Spotify
Countries Where Spotify is Available

 One of the biggest partnerships in recent years has been between Spotify and Tencent’s arm in the music market, TME. 
According to this agreement, from December 2017 (December 2017), the two companies will exchange shares with each other to form an alliance in this industry. 
The latest cooperation agreements signed by Spotify include cooperation with Discord messengers and Hulu video streaming service in 1397.

 Challenges and criticisms

Challenges and Criticisms in Spotify
Challenges and Criticisms

 One of Spotify’s biggest challenges has always been to compete with Apple and its lawsuits. 
The company has struggled to take over the market in various forms, including removing apps from the App Store.

 Apple and its music service pose the biggest challenges for Spotify

 As an example of these conflicts, in July 2015 (July 2015) a message was sent by Spotify to users of this service in Appostor to cancel their membership and use the Spotify website directly. 
The move was to circumvent the 30 percent commission Apple receives from in-app payments. 
As a result, the subsequent update of the Swedish application in Appostor was not accepted and the managers of the two companies were forced to write letters to each other.

 Both sides made claims to prove their legitimacy and healthy competition. 
In the following months, Spotify punished artists who released their own content on Apple Music. 
This punishment was executed by showing the works of these artists at the bottom of the application feed. 
However, legal disputes between the two companies continue, and the European Union and other legal entities are considering legislation to prevent either side from abusing their market position.

 Apple Music Spotify
 Apple Music Service for Spotify

 In addition to the constant conflict with Apple, Spotify has been the target of much criticism since its inception. 
The first area of ​​criticism against this service is from the producers of works of art who consider the paid fee to be unfair. As mentioned, Spotify does not pay artists a fixed amount, and their income depends on the number of times the pieces are played. 
The same income is first paid to the legal owners of the works (producers) and then to the artists according to the contracts between them.

 Among Spotify’s critics of payment policy, there are great artists such as Tom York and Taylor Swift who have completely taken their works out of the company’s services for a while. 
Of course, this style of criticism is going on from all music streaming industry activists, but in the meantime, Spotify, as a market leader, is the target of more serious criticism. 
Spotify has always said in response to criticism that, as a major actor, it has attracted users from illegal content and theft to legal purchases, and has over time encouraged them to pay for the works.

 In addition to criticism of the payment system, the company has also been the target of leak allegations.  Another challenge has been controversial behaviors within the organization, such as numerous changes to privacy policies.
Another point of contention has been the company’s revenue methods of charging companies to display their work on specific playlists.


Hey there! I'm Joey, I am 22 and started to work as a barista in a café lately. I do coffee arts, they are good, not bad but it still needs a lot of practice. I love music, especially rock and roll!

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