Spotifys strategic analyze

INDIVIDUAL ASSIGNMENT 1
INTERNATIONAL BUSINESS STRATEGY

SPOTIFY TECHNOLOGY SA
COMPANY
GROUP’S MEMBER:

Quach Dinh Nam HS170815
Nguyen Thi Thuy Trang HS173032
Nguyen Bao Giang HS173237
Phung Phuong Thanh HS180026
Vu Thu Huong HS173147
Luong Thi Hong Nhung HS179017

CLASS: IB1715
LECTURE: Bui Thuy Duong
COURSE: IBS301m

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TABLE OF CONTENT
I.
II.

INTRODUCTION - Nguyen Thi Thuy Trang
BODY

1. Background of Spotify Technology SA Company - Vu Thu Huong
●

Basic information of the company

●

Core value

●

Mission, vision

2. Determine level/scope to analysis 5 forces - Vu Thu Huong
3. Analysis SWOT of Spotify Technology SA Company
●

Strengths - Nguyen Bao Giang

●

Weaknesses - Nguyen Bao Giang

●

Opportunities - Luong Thi Hong Nhung

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Threats - Luong Thi Hong Nhung

4. Porter’s 5 Forces Analysis
●

Threat of new entry - Phung Phuong Thanh

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Bargaining power of buyers - Phung Phuong Thanh

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Bargaining power of suppliers - Nguyen Thi Thuy Trang

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Threat of substitute - Nguyen Thi Thuy Trang

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Threat of rivalries - Quach Dinh Nam

III.

CONCLUSIONS - Quach Dinh Nam

IV.

REFERENCES - Quach Dinh Nam

Vu Thu

Vu Thu

Nguyen

Luong Thi

Phung

Nguyen Thi

Quach

Huong

Bao Giang

Hong

Phuong

Thuy Trang

Dinh Nam

Nhung

Thanh

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Huong

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Nguyen

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Bao Giang
Luong Thi

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Hong
Nhung
Phung
Phuong
Thanh
Nguyen Thi

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Thuy Trang
Quach Dinh
Nam

Average

I.

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Introduction

Online music streaming services are one of the most popular music consumption trends
today. The report will conduct an analysis of Spotify Technology SA, focusing on its
strengths, weaknesses, opportunities, and threats (SWOT), as well as an examination of the
company using Porter's Five Forces model. This will provide insights into Spotify's position
as a prominent global player in the online music streaming industry, which has become a
popular method for consuming music compared to traditional downloads or purchases.

II.

Body

1. Background of the company - Vu Thu Huong
a, Basic information of the company [1]

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Spotify Technology SA based in Stockholm, Sweden, was created in 2006 by Daniel Ek and
Martin Lorentzon as a provider of online music and media streaming. Spotify's major
services include music, digital video, and podcasts, which provide users with access to
millions of songs and other material from producers all over the world. Spotify is currently
available in the majority of European nations, as well as the United States, Australia, New
Zealand, and portions of Asia.
b, Core Value [2]

Spotify’s core values include “passionate, innovative, sincere, collaborative, and playful.”
These values are what the corporation considers as the guiding principles that keep
everything within the expectations of the management. They also ensure the success of the
mission and vision statement by ensuring everyone stays realigned to the goals and objectives
of the company.
c, Mission, Vision [3] [4]
Spotify’s mission:
Unlock the potential of human creativity by giving a million creative artists the opportunity to
live off their art and billions of fans the opportunity to enjoy and be inspired by it
The mission statement of Spotify is based upon the idea, which is as follows:
“We envision a cultural platform where professional creators can break free of their medium’s
constraints and where everyone can enjoy an immersive artistic experience that enables us to
empathize with each other and to feel part of a greater whole.”

2. Determine level/scope to analyze 5 forces - Vu Thu Huong
Spotify now allows more listeners than ever before to find, manage, and enjoy over 100
million music, 5 million podcast items, and 350,000 audiobooks on demand. They are the
world's most popular audio streaming subscription service, with over 574 million users and
226 million customers in over 180 regions. With this report, to better analyze the 5 forces
Analysis, our group is aiming at the global scope.

3. Analysis SWOT of Spotify Technology SA Company
a, Strengths
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Brand Reputation: With a strong brand reputation, Spotify has become a market leader in the
music stream market. Customers, market share, catalog quality, and long-term stability all
play a role in making it popular. It’s the world’s most popular audio streaming subscription
service with over 574 million users in over 180 markets [5] The brand value of Spotify has

risen continuously in recent years and had a net worth of 11,114 million dollars in 2023 [6]
Early Mover: is one of the earliest companies that entered the music streaming field (from
2006). This provides them a huge advantage over the newcomers in this industry. They know
the market and customers better, and from that earned this position through providing highly
rated music services. It has gained a high market share.
Personalized user experience: Spotify spends about 1,387 million dollars on research and
development [7]. It employs a variety of algorithms, including data-sifting technology,
artificial intelligence, and machine learning. Allows the platform to provide highly
personalized content recommendations for users based on their listening habits. This feature
gives them the potential to form relationships and create bonds between brand and customer.
One of the special features of personalized user experience is Spotify Wrapped - which uses
customer listening history to create a personalized summary of what they've been listening to
throughout the year. It usually includes a user's 5 favored artists, most listened-to songs, their
favorite genres, and top podcasts. This campaign becomes a “weapon” that helps this
platform hit up the social network each year.

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Freemium model: Spotify’s freemium model allows it to attract a wide range of users by
offering both a free, ad-supported tier and a premium, subscription-based tier. This model is
considered a competitive advantage that helps this brand differentiate itself from other
competitors in the market. Statistics show that with nearly half of users choosing the free
version, Spotify can still generate revenue based on ads on the platform. Besides, the
freemium business model has also proven its effectiveness by creating a conversion rate from
free to paid users of up to 46% for this platform [8].

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Highly effective localized pricing strategy: Spotify employs a localized pricing strategy in
which fees across different subscription tiers vary per country. As of end-2022, the lowest
prices for a monthly individual premium subscription can be found in emerging markets at
just below $2, while the highest prices are above $20, found in Europe [9].

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b, Weaknesses
High royalty cost: A significant earning of Spotify’s revenue goes towards royalty payments.
For example, the publishers, composers, copyright holders, record labels, etc. These costs can
impact the company’s profitability and limit its ability to invest in other areas, such as content
acquisition and technology development. According to Statista, Spotify paid out 75% of its
revenue in royalties [10].
Limited revenue streams: Spotify only has two reportable revenue streams, its Premium
Service and Ad-Support Service. While the freemium model has successfully attracted users
to the platform, converting free users to paying subscribers can be challenging. Furthermore,
the ad-supported tier’s revenue per user is significantly lower than that of premium
subscribers, limiting the overall revenue potential from the free user base. Although revenues
across these two segments continue to grow year-over-year [11] the lack of other sources
could be detrimental to Spotify in the long run. It makes the company vulnerable to
unpredictable changes in its sources of revenue, such as a potential decrease in the number of
paying subscribers or a decline in ad spending due to an economic downturn.
Regional restrictions: Spotify’s regional restrictions can be a drawback for users, as the
availability of features and content may vary based on their geographical location. Certain
countries may have limited access to specific features, such as podcasts, or may face delays
in releasing new music due to licensing agreements and regional restrictions, creating an
uneven user experience globally.
Lack of competitive differentiation: Despite Spotify's commanding position in the streaming
music market, the company lacks anything that might be termed a differentiating feature.

Spotify's services, platform structure, and other characteristics are almost the same; the
company does not provide anything unique or different. The only differentiating traits are
brand reputation and premium features, which may change at any moment.
c, Opportunities
Expanding into new markets: Because Spotify operates globally, the company has yet to fully
capitalize on a number of markets. Spotify can keep broadening its footprint in developing
nations and areas where the use of music streaming services is continuously increasing. The
company may be able to produce more income and users as a result of this expansion.

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Additionally, Spotify has a lot of chances in the music industry because of its brand. Success
in the upcoming years may depend on the adoption of novel company techniques [12].

Video release: Spotify has been able to expand its services into new categories like podcasts
and audiobooks and offer a better listening experience because of its focus on research and
development. To preserve its current user base, draw in new clients, and diversify its revenue
streams, the business can still expand. Music videos present yet another area for
development. As of right now, the only videos available to viewers are relatively large ones
that repeat while playing. If full-length videos are added to this function, customers won't
have to utilize another streaming site like Youtube to watch music videos—instead they can
stay on the Spotify platform.
Endorsements: Influencers and celebrities have a sizable fan base, and their endorsements aid
a company in growing its market. Britney Spears, Justin Bieber, and Barack Obama have all
backed Spotify and given followers access to their personal playlists. Influencers will support
the business more often as the music streaming market becomes more competitive.

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Live content integration: In July 2020, Spotify launched as a video podcast to join the video
streaming market. However, the market for online video streaming is extremely competitive,
so the platform must work really hard to establish its reputation and draw in new consumers.
Spotify has a big chance to improve user experience and give a sense of immediacy by
integrating live content. By offering live radio, listeners can participate in interactive
programs, follow broadcasts in real time, and stay up to date on audio events, interviews, and
news. new music [16].

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Additionally, customers will be able to virtually attend live performances, increase access to
exclusive shows, and have a more engaging experience thanks to live streaming of concerts
and events. User retention and engagement on the platform may rise as a result of this direct
content integration.
d, Threats
Fierce competition: Spotify's market position is seriously threatened by the intense
competition in the music streaming space. Rivals with substantial financial resources and
steady user bases, such as Apple Music, Amazon Music, and YouTube Music, are able to
make investments in marketing, original content, and technology breakthroughs. Spotify must
constantly innovate and set itself apart from the competition to draw in new customers and
keep existing ones. Furthermore, if Spotify can't properly compete and adjust to changing
customer preferences, it runs the danger of losing market share and growth prospects as these
rival platforms keep improving and expanding their offers.
Negotiate copyright fees: Negotiations over royalty rates pose a serious concern as well. Any
appreciable rise in royalties might have a big effect on Spotify's finances because the
streaming service depends on licensing deals with record labels and copyright holders.
Spotify may experience financial pressure that necessitates changes, such boosting
subscription pricing to preserve profitability, if music license costs rise noticeably. However,

if customers believe the service is less affordable than other platforms, higher subscription
costs may drive away customers.
Illegal streaming and piracy: Another concern is illicit streaming and piracy. The ease with
which users can obtain copyrighted music for free through illicit channels will erode the
appeal of paying subscriptions and make it more difficult for Spotify to make money off of
the service. Because pirated music is so widely available, there may be a decline in the
market for legitimate streaming services, which could lead to customers quitting or not using
Spotify at all. Typically in 2022, more than 80% of respondents used pirated content [33].

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As a result, Spotify needs to keep up its efforts to stop copyright violations, fight piracy, and
inform consumers about the value of supporting artists by using authorized streaming
services. Only YouTube is more susceptible to piracy attempts than Spotify. The artist and the
platform gain nothing when people are able to download music and keep listening to it
offline. They'll transfer their music to more secure and safe platforms [15].
Consumers’ ever-shifting media consumption behavior: Spotify has competition from
numerous other media platforms in addition to other major music streaming companies for
users' ever-diminishing attention spans. These include social media sites like Facebook,
Twitter, Instagram, and TikTok; gaming platforms and consoles like Steam, Nintendo Switch,

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Sony Playstation, and Microsoft Xbox; and video streaming services like Netflix, YouTube,
and Twitch.

Users between the ages of 18 and 64 spend an average of one hour and two minutes per day
listening to music on streaming services like Spotify and one hour and two minutes per day

listening to podcasts, according to We Are Social and Meltwater's Digital 2023 research [14].
These figures, meanwhile, are insignificant when compared to the amount of time spent
streaming or viewing TV. In order to offer fresh experiences, services, or content that can
draw in and even retain more customers, Spotify must thus keep up its innovative streak.
Economic uncertainty: Consumer spending may be impacted by economic downturns or
global economic uncertainty, which could result in decreased advertising expenditures, lower
subscription rates, or more price-sensitive customers. These elements may have a detrimental
effect on Spotify's earnings and future growth.

4. 5 Forces Analysis
a, Threat of New Entrants
The threat of entry for the music streaming industry is notably high, with formidable barriers
such as high sunk costs, incumbents’ competitive advantages and their competitive pricing
strategies. Despite the challenges, it remains a desirable journey for aspiring entrants.
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The global music streaming industry is ruled by industry giants like Spotify, Apple, Amazon,
Google, and Tencent. In 2022, Spotify claimed the top market share by subscribers with 188
million subscribers, comprising 32.10% of the market, followed by Apple Music, Tencent
Music, Youtube Music, and Amazon Music. These industry giants collectively command
over 80% of the market share [17], leaving little room for new entrants to establish a
foothold.
New entrants face the first barrier is high sunk costs that are crucial for Research and
Development (R&D) in platform development. The need for an innovative and differentiated
platform is crucial, yet the investments made by industry leaders in new services, features,
technology in platforms make it challenging for newcomers to compete on the same level
[18]. Marketing and promotion, vital components for gaining market share, are further
complicated by the established players' existing customer bases and competitive subscription
fees, including offering free trial offers, creating a high barrier for entry. Salaries for general

and administrative purposes, especially for experts, researchers, and programmers, add to the
financial burden for new entrants.
Secondly, the competitive advantage held by incumbents is underscored by their extensive
patent portfolios. For example, with Spotify alone securing 1110 patents globally, which
belong to 449 unique patent families and 965 patents are still active [19]. Pioneering brands
like Spotify hold sway, benefiting from current reputation and pre-commitment contracts that
secure top-quality content from leading record labels, distributors, and aggregators like
Universal Music Group, Sony Music Entertainment, Warner Music Group, and Music and
Entertainment Rights Licensing Independent Network [20] . Furthermore, Apple, Google,
and Amazon's ownership of application store platforms, coupled with their ability to charge
in-application purchase fees, creates a distinct competitive advantage.

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The competitive pricing strategies employed by industry leaders, such as Apple, Spotify, and
Amazon, may lead to the exclusion of potential new entrants in the market. The consistent
pricing alignment[21] and the provision of one-month premium free trials by these
established players create an attractive option for users. Additionally, due to their existing
customer base, these incumbents can maintain a very affordable price, making it more likely
for their users to be willing to pay for the service. This situation presents an obstacle for
newcomers, as they should offer a more affordable price to attract new users and establish
their credibility in the shadow of these industry giants. To thrive in this intensely competitive
environment, emerging players need to not only develop unique features but also showcase
their credibility to secure a position in the music streaming industry.
b, Bargaining Power of Buyers
In the music streaming industry, the buyers are individual users distributed globally, with
each account corresponding to a single person. Assessing the bargaining power, it falls in the
middle but tends to lean toward the lower side, influenced by several factors that shape the
relationship between firms and their diverse user bases.

First notable characteristic is the lack of buyer concentration, with widespread potential
buyers around the world, each accounting for only a small fraction of sales, the influence of
any single user may seem limited. Moreover, firm's implementation of price discrimination
strategies further highlights their understanding of the nature of their user base. For example,
when Spotify increases their subscription prices on July 24 of 2023, they adjust prices based
on local factors and market demands. For some detail, while the premium subscription in the
US is going up by $1 to $10.99, in the UK, it's increasing by £1 to £10.99, and in France, it
now costs €10.99 [21]. This adaptability reflects firm's acknowledgment of the diverse buyer
segments and their ability to tailor pricing strategies. Additionally, the possibility of bundling
offers users a range of choices, further weakening their buyer’s bargaining power. Whether
opting for Spotify's Standard Plan, Family Plan, Duo Plan, or Student Plan [22], or
considering alternatives like Apple Music with its Individual, Family, Premier [23], buyers
have the flexibility to select plans that align with their specific needs and preferences, thereby
generating increased revenue for firms.

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However, individuals within the music streaming sector have an abundance of options for
accessing music through various streaming platforms. Despite the availability of products
from platforms like Spotify, Apple Music, and Amazon Music, there is a notable absence of
substantial differentiation. With identical subscription prices, similar technology, and
user-friendly interfaces across these platforms, the associated costs of switching are minimal,
if not entirely absent. This situation enables consumers to easily explore alternative
platforms, compelling service providers to consistently innovate and improve their offerings
in order to maintain user loyalty.
c, Bargaining Power of Suppliers
The bargaining power of Spotify's suppliers is high.
Record labels and artists play a vital role in shaping Spotify's operations and financial
performance. The music streaming service depends greatly on obtaining licensing agreements

with these providers to access their music libraries for streaming purposes.
Record labels and artists possess valuable content that is crucial for Spotify's platform. They
have the ability to negotiate beneficial terms such as royalty rates and revenue-sharing deals.
With the growing popularity of streaming services, suppliers may gain greater leverage to
request increased compensation for their music, which can directly affect Spotify's expenses
and financial performance.
Suppliers' exclusive agreements and licensing constraints can restrict the accessibility of
specific content on Spotify. If artists or labels choose not to make their music available or
give exclusive rights to competing platforms, it may lead to reduced user interaction and
potential subscriber losses for Spotify.
Furthermore, the level of differentiation of the product and switching cost of suppliers also
affects their bargaining power. In the music industry, major record labels hold a unique
position of power due to limited alternatives and the challenging and costly process of
changing suppliers.
For example, there are several major record labels like Universal Music Group, Warner
Music Group, Sony Music Ent. that control a significant portion of the music licenses [24].
These labels account for nearly 65% of the industry's market share by label ownership. And
these also dominate 80% of all major Spotify playlists [25]. This gives them huge power in

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their agreement with Spotify. In addition, Universal Music Group, Sony Music Ent., and
Warner Music Group themselves are also the leading music distributors, accounting for

nearly 80% of the industry's market share [26].
To reduce the impact of supplier bargaining power, Spotify frequently negotiates and
establishes extended licensing contracts. Building and maintaining positive connections with
record labels, artists, and publishers is crucial for securing a consistent flow of music content.
Furthermore, Spotify's initiatives to support independent musicians and broaden its content

options can decrease its reliance on major labels and mitigate the influence of suppliers to
some degree.
d, Threat of Substitutes
There is a significant risk of substitutes for Spotify in the music streaming industry. The
emergence of alternative platforms and services providing comparable music streaming
experiences presents a considerable challenge to Spotify's standing in the market.
Spotify’s direct competitors such as Apple Music, Tencent Music, YouTube Music, Amazon
Music, Deezer and many other platforms all have the potential to replace Spotify. These
platforms offer comparable features, access to extensive music catalogs, and personalized
recommendations [27]. Therefore, users subscribed to these platforms may consider them as
viable alternatives to Spotify.
The competitive entry of video streaming platforms such as Netflix, YouTube, and Twitch;
social media platforms like Facebook, Twitter, TikTok, and Instagram; gaming platforms and
consoles like Steam, Nintendo Switch, and Sony Playstation, is a threat to Spotify's position
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in terms of music discovery and sharing. Users can find and enjoy music content directly on
these platforms. According to the Digital 2023 Global Overview Report by We Are Social
and Meltwater, users spent an average of three hours and 23 minutes watching broadcast or
streaming television, and using social media sites, which averages at two hours and 31
minutes

[28].

This reduces the

need for dedicated music streaming services.

Alternative music consumption formats like digital downloads, CDs, and vinyl records can be

considered as replacements for streaming services. Although the appeal of these formats has
declined, there are still consumer segments that favor owning physical copies of music or
purchasing digital versions.
Traditional radio stations continue to play a substantial role in music consumption. While
streaming services provide personalized and on-demand music, radio stations curate playlists
and create a communal listening experience. In addition, users can use the radio completely
free of charge, just need to have an audio playing device. The content Radio provides
includes genres such as shows, hot news, or linear information. Some people prefer radio
content over Spotify due to this.
Additionally, for individuals who prefer not to pay for music streaming, piracy presents an
enticing and easily accessible alternative. There are numerous websites and networks where
individuals can freely download and distribute music, despite its illegality, posing a
significant threat to the music industry.

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To address the challenge posed by alternative options, Spotify places emphasis on setting
itself apart and offering distinctive value propositions. This includes personalized playlists,
algorithm-based recommendations, exclusive content, and partnerships with musicians and
podcast creators. Through providing a seamless and customized user experience, Spotify
aims to maintain its competitive advantage and retain users, even in the face of substitute
platforms and alternative methods of music consumption.
e, Intensity of Rivalries
The music streaming industry is
considered a highly competitive
industry. Looking at the chart
showing market shares [29], we
can see that Spotify's competitors
come

not

only

from

large

corporations such as Apple Music,
Amazon or Youtube music but also
from niche markets (Beatport Link
specializes in EDM), or local
competitors (Tencent music in
China or Deezer in France).
Next, regarding the industry's growth rate,
according to the report of the International
Federation of the Phonographic Industry
(IFPI), the industry's growth rate increased
continuously from 2015 to 2022 [30].
Combined with an expected compound
annual growth rate (CAGR) of 13% from
2023 to 2030 according to Grand View
Research

[31], the music streaming sector

shows itself to be an industry with high
growth potential. However, this growth also increases competition as companies try to
capture a larger market share, luring new subscribers in the expanding market.

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Another reason for rivalry intensity in music streaming industry high is that it has a low
switching cost. Spotify's competitors such as Apple music can also provide the same amount
of music, podcasts or similar products at a similar cost, forcing companies in the industry to
continuously innovate and differentiate their products and services [32][33].
In conclusion, in a highly rivalry-intensive market like music streaming, Spotify must focus
on continuous innovation to strengthen its competitive position. The need for differentiation
becomes important to attract and retain users in a market where the product offerings are
similar, emphasizing the importance of innovation as a strategic imperative for survival and
success.

III.

Conclusions

1. Is Music streaming industry attractive or not?
The music streaming industry is facing many challenges that are reducing its attractiveness.
The market is controlled mainly by large corporations such as Spotify or Apple Music,
creating a huge barrier for new businesses wanting to enter the industry. Input costs,
including R&D, operations and market research,... or copyright issues increase financial
pressure for new entrants. The fact that the music streaming industry has low switching costs
creates many conditions for competitors to substitute. Product differentiation is also difficult
because competitors can also provide product services with similar quality and price. This
poses creative, innovative challenges to attract and retain customers. In short, these factors all
make the industry difficult and unattractive for new businesses.
2. Spotify competitive position
Spotify has a high level of brand recognition, making it one of the most widely known names

among consumers when it comes to music streaming services.
Second, Spotify has played a pioneering role in the industry with its unique business model.
They have succeeded in combining the paid and advertising model, also known as Freemium,
providing flexible choices for users and helping them build a diverse user community.
Finally, technology plays an important role in Spotify's competitive strategy. Their user
personalization capabilities are powerful, helping to provide a unique and personalized music
listening experience for each user. They use smart algorithms to recommend music based on

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