Daniel Ek isn’t scared of YouTube or Amazon – and the financial challenges of Pandora and SoundCloud don’t worry him.
These were amongst new revelations from the Spotify CEO and founder during a new interview with users of social Q&A site Quora yesterday (February 16).
Ek was asked how Spotify will continue to compete with the likes of Apple, Amazon and Google (including YouTube).
His answer was defiant – some may argue a little too defiant when YouTube has over a billion monthly users and Spotify is yet to reach 100m.
“I believe in focus,” said Ek. “All of the companies you mention have music as a hobby, a very small part of their overall business.
“We do one thing and try to do it really well. This means we have a company 100% dedicated to finding the right content, personalizing it for you and serving it up with partners who are specialized in what they do.”
“The big platform companies don’t generally like partnering. We do.”
He added: “The big platform companies don’t generally like partnering. We do. This opens up lots of doors. To put it another way, we are really focused on delivering the best possible music experience you can find.
“I’m not saying we don’t think about the competition – of course we do, it would be crazy not to. But we think about them more in terms of how to make Spotfy so easy, so fun, and so relevant for our users that whether you wait on lines for every new Apple device, get your groceries from Amazon Prime, or use every Google mail and workplace app, you still want to listen to music on Spotify because it’s the best experience there is.”
Here are five other key takeaways from Ek’s latest online chinwag:
SoundCloud lost a troubling $44m on revenues of $15m in 2014. Pandora just posted a $170m loss for 2015 – although its annual sales bounded up to over $1bn.
Ek was asked his opinion on these challenged business models, and brushed it off like a speck of dandruff on his lapel.
“We have a very different business model in that Spotify is predominantly subscription,” he said – and he’s right, with over 90% of Spotify’s income in 2014 coming from paying customers.
Added Ek: “With subscription comes predictable revenues. So we feel comfortable investing in new markets, investing in our product and our content, because we know we have a robust, growing business model behind us.”
Unsurprisingly, Ek was grilled on the two biggest artist-related questions for Spotify: how can he prevent further holdouts like Adele and Taylor Swift, and how he responds to some artists claiming that streaming is bad for the music business (and their income).
Question one first – the hold-outs.
“Well, there are really two answers to that question,” he said. “On the one hand, we’re trying to keep doing better what we’ve been trying to do since we started Spotify – deliver great value to consumers and create value for artists by making sure that they are paid fairly for their amazing music and that we help them find new audiences in the process.
“We’re working harder than ever to build ties to the creative community.”
“At the same time, we’re also working harder than ever to build ties to the creative community – artists, songwriters, producers and others – so that they understand how our business works and how committed we are to helping them succeed. And part of both of those things – creating value and communicating better – means that we are also focused on hearing from creators about how we can help them, how we can create new tools that use our platform to help them find new fans, connect with those fans, learn about their audiences, get them to live shows, and more.”
Smooth, but hardly illuminating. What about the second point – artists who see royalties from streaming services and aren’t happy about it?
“Well, let’s start with the big picture – the music industry is growing again,” responded Ek. “The music economy – like so much of the rest of the economy, from cars to publishing to news – is changing as it moves from an ownership model to an access model. And like any change, it can be complicated and challenging for lots of people.
“We get that, and we understand that. So it’s our responsibility to make sure that artists – and songwriters and producers and everyone else in music – understands that we are in this together with them, and that we are committed to their success. Look, we pay the great majority of our revenue back to the music industry. And as we grow, that revenue is really making a difference.
“Many people don’t realize that the music industry was in decline throughout the download years.”
“Many people don’t realize that the music industry was in decline throughout all the download years (with a one year exception in which it was basically flat). Now, finally, after years and years of decline, music is growing again, streaming is behind the growth in music, and Spotify is behind the growth in streaming.
“So ultimately, we think the best measure of our contribution to the industry will be results – results that will give thousands and thousands of artists, songwriters, producers and so on the chance to do what they love, and their fans love, while being paid fairly for doing it. We love music, we love all the amazing people who make it, and we want to succeed together.”
This might be a little unexpected to those who watched recently Ek offer investors very generous incentives should they back Spotify’s path to an IPO.
“When we set out to build Spotify we already knew that we didn’t want to build the company to sell the company,” said Ek during his Q&A – a reference to the typical build-take-investment-and-flog startup mentality that is so prevalent in the technology business today.
He continued: “We wanted to build something for the long term. I think we were all super excited about this commitment to the long term and what it meant for building a culture. We talked a lot about not taking shortcuts.
“When we set out to build spotify… we wanted something for the long term.”
“That sometimes meant that we did things in a way that was too complicated. As an example, when we built our first playlist system we realized we needed some sort of version control, in case you accidentally made changes you didn’t like. And then we realized that the system ought to be distributed.
“After about 12 months of building it, it became evident that what we had built was a database engine. We could have saved so much time if we had done that from the beginning instead. Luckily, most of our architecture choices weren’t as bad…”
What’s the future of Spotify?
We’d be fools if we thought Ek was really going to tell us that in detail – what with Google, Apple and Amazon no doubt sifting through his words to try and find an ounce of strategy to pinch.
But at least he gave us a hint.
“We really want to soundtrack every moment of your life,” said Ek.
“So what excites us are when we are able to do that in moments which may seem counter-intuitive at first. Take sleep as an example. Millions of people every day (or night!) now go to sleep listening to Spotify. This is a behavior that is brand new for a huge chunk of that same audience.
“So as we think about Spotify in the future, it’s really all about bringing music (and other media) to more moments in your life. In order to do that, we need better recommendations, better partnerships and the right content for those moments.”
Spotify is one of Sweden’s proudest exports, taking its place in the national fabric alongside the likes of IKEA, H&M, Skype and Ericsson.
Its founder is very thankful to have started the company in his homeland.
He explained: “We chose a narrow market to begin with that we knew how to serve well – Sweden. Had we started with the US there’s no way we would still be around. The US market just wasn’t ready.
“Second, we spent an insane amount of time focusing on latency, when no one cared, because we were hell bent on making it feel like you had all the world’s music on your hard drive. Obsessing over small details can sometimes makes all the difference.
“Had we started with the US there’s no way we’d still be around.”
“That’s what I believe is the biggest misunderstanding about the minimum viable product concept. That is the V in the MVP.
“And we did it all legally together with the industry when we had a political party in Sweden called the Pirate Party – which was a real party, with more than 7% of all votes. People thought we were crazy to work with the music industry. The general thinking was to just do whatever you wanted with music and then ask for forgiveness later.”Music Business Worldwide