Spotify - The world's music collection

5/24/2012 8:46:05 AM

This week, we check out the history of Spotify, the service that lets you listen to all the music you want for a ridiculously low price.

Description: Spotify

Spotify gives you free and instant access to millions and millions of tracks - on your computer, your mobile and your other favorite devices

At a glance

Founded: 2006

Founder: Daniel Ek

Basedin: Stockholm and London

Knownfor: Music streaming

Annualturnover: Unknown

Staff: Unknown


Although Spotify launched its music streaming service in 2008, co-founder Daniel Ek claims to have come up with the idea in 2002. When file-sharing site Napster was shut down, a string of similar services sprang up to take its place, and Ekrealised that legislation would never stop piracy; the only way to reduce piracy would be to offer a legal service that was better.

Ek was working as chief technology officer at Stardoll when he founded the company, together with TradeDoubler co-founder Martin Lorentzon. The software client was developed by a team based in Stockholm, and an invite-only version of the service was made available to friends of the developers in May 2007. Several major music labels were on board from the beginning, including Sony, EMI, Universal, and Warner Music Group, which meant there was plenty to listen to – enough even to get users hooked. Spotify’suserbase grew and grew, and by July 2008, adverts had been added between songs (although they weren’t always the most professional sounding ads, and included several messages from Spotify employees).

Description: Daniel Ek

Daniel Ek

At the beginning of 2009, Spotify opened to the public. Within six months of its initial launch, Spotify had over a million users; and as its userbase grew, so did the amount of music available, with hundreds of thousands of tracks being added on a monthly basis.

But of course, making a revolutionary service with millions of users doesn’t pay the bills unless you can find a way to make money from those users. Although Spotify had investors – including Sean Parker, founder of Napster! – it needed to monetise its success, so both increased the number of adverts it served to users between tracks, and introduced a tiered subscription service, then gradually cut back the amount of music free users had access to, to encourage them to upgrade. Which, as you can image, was a bit controversial; freemium models are all well and good but changing the terms along the way tends to meet with resistance.

And user complaints weren’t the only problem Spotify’s faced. Due to issues sorting out contracts with record labels in the States, it took Spotify until July 2011 to launch in America, and even once the US version was launched, there were more negotiating problems ahead. Musicians started to complain that they weren’t seeing much money from Spotify, despite their songs racking up thousands of plays; last November, over 200 small record labels withdrew their music from Spotify, claiming it wasn’t good business for their artists to be included on the service.

But Spotify stood its ground, arguing that it added huge value to the music industry by persuading people to access music legitimately, rather than illegally. And despite ongoing grumbles, Spotify seems to be going from strength to strength: right now, it has over three million paying subscribers, offers approximately 15 million songs, it’s available in over a dozen countries, and it can be used on a range of mobile devices. It’s not all good news, since Spotify still doesn’t turn a profit, due to the high cost of royalties it pays to record labels, but then most start-ups lose money for the first few years, so maybe that’ll change.

Will Spotify save the music industry from piracy? Stranger things have happened.

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