ANALYSIS

SpotifyTM

SpotifyTM

Executive Summary

This paper will provide the critical analysis on the company SpotifyTM. It is an online streaming service to the customers. The porter five forces of the company show that the company should develop strategies which can help it to be successful. Further recommendations are provided for the company to generate revenues from advertisements and develop further strategies for achieving profits.

Introduction

This paper provides the critical analysis of the company Spotify. Spotify is a commercial music streaming service which provides music from a wide range of independent record labels such as Warner Music Group, Sony, Universal and EMI. This music service was launched in October 2008 by Swedish company known as Spotify AB. At the beginning the service had more than 10 million users till 15 September 2010, among them about £2.5 million were paying members. By December 2012, there were 5 million paying members who were from the £4.99 or £9.99 plan (Daniel, 2012, nod). In February 2012, the music service was spread to a wide range of countries such as Austria, Italy, Norway, UK, Switzerland, Russia and many other countries throughout the world.

Company Background

Spotify was developed in 2006 by a team located in Stockholm, Sweden known as Spotify AB. This company was founded by Martin Lorentzon, co-founder of TradeDoubler and Daniel Ek who was former CTO of Stardoll. Spotify is now operating as a parent company in London whereas the research and development is being carried out in Stockholm. The application for Spotify was launched in 2008, whereas free accounts at that time were only available by invitation in order to manage the growth rate of the service and paid subscriptions on every launch. Spotify AB at that time also announced licensing details to main music labels.

Theoretical perspectives

It is necessary for the company to analyze the external environment and identify the key issues which help in formulating a successful strategy. Other models which will be used include Value chain model and SWOT analysis.

Porter's five forces

Porters 5 force model is one of the well-known model which help in evaluating the external environment. Porter model is a significant tool which helps in analyzing the company and helps in formulating the competitive state for the firms in the industry (Linder & Cantrell, 2001, p. 54). It helps in developing a successful strategy to create competitive advantage. This theory helps the firms to identify the strategies required to protect them in the market.

Bargaining power of Suppliers

The first force for Spotify is important for determining the industry attractiveness as the presence of other online music streaming service is high and it reduces the profits for the music industry. The bargaining power of suppliers for Spotify becomes high if:

The music streaming services available are limited and the demand is high

There are less substitutes for the music streaming services which they are supplying

Switching costs are high when changing from one supplier to another.

Bargaining power of Customers

When the customers require customized services, they are less likely to switch to producers who are unable to meet their ...