100m users begins to tip the scale in Spotify’s favour. Spotify has announced that it has past 100m users of which 30m are paying subscribers. Admittedly, it has taken Spotify a little longer than I anticipated to get there, but it has now reached a level of scale that should enable it to begin improving its profitability.
- RFM’s ecosystem research has highlighted 2 key thresholds for digital ecosystems
- First 100m users. This is the key threshold when an ecosystem will gain critical mass.
- For an ecosystem relying solely on advertising, this is the point at which it will begin to cover the costs of its investments.
- This threshold can be lower if the ecosystem or network service in question has other forms of monetisation such as subscription or on demand services.
- Second 300m users. This is the point where the ecosystem really begins to monetise its assets effectively and make good returns.
- It comes as no surprise to me whatsoever that all of the money in this industry today is being made by companies with 300m users or more.
- For example: Apple, Google. Facebook, Baidu, Alibaba and Tencent.
- 100m is significant for Spotify because I think this is the point at which the balance of power between it and the record labels begins to shift.
- Spotify has to pay away 70% of the revenues that it makes to the record labels and this is the single biggest reason why the company is still losing money.
- This split is historical and comes from a time when revenue from streaming had no impact on the total level of music sales for the industry.
- However in 2015, streaming single-handedly kicked the music industry back to growth underlining its growing importance.
- Furthermore, Spotify is rapidly reaching the point at which the record labels will need Spotify more than Spotify needs the labels.
- At that point, I think that negotiations with the labels will have a very different tone and this is when I think that gross margins will begin to improve.
- I continue to believe that Spotify is first and foremost a data company with the music that it offers being incidental.
- This is because everyone offers 40m tracks and a search box but Spotify uses its understanding of its users to make the service significantly better than that of its competitors.
- This is why I think that Spotify will continue to fare well despite its biggest competitor being the largest and best funded technology company in the world.
- I still think that the market is big enough for two players and with spots filled I remain concerned for the outlook of the smaller players like Tidal, Deezer, Pandora and so on.
This article was first published on RadioFreeMobile.
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