Spotify: Two-sided Marketplace

How do you look at Spotify’s two-sided marketplace?

It is talked about a huge amount but I don’t think anybody really fully understands what it’s supposed to be. I look at a two-sided marketplace as, on one side, there is the artist services side. They have acquired businesses, such as SoundBetter and those kind of businesses, which allow the artist to build better tools and better data and, potentially, make better music.

Then there is also the commercialization of the platform. There is the ability to boost your profile, to advertise on the platform and to get your music exposed, in a paid-for environment. It’s the same kind of process as buying an ad on Facebook. There is great real estate that many eyeballs hit and it has a value. That will continue to grow for them, I think. There has been a lot of conversations about, can we buy access to playlists? My view is, that would be a huge mistake and I don’t think it will happen because I think that playlists have to have a degree of integrity about them. They can’t be a bought-for thing. I don’t know why I say that because, over history, time will tell you that, actually, radio was a paid-for promotion; it was called payola and wasn’t strictly legal. I think that playlists have to have a degree of integrity. You can’t just buy your way into today’s top hits, for instance. But there are a lot of ways, through Spotify’s understanding of your audience and consumers who may understand your music and enjoy it, to be able to reach more consumers.

I think it’s a very viable part of the business and it becomes more viable the broader the reach that Spotify have. The other side of that, which is really interesting, is that you if you take the Spotify for Artists tool that they have, which is data for artists to look at where they’re streaming and how they are streaming and consumption, and really drill further down into that, with the ability to sell tickets or to prop and plan out a tour because you understand where your music consumers are, they are starting to monetize those areas, as well. That has a real value.

What do you think is the long game here, for Spotify, in that two-sided marketplace?

I think the two-sided marketplace is entirely them saying, how do we build a sustainable, profitable business? We need to look at all revenue streams, which includes the diversification of content, through podcasting and so forth. This is publicly available information, but they have recently just filed patents for karaoke like features and for what they call 3D audio; basically, very high-end audio quality. They are constantly looking for ways to increase their pricing to their premium subscribers, without them leaving in droves.

The fundamental problem with all the platforms is that there is not much difference between Spotify, Apple Music and Amazon Music. They are all much of a muchness. They have the same content so how do you actually build products in there, to retain your customers and grow your customer base? They are looking at all those kind of areas.

I think if you are looking at what the long-term outlook for Spotify is, it’s really interesting because their difficulty is that they have to make audio streaming a profitable business. Apple don’t. Amazon don’t. YouTube don’t. That’s a pretty tough market to stay and play for. The only way, I think, that Spotify are going to stay there, as a viable standalone business, is that they have to create tools and they have to differentiate themselves from their competitors, otherwise I can see Spotify being acquired in two or three years’ time. It will be hard for them to maintain the level of growth and the distance they have between their competitors, unless they keep reinventing and finding ways of increasing their margins, which they are looking at constantly.