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Case Study

How Spotify Makes Money

One of the most popular apps among music lovers is undoubtedly Spotify. Users enjoy millions of songs and podcasts on Spotify. But, do you know how Spotify makes money?

Spotify is the online music streaming and media service provider application founded by Daniel EK and Martin Lorentzon on 23rd April 2006. The headquarters of Spotify is in Stockholm, Sweden.

It is the largest streaming application with over 350 million monthly active users and over 165 million paying subscribers according to the report published by Spotify itself.

With Spotify, you can find out any music or podcast for every moment. It is a music application that provides you millions of songs in multiple genres. And podcasts that provide a piece of good knowledge and entertainment as well. You can easily free signing up using an email address or contact number on mobile, desktop, or laptop.

If you want to listen to add free music, you would need to subscribe. With Spotify Premium, you can download songs offline and access music where the internet connection is not available.

According to Business of Apps, Spotify has a market share of nearly 32-34% in the online music streaming industry. If we talk about competitors, Apple Music/iTunes, Amazon Music, Youtube Music, and many more.

How Spotify Makes Money – Spotify Business Model

1. Spotify Premium

Spotify offers premium plans to listen to ad-free music. There are many plans available for users based on their requirements. Spotify gives users access to a large number of music albums and podcasts.

The company generated €4.31 per user in 2020 according to Statista.

There are many types of premium plans.

Individual Premium plan:

The first plan is an individual premium plan. This plan has many features such, as individuals can listen to more than 50 million songs and podcasts without advertisements. You can download 10000 songs or podcasts listen offline.

This premium plan has different prices in different countries. In India, for example, this premium plan costs 119 INR per month. In the UK, £10 and in the USA it is $10. 

Student Premium plan:

This plan is for students who are above 18 years of age and are studying in a university or college. They have to log in from their university email id, and this offer is valid for four years.

From this student premium plan, students get a 50% discount from the general plan for up to 4 years. The students need to renew every 12 months. And you can also cancel this plan anytime between 4 years. 

Family Premium Plan:

The last plan is the family premium plan. This plan includes six people living together and each gets a premium account for one discount price. The plan is possible only when all members of the family living in one place. 

2. Ad- Supported Service:

This is a freemium business model in which the users have limited access to the application but still, they can enjoy the service.

Here the members do not need to pay the premium subscription and listen to free music. But, every 15- 30 minutes, users have to listen to advertisements played by Spotify.

Spotify generates revenue from these different advertisements. There are different types of advertisements that cost different prices.

Audio Ads:

Audio ads are an effective means of advertising. It is in audio format only. Spotify allows audio ads for a maximum of 30 seconds and allows playing after 15 minutes of listening to music. These audio ads can be streamed on songs, podcasts, and digital radio. 

Branded Moments/Video Ads:

Spotify serves vertical video ads known as branded moments. These ads are run at the beginning of the playlist and then after the 30 minutes of streaming.

Branded moments allow the advertiser to target the customers based on their moments like a workout, party, dinner, sleep, etc. For instance, a tour and travel company can target its audience when the audience listens to the travel playlist in the Spotify application. 

Podcast Ads:

You can also play ads on the podcasts based on your business category.

Also read: Audio Entertainment and Education – Case Study

Display Ads:

As you can see in the above image, this is how a display ad looks on Spotify. If you click on the ad, it directly opens on the company’s website or landing page. The ad will stay on the screen for 30 seconds.

There are many types of ad streaming on the application, but here are some important types of it. 

Conclusion:

So, this was the business model of Spotify. Spotify is one of the largest music streaming platforms that have millions of users. The company has been successful in converting free users to premium ads-free versions.

Having the largest market share in the online music streaming industry helps the company to grow faster. However, the big tech giants like Apple with Apple Music, Amazon with Amazon Music, and Google with Youtube Music may give tough competition to Spotify in upcoming years.

Anuj Vohra

Hi , I am Anuj Vohra. Founder of Itsfacile.com & Saral Investment.

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Anuj Vohra

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