Evolutions in the music industry. Case study an analysis of Spotify

Résumé du document

Since 2000, the increasing popularity of Internet was one of the main reasons of CD music sales which have been decreasing from 700 million sales in 2000, to less than 200 million for the year 2012. This decrease can also explain the recent collapse of HMV.
The music industry is going through a process of change during this decade, because distribution networks are changing. Internet has also brought the possibility to have free music illegally but also easily and rapidly with softwares such as Napster.
CDs are nowadays obsolete because most people listen to music through MP3 player, and manage their music library through computers. This explains the evolution of online music store, with its most famous launched in 2003: iTunes, made for the popular MP3 players: iPod.

The apparition of the Swedish company in 2008: Spotify has bring a real alternative for consumers. It is a streaming based system that allows users to listen to any music more than 20 millions tracks. The subscriber does not own the songs but he can listen to anything.
Based on the Freemium model : a combination of free and paying offers Spotify is financing itself by the membership fees and the advertising for free memberships.
Spotify estimate more than 5 million paying subscribers for 20 million active users for 17 countries (Spotify.com, 2013)

We will evaluate the company's strategy through 3 businesses model to discuss how Spotify is using technology to gain competitive advantage. To start, we will have a look at the environment of the music industry with Porter's five forces model, then we will study the strategy adopted by the company to penetrate to market using Bowman's Strategic Clock to finally use Porter's Value Chain in order to find Spotify's competitive strengths. We will then conclude and give recommendations (...)

Extraits

[...] Porter's Value Chain is based on the relation between primary activities and support activities. Primary activities (Inbound logistics, Operations, Outbound Logistics, Marketing and Sales, Services) are organized and ruled by the Support Activities (Firm Infrastructure, Human Resources Management, Technology Development and Procurement). According to their ability to manage this relationship, the company will be able or not to achieve a profit margin. Figure Porter's Value Chain (1985) Primary Activities: Creating value thanks to IS The Inbound Logistics of Spotify are mainly the music files, and broadcasting rights. [...]

[...] Foreign investors who believe in that project have made most of funding of the company. According to Human Resources Management, Spotify would essentially recruit highly qualified people in the E-Business world (from Marketing, to IT engineers for instance). Spotify has spend a lot of money and time in Technology Development in order to create their competitive advantage, and now they are still working to improve it and to make it last as long as possible. They also have to maintain an up to date security service in order protect users' datas. [...]

[...] The company's technology offers to users personalized recommendation thanks to what they listen, and you can also listen to your favourite artists' playlists, thanks to usability and attractiveness of the smooth software. Use of IS to support Primary Activities The Infrastructure of Spotify is simple. They need offices where they work and handle servers room to keep their music data, and also to have an efficient customer service, even if most of the problems are solved by users' community. They also need a high protection system according to the threat of potential cyber attacks because they keep many personal data. [...]

[...] The subscriber does not own the songs but he can listen to anything. Based on the Freemium model : a combination of free and paying offers Spotify is financing itself by the membership fees and the advertising for free memberships. Spotify estimate more than 5 million paying subscribers for 20 million active users for 17 countries (Spotify.com, 2013) We will evaluate the company's strategy through 3 businesses model to discuss how Spotify is using technology to gain competitive advantage. To start, we will have a look at the environment of the music industry with Porter's five forces model, then we will study the strategy adopted by the company to penetrate to market using Bowman's Strategic Clock to finally use Porter's Value Chain in order to find Spotify's competitive strengths. [...]

[...] In spite of very good financial result, the Spotify strategy seems to need time to stabilize itself like Amazon did, but figures of memberships are increasing, and the company is really giving an added value for the way people listen and discover music. References Ahlstrom, D & Bruto, G. (2009). International Management: Strategy and Culture in the Emerging World. USA: Relié. P131 - 132. Ait-Kaci-Ali, K. (2013). Spotify atteint les 6 millions d'abonnées payants. Available: http://www.cnetfrance.fr/news/spotify-atteint-les-6-millions- d-abonnes-payants-39788193.htm. Last accessed 7th of March 2013. Carliss Y. [...]