The Financial Times today report that Spotify has 250,000 UK Internet Users have downloaded the streaming music application, and 800,000 worldwide. Not bad for an application which has only recently just stopped being invite-only. I’ve posted before on why Spotify has been so successful, now we have some numbers to measure that success by. First of all let’s assume that 98.5%+ of those 800,000 are free, ad supported customers, so I’ll treat the reported numbers as being largely synonymous with free. I invite Spotify to challenge that assumption, but I think it’s a relatively safe bet.
- 250,000 is more than 4 times higher than the premium subscribers Napster has managed to accumulate in the in the UK after years of trying. That’s significant because the free Spotify service effectively offers just what Napster’s 9.99 tier does but with much weaker editorial and programming. This is proof positive of why being free has been at the core of Spotify’s success to date. All the ease of use, deep catalogue, smart streaming technology and clever use of pyramid-selling peer promotion would have come to naught if it had just been for the 9.99 tier. And this is why Spotify have to realistically build their business for being an ad supported business not a premium subscription business.
- 250,000 may be bigger than Napster, but Napster was never anything more than a niche player in the UK. As a share of the total UK paid digital buyer market Spofity is less than 5%, as a share of the total UK digital music audience, less than 2%. So 250,000 is a great first step, but it’s not at ‘taking over the world’ proportions yet.
- 250,000 means that the UK accounts for nearly a third of the total 800,000, with each of the other 5 markets accounting for an average of 110,000. As much as the Brits do really like Spotify, I’d expect France and Spain to be really strong markets too, especially Spain. Both are big free-music markets. In fact as a label exec I’d be a little concerned that Spotify was doing so well in the UK (the strongest European premium digital music market) and hoping it doesn’t cannibalize iTunes sales.
- Let’s generously assume that only 95% of the 800,000 are free: compared to those users being 9.99 paid subscribers, that’s a shortfall of just under 100 million euros annual subscription revenue that needs to be made up in advertising. I admit the comparison is a bit disingenuous given the explicit tactic of deploying a free tier to promote the service. But Spotify must be careful not to expect to convert the majority of those to paid subscriptions. They’ve cast their net among free music fans and they’ve reeled in a nice catch of freeloaders who love their music but predominately won’t pay to stream it. Charging for must-have added functionality, such as mobile, might be an avenue, but Last.FM, Pandora, imeem etc have all set the standard of mobile support being free. So charging for mobile would arguably be as damaging to their growth potential as if they’d only launched with a premium offering.
- Finally the numbers must be caveated with the fact they only refer to downloads, not active usage.
So a solid start for Spotify, but the real test is building a vibrant business around free music and kicking it towards the mainstream. If anyone can do that right now, it’s Spotify. But they need to strike whilst the iron is hot before they start getting bogged down with the every day tedium the rest of the digital music market has e.g. directly competitive services, disgruntled customers, differentiating from file sharing, competing with Apple etc.