re-Focus the traditional business model if you want to survive in the “E” world

It’s only been 12 years since the huge dot.com bubble bursted….and more recently Facebook, Groupon, … are facing a new “social” bubble situation, for the moment they survive but will they do so in the (near) future?! Both for Facebook and Groupon we see the over valuation of company shares (before they go public on stock exchange)….but the bottom line business model is therefore not so bad. Off course both Facebook and Groupon face the challenge of shaping their business model for a mobile environment, but with a little help from …. they probably will succeed. Both business models were “invented” in de digital era, but for many business models this isn’t the case.  Most business models had to re-think their business model to adapt to the new digital environment. That’s what this post is all about….rethinking the off-line business model and make it online proof.  For a long time “Spotify” was best in class for transforming the music business model into an online business model, until last week(s) were a lot of news sites/(tech)blogs pointed out that Spotify wasn’t profitable enough, and would go bankrupt if it didn’t change the business model…BUT is this really the case?

Spotify was one of the first “true” streaming music sites, which shifted the business model from ownership to (online) access to music (with a possibility to have off-line access as well – if you’re a premium user!)….AND for free (the first period). Afterwards you could choose to use the free model, but with mood based commercials OR pay a subscription fee and have access to the premium services (without the mood based advertising)…basically the Spofity Business Model looks like this:

It was PrivCo (a financial analytics bureau) who stated that with this business model 98% of revenue was spent on costs-of-sales and went to the “right-owners” of the music.  If you take a closer look at this number and cross-reference with other available data, the correct number will be somewhere around 70% (same as iTunes for that matter!). How PrivCo came to this number is still to be uncovered….(but irrelevant in the discussion). With some proper accounting we see a different scenario….

What PrivCo did was thinking in “old business models” where short-term financial success is king, well in online business financial success is the destination but not the short-term goal. Controlling your cost structure and understanding your revenues structure is far more important than profit-making the first years, because of the specifications of the online business (24/7, potentially global market, interconnected supply chain, ….) So yes Spotify has a loss but is in a growing market where investments are needed to maintain their business model it is not so hard to understand that Spotify is in a growing fase. Within a (few) year(s) we’ll probably see a profit in this music business company…since the focus of this model is again where it should be: “the music – experience” in a global connected society (and yes this experience differs from our analogue society where traditional records were bought and played). With Spotify gives you access to millions songs for only €9,99 a month, where a traditional average record costs €10,00 for approx. 15 songs!

Where’s the challenge for Spotify to survive?

Not in the business model, but in the marketing of the business model…youngsters just don’t see music streaming as true valued alternative for their music exploration or discovery. Youngster use YouTube (yes you read it correct!) as primary music source, followed by old skool radio and then iTunes followed buy streaming music sites (Nielsen research, 2012). Off course youngsters don’t have the budget to pay €9,99 a month you would think, but I disagree they just don’t see the added value of this service(yet!) AND our wifi/3G/… networks aren’t fully made for 24/7 always on music streaming/connectivity…Within a few years technology will be better, connection will be obsolete and streaming music/video will be standard!
For the moment 20 mio people have downloaded the Spotify app, off which 15 mio users use the Spotify service on monthly basis, with 4 mio monthly paying subscribors…This isn’t so bad after all…

Sources:
Time Magazine – http://business.time.com/2012/06/08/how-the-business-of-streaming-music-will-change-culture-for-the-better/
Time Magazine – http://business.time.com/2012/08/16/spotify-is-growing-but-the-idea-of-music-ownership-is-holding-it-back/
Billboard Biz – Business Matters – http://www.billboard.biz/bbbiz/industry/digital-and-mobile/business-matters-accounting-explains-how-1007973432.story
De Morgen – http://www.demorgen.be/dm/nl/2461/Opinie/article/detail/1514779/2012/10/11/Spotify-in-financiele-problemen-De-kern-van-de-zaak-is-veel-interessanter.dhtml [in dutch]
Management Team – http://www.mt.nl/332/69059/business/spotify-vertrouwen-in-businessmodel.html [in Dutch]
Image – http://gizmodo.com/5821267/is-spotify-really-your-streaming-music-savior

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Posted in Flat Business
12 comments on “re-Focus the traditional business model if you want to survive in the “E” world
  1. Magalie Descamps says:

    People around my age are still get some pocket money, but that isn’t enough to spend on going out, eating what you want, buying the stuff you want and also pay for music you can get to for free by using YouTube or a simple radio. I agree on that, and also the fact that we don’t see the added value yet, but then again… what is the added value that you are talking about?

  2. Mª Teresa Poyo says:

    I think we are already able to see the added value. However a different thing is if we are right now willing to pay for it… I will explain myself. As the article says, I used to play all my music through youtube until I discovered Spotify. You can listen anything you want, make your own playlists…It is amazing! Moreover it is connected with facebook and you can discovered some good music from the songs your friends are listening to… The concept is also better than the traditional one: I only have to pay for the songs I really want to listen and not for a “full CD”. But right now, I prefer to ” listen” to an advertisement than to pay a monthly fee. Moreover, it is still very easy to download free music from the web although countries are starting to pass very restrictived laws about it and this could benefit considerably to Spotify…

  3. I do believe that streaming music/video will be standard in the future. I always use spotify but my smartphone’s battery does not like it very much. If my smartphone would have a better battery I would probably pay the monthly fee of 9,99 euro. Right now I don’t really mind the advertisements, because I only use it at home.
    If young people can afford iPhones/iPads/Laptops/Smartphones, they should be able to pay a 9,99 euro fee for music, base even launched a subscription where they add a spotify premium account, I think this is a really good idea and more providers will probably invest in this as well if our wifi/3G/.. networks get better.

  4. Lara G.F. says:

    It’s amazing what technology makes! It is wonderful to have the music you love in every moment of your life. This was unthinkable a few years ago you could have all the songs you like in every moment and every situation. Life is technology that provides you with all the roads. Also what Spotify has done is to reduce the illegal music and this is one thing I am happy!

  5. Yannick Vercauteren says:

    I don’t know why, but I don’t like Spotify. I have always used GrooveShark for streaming my music. With GS there’s also a free and payed version. But I don’t need the payed version because when I’m away from home I just listen music I’ve downloaded from the internet on my iPod. I will always try to find a way to listen to music for free. I’ve never payed for music in my life.

  6. Kevin Velghe says:

    It actually surprised me how huge Spotify turned out to be. I never actually liked it or found it anything near revolutionary after using TeamSpeak and people streaming their music through TeamSpeak for years and years.
    I think Spotify happened at a bad time to the wrong people because all of these people already knew how to illegally download music, so even though streaming is easy, no one actually is willing to pay for it. Also, I think the feeling of owning your music is as important, this is why iTunes still has a leverage over Spotify.

  7. yaboydennis says:

    This is true, everyone i know still uses youtube as their main resource to find (and download music). I think businesses will have to come with a revolutionary business model to get the youth interested.

  8. Jasmien Hendrickx says:

    This is just a trend not easily changed in modern society. You can come up with a great idea, youtube or facebook for example but this can also be extended to stuff like tablet pc’s; you have your revolutionairy idea, and you dominate the market untill someone does it better and/or cheaper. A lot of brands try this, few succeed…
    A couple of years ago myspace was the big internet thing, noxa tried and failed and now facebook did it better and it took over. Apple brought tablets to nearly every household, android took over and soon windows 8 tablets come into play too.
    When you have a good base to start from or combine different existing succes formulas you have a good chance to be succesfull in new trends, but being a copycat without innovation doesn’t get you anywhere

  9. Ernest Nwanu says:

    I’m calling it right now. Streaming is definitely the future. You can already signs of this being pushed by Google and Apple. Notice how they the SD card and even plain internal memory are disappearing. It’s all about the cloud. But it’s still growing so we’ll have to give it some time. Also, mobile internet has to get cheaper here in Belgium before it will be interesting to the masses.

  10. I think streaming will be the future too, so many devices can already connect to the Internet. You will have your music everywhere! Ofcourse bandwidth could be a problem, but I think we’re already past that stage (music doesn’t eat that much MB’s, and providers are optimizing their networks). My music hard drive is already dusty; everything is stored on cloud services already for me. Spotify for me is one of the best things that happened to the Internet and music industry. I really hope more people could support this project so it can survive!

  11. I’m a music lover and to be honest I switch between a lot of music streaming sites. From Deezer to Spotify to 22tracks.. I cannot imagine a world without them. A streaming site is great for discovering new music because it shows you similar artists or songs to what you are listening to at that moment. That Spotify asks for a monthly fee for a premium account is just normal. You can listen to anything, with no time limitations and no commercials: for the price of only ONE cd! Also Spotify allows to add your own music so you can make perfect playlists and listen to them anywhere you have internet access. So worth the money!

  12. lislot says:

    I am using Spotify quite often, actually. I think it’s an amazing program for streaming (and downloading if you pay) music. I have won a spotify premium account and it allows me to listen to music anywhere I want to and I even have access to my playlists offline.

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