David & Goliath: Spotify challenges Apple
June 03, 2009 at 07:06:33 AM, by Gilberto J. Perera
An innovative music service from Europe threatens to remove iTunes’ grip on millions of music downloads a year. Spotify, a small company based out of Stockholm, Sweden has come to market with a new way to deliver music. It currently reaches audiences in Finland, France, Norway, Spain, Sweden, and the UK with a model similar to that of online radio.
Unlike online radio that streams pre-defined music sets, Spotify allows users to select the music they want to hear, when they want to hear it, so what’s the catch? Spotify offers two levels of service, the first is free and it requires that users listen to advertisements to enjoy the free music. The Spotify website claims that users will be exposed to, “…fewer ads […] than you’d find on commercial radio.” The second level of service is a Premium ad-free subscription that runs for about $13 per month. This is not bad for an unlimited amount of music available to any wireless device (currently computers, iPhones, and Android phones) 24 hours a day.
When compared to iTunes’ buck per song model, Spotify premium service really sticks out as a superior alternative. With the move towards cloud computing what sense does it make to have a measly 4,000 (or $4,000 of iTunes music) songs gobbling up hard drive space when Spotify’s service will make hundreds of thousands songs available for a set fee to listen to whenever you wish at a push of button. The increased use of mobile devices and the introduction and expansion of 4G wireless networks would only fuel the demand for services on the cloud, specifically services like Spotify that provide free content.
Spotify has already signed up some big labels for its subscription service, among those is Universal Music Group, EMI Music, Warner Music Group, Sony Music, The Orchard, and others. This of course should make Apple nervous because they are aware that the music industry isn’t too happy about Apple’s ‘monopoly’ over digital music distribution. Adding to Apple’s discomfort level is that aside from offering a streaming service, Spotify will also allow users to buy music just as they would with Apple’s iTunes service.
The music industry should be interested in supporting Spotify. A service that makes a bottomless list of music available to users for free or for a small fee is bound to keep them from seeking other alternatives for music downloads. Something that Apple can partly match. Music piracy would be less attractive not only because of the legal consequences, but also the problems arising from such practices; exposure to malware, identity theft, and scams. When ordinary users weigh the consequences of music piracy against $13 a month for unlimited music, I believe they would opt for the latter.
Plans to offer the software beyond the computer and onto mobile devices like the iPhone and Android phones is currently underway, betas have been seen about and details about the iPhone version have leaked. Some of those details highlight the software’s ability to cache a music library on the iPhone while you’re online allowing the user to listen to the music playlist offline. Reports indicate that the Spotify iPhone application would essentially provide improved functionality to the iPhone’s iTunes app and would most likely render the iTunes application obsolete. That can be quite a problem for Apple’s iTunes business.
All is not quite clear for Spotify just yet. They have been able to sign up the aforementioned labels but only for the countries listed above. There are also certain artists and labels that are currently not interested in participating in the service, among those are Metallica, The Beatles, Pink Floyd, ACDC and Led Zeppelin, that is not to say that they will join later, but then again others may follow suit. They will also have to deal with the licensing restrictions that are strictly enforced by labels and artists.
Another issue facing Spotify’s venture to provide an iPhone application is Apple itself. Like Opera’s browser that was shut out from being released to the iPhone by Apple. Spotify could find itself in the same place and lose the potential to access 21+million iPhones in existence today. Aside from blocking the application access to the iPhone, Apple could also react to the increased threat of Spotify’s success and offer a similar service to iTunes users. This would essentially shut out Spotify’s ability to stand apart from iTunes. Apple could also expand the business model to include TV shows and movies similar to Netflix’s streaming service, a severe blow to Spotify’s music sharing ambitions and Netflix’s dominance over movie rentals. The iTunes application is already installed on millions of PC’s and iPhones worldwide all it takes is for Apple to change its business model to match the environment it is operating in.
Costs associated with using Spotify mobile may keep people away from the service because users must have a connection to the internet in order to download the songs. If users are shelling out $40-50 in monthly data plan fees and an additional $10-15 for Spotify they might not make the switch. That is close to $700/year for access to music.
The limited number of music in its library, the narrow geographic availability of its service, the looming threat from Apple, and high mobile access costs will help keep iTunes afloat for a while. These of course are pains faced by any startup company. Remember that it took Apple 25 years to introduce the iPod to the world and eight years to sell 173,000,000 of them. There is no reason to question the possibility that Spotify or a service like it would render iTunes obsolete as the iPod did the Walkman eight years ago.
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Comments
T-Man at 06:16, June 08, 2009
I hope spotyfi comes to the phone soon. It's the number one music streaming! i love it