Spotify Business Model Analyzed and Explained

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Editorial Team

Spotify is a unique audio streaming platform with over 433 million monthly users that continue to grow. This growth can be attributed to the various options and advantages the platform offers its music lovers and producers.

Spotify has both free and paid versions. Music lovers can stream their favorite songs for free or get the paid version to enjoy the full features of the platform. In addition, artists and record labels can stream their music online for their fans to enjoy new releases and get more people to listen to their songs. In turn, they had the opportunity to generate revenue from each stream.

Other audio streaming platforms can draw some lessons from Spotify’s strengths and replicate the process to get the same result. So how did this most talk about brand start? We are about to find out.

Brief Background And History Of Spotify

The background data of a brand gives so much information on how the brand started and the processes it passed before it became a multibillion-dollar business model. These privileges were not handed down to them. They earned it.

Understanding the background of a brand is a way of familiarizing yourself with the story it shares. So let’s dive into Spotify’s history and see what we can find.

Spotify is primarily a Swedish-based music streaming service. The platform was established on 23rd April 2006 by Mark Lorentzon and Daniel Ek. Spotify remains one of the tops and most preferred audio streaming platforms, with over 456 million monthly active and over 195 million paying subscribers in 2022.

Spotify has its headquarters in Sweden, and its current Chief Executive Officer since 2006 is Daniel Ek. He graduated high school from an IT-Gymnasiet in Sundbyberg, then moved to KTH Royal Institute of Technology, where he decided to major in engineering but eventually specialized in IT.

At thirteen, Daniel Ek started building websites for clients. For his initial contract, he charged his client $100 and the second $200. Then, in 2002, he got inspired to create Spotify.

In 2006, the project was completed but wasn’t launched until after two years on 7th October 2008. The delay resulted from pending negotiations with various record companies and licensing. As a result, at the time of its launch, it was only available in a few select European countries like Finland, Norway, Spain, the United Kingdom, France, and Sweden.

Users had access to an extensive library of audio for computers. But the app only had a paid subscription, and the only way to use the app for free was by invitation. In 2009, Spotify saw the need to rebrand its application to be compatible with smartphones, and it took steps in that direction.

After signing a contract with some important record labels, Spotify gained popularity within a few years of its launch and expanded to the US market. By 2011, it was available in the United States and surpassed its competitors’ performance.

In 2018, Spotify announced it would launch a new service called Spotify Premium Family. This new service will allow up to six family members to share one account and listen to music together. The company also announced that it would launch an offline mode in 2019, allowing users to download songs so they can listen without an internet connection.

The platform went further on to improve its features: it integrated special channels and magazines, availing users of a variety of music lists. In addition, it made its free version more accessible to users.

Spotify is the first music app to have space in places like cafes. It’s also notable to note its strategic approach in creating alliances with social networks like Facebook, Snapchat, Twitter, and Instagram, allowing users to access and use the app’s content in various ways.

Business Model – How Spotify Builds Cash

Spotify is a music streaming platform that has garnered lots of attention from users worldwide who simply love its vast music options for different genres. The platform uses a free and paid revenue model. The free version offers its users a basic but limited service for free with ads, while the paid version is an unlimited premium service for a subscription fee.

Spotify’s business model relies heavily on its community of music users and artists. In 2018, its premium subscriber base increased from 10% to 46%. The platform is a legal medium to distribute the music legally to users without the issue of copyright. The more significant portion of the revenue earned by Spotify accounts for the royalties it pays to music labels. The royalties it has paid totaled around $10 billion since its launch.

How The Model Works

  • Spotify attracts a large base of users who first start their music streaming journey with a free version. Unlike the paid version, the free version is a basic, ad-supported, and limited service.

This is one of the effective ways that Spotify uses to drive several users worldwide to their music streaming platform. Users have to watch ads to help subsidize the service fee for the free version.

  • Spotify management uses another effective method to get billions of bucks in revenue: to convert free users to premium users. In the long run, some free users switch to the premium version to enjoy the unlimited features the paid version has to offer, one of which is an ad-free subscription.

Its premium service allows users to listen to music without advertisements interrupting their listening experience. In 2018, Spotify generated 90% of its revenue from its premium value proposition.

  • The longer Spotify can retain its users, the more it earns from a user over time. Unfortunately, Spotify had a low retention record of 4.6% in 2019 compared to other years.

Likewise, increasing their premium customers or users by adding extra options to the music streaming platform, particularly the premium service will attract free users to upgrade to the premium version. It will also encourage users to promote their service to more music lovers to use their audio streaming service.

  • Brands pay Spotify to advertise their services on their platform to its users. Spotify earns about 10% of its revenue from the adverts it places in the form of video takeovers, sponsored playlists, audio, branded playlists, and more.

Spotify gets most of its profits from the sale of advertising space to other brands on its platform. However, Spotify also generates revenue from selling merchandise such as t-shirts and mugs with its logo.

Spotify Competitors

Spotify has competitors who are equally doing their best in the global music streaming industry. Some of their competitors include Apple Music (iTunes), YouTube Music, Noteflight, SoundCloud, Pandora, Tidal, Amazon Music, Bandcamp, Deezer, JioSaavn, ByteDance, Qubuz, Anghami, Mixcloud, iHeartRadio, Musique.


1. Competition: The competition between the various music streaming platforms available for users is challenging, with each platform trying to outdo the other and become the most preferred. Apple Music and Amazon Music are the key competitors of Spotify.

1. Apple Music

Apple has enough services and resources to challenge the position of Spotify in the industry. Compared to Spotify, which has over 8 million songs and 4.7 million podcasts, Apple Music has over 100 million songs on its platform.

Also, the integration of the iTunes library allows you to browse your music library alongside Apple’s music catalog freely. Spotify offers a similar feature, where it places your local music files in a separate tab, but you can’t freely browse your local music files via broad searches as you can with Apple Music.

2. Amazon Music

Amazon is one of Spotify’s strongest contenders. Amazon Music owns 13% of the music-streaming market, which places it as the third fastest-growing market after Spotify (31%) and Apple music (15%). In addition, Amazon makes deals with brands to bring podcasts to the platform.

Amazon is making plans to become an outstanding media company. It makes its money from the various services it integrated into its platform ranging from audio streaming to advertising services.

2. Unfair Treatment: Spotify faces the allegation of unfair artists’ compensation. The platform favors discovering famous artists by promoting them and compensating them more than it would its grassroots creators. Following this issue, there has been a call for Spotify to change how it treats less famous artists.

3. Limited International Expansion: Spotify lacks the global telecommunication infrastructure to expand to certain developing countries due to the cost of internet connectivity. They can reach more people if they can solve the internet connectivity issue for these people.

Where They Are Now

Spotify as a music streaming service was launched in 2006 by Martin Lorentzon and Daniel Ek. The company was created to curb the effect of piracy and give artists more control over their work. Spotify provides access to millions of songs, albums, podcasts, and videos on demand. It also offers offline and ad-free listening for $9.99 per month or $14.99 per month for a family plan with up to six people (Spotify Premium).

In the past decade, Spotify has grown exponentially from its humble beginnings in Sweden to now being available in most countries worldwide. The Spotify platform is the preferred stop for users who want to listen to their favorite music and albums. Spotify has had its fair share of ups and downs, but it’s still in the limelight. It’s unlikely it will give up its spot anytime soon.

Spotify is available on all major platforms, including Blackberry, Android, iOS, Windows Phone, and Windows 10. Its success can be attributed to its ability to provide a wide range of music from different genres and artists. In addition, the company also offers podcasts and videos on its platform, which are not available on other services like Pandora Radio or Apple Music.

Spotify also offers an offline mode that allows users to download songs for listening without an internet connection. This feature is unavailable on other services like Pandora Music or Apple Radio.

The brand remains a prominent player in the audio music streaming service, with over 433 million users worldwide. Spotify’s revenue for 2020 was $9.001B, an 18.82% increase in 2019 annual revenue. And in 2021, it made $11.438B, which was a 27.07% increase in its revenue from 2020. Spotify is currently priced at over $16.09B.

Spotify has improved on lots of features in the past few years. They have improved their UI and their search engine, and they have also added new features like Spotify Connect.

Its user base has grown exponentially by over 50% in the past few years. This is because they have expanded into new markets and made it easier for people to sign up for Spotify Premium. They have also improved their customer service by adding more phone support, live chat, and email support options.

Spotify has improved on the following features:

• The ability to create playlists with friends

• The ability to share playlists with friends

• The ability to search for songs by lyrics

The platform has also improved its social features by adding more ways for users to interact with each other. In addition, they have included more content from artists that are less popular than others so that people can find new artists and listen to their music.

They have also improved their social media presence, thereby making it more interactive with their users. They have made their user interface more suggestive and easier to use.

What Is The Future Outlook For Spotify?

In 2022, Spotify will be celebrating its 15th anniversary. The company will have grown from 100 million users in 2013 to over 1 billion users in 2022. This exponential growth can be attributed to the company’s focus on expanding its services and improving its user experience.

Spotify wants to be the go-to place users visit for their entertainment needs. They want to be able to offer movies, TV shows, podcasts, and more on its platform. They are also looking into ways of monetizing their services by offering premium subscriptions with exclusive content and features. Spotify has achieved a lot for itself in the music streaming industry, but it still has a long way to go before it can be considered one of the best music streaming services in the world.

Spotify is currently facing some challenges that are preventing it from being one of the best music streaming services in the world. The first challenge is that Spotify needs more exclusive content to compete with other platforms like Apple Music and Tidal. The second challenge is that Spotify does not have original content, which means they rely on other companies for their content. Finally, the third challenge is that Spotify does not have any live events or concerts, which means they miss out on a huge opportunity to make money from this market segment.

Spotify’s future outlook is looking good, but there remains work to be done. The company will have to find ways to stay relevant in the face of competition from other streaming services like Apple Music, Tidal, and Pandora. The company has seen a decline in its user base, which means that fewer people are using the service than before. This could be due to the rise of other streaming services, such as Apple Music and Amazon Music Unlimited, which offer more features than Spotify.

The company has altered its content variation after noticing significant growth in the podcast industry. As a result, Spotify can create a new way to develop and present content other than just music and then follow up with its plan to become available as a premier producer of audio content and invest in a production company, with a similar model to Netflix.

Future partnerships should be strategic and intentional. For instance, the automobile industry is a new market to consider. So Spotify can be an additional feature in the internal media systems of cars, like a radio would, for users to enjoy exclusive content as they drive.


Spotify has grown so much because it offers a wide variety of music, including new releases, old favorites, and everything in between. However, its competitors, Apple Music and Amazon Music, the two biggest competitors to Spotify are fast catching up.

Apple Music has over 88 million paying subscribers, while Amazon Music has about 68 million. These numbers show that Spotify lags fast behind and may soon become obsolete in the music streaming industry.

The company should find ways to include new features and content for its users to interact with on its platforms. It should find ways to form strategic partnerships and be an added feature in different markets. It should also create a balance in the compensation it gives its artists to encourage a fair payment system.

One advantage Spotify has over its competitors is its users’ loyalty. The brand has retained most of its users, which is a good sign for the company.

Spotify promises its users that it will be rolling out new features soonest and it’s starting to make good on its promise. For this year’s wrap-up, they created a playlist dedicated to each user according to their favorite listens. Users’ excited reaction was as expected.