The Whole Social Thing

Social features that let you access others’ playlists and signal your attractiveness via your musical taste — while also entertaining and strengthening bonds with friends — give the streaming music company instinctive scalability. Every time you use Spotify, grouping songs into playlists, and your music pops into your friends’ feeds, giving them ideas, Spotify gets better, making it a Benjamin Button firm.

A recent study found that the more social elements a service has, the more likely it is to make users unhappy (like passive browsing on Facebook). On the flip side, the more a site focuses on entertainment and discovery, the happier its users say they are. Spotify is entertainment focused but has a social element — the best of both worlds.

Pandora was first, but though it tailors to your taste, there is no social aspect. It’s also only available in the US and is seriously uncool. Spotify has better technology, merchandising (like discovery playlists), and brand. Unlike Apple Music, being a pure-play (as opposed to being owned by a tech giant) gives Spotify more cred among purists, young people, and influencers. The instinct / T Algorithm cocktail has resulted in a firm with 170Musers, 75M of whom are premium subscribers. The firm registered €1B this quarter, representing 37% growth. Spotify accounted for 36% of premium music subscribers globally.

The most valuable consumer organizations of the 20th century were often real-estate based: Sears, Walmart, the Yankees, Stanford, Disney. Things have changed, but not really. The most valuable consumer firms of this century are also real-estate based: the icons on your smartphone’s home screen are the most valuable firms in the world. Spotify has the second-best space in the mall, next to the Apple store — if not in the dock with the most-used apps, it’s often on users’ home screen.

It’s likely more young affluent people feel passionate about Spotify than about any clothing or tech brand — even Apple, as many of us are becoming aware of compulsively checking notifications. But the zone your favorite music puts you in fuels work and play. Music is inextricably linked to our deepest reward centers, and it accompanies most of our daily activities. The only apps that are a bigger part of young people’s day are firms worth well north of $100B. I think there is a decent chance Spotify could join them.

There Are Risks

The biggest risk to Spotify is arguably the biggest risk to our economy — that incumbent big tech firms continue to employ anti-competitive behavior. Apple Music is … awful. Every time I get in my car and U2’s Songs of Innocence autoplays, I feel my boys’ image of me eroding. Tim Cook has ruined U2, but that’s another post. Anyway, despite a substandard offering, Apple Music is growing faster in the US (5% monthly) than Spotify (2%), as the Apple Music icon is on the home screen dock of 1B iOS devices. Apple charges Spotify a 30% tax to be in the App Store and denied an update to the iOS Spotify app, essentially blocking iPhone users’ access to the latest version of the Swedish service.

Oh wait, it wasn’t a mistake, but intentional anti-competitive behavior that our elected officials are too stupid and enamored with “innovators” to actually hold Apple accountable for. Amazon is also abusing their platform, the Echo, to juice another inferior product, Amazon Music. In sum, it’s considered anti-competitive behavior when a portal/OS leverages its portal power to send consumers to an ancillary service that’s distinctly shittier than other services.

Google keeps signing consent decrees saying they will send us to the best place, instead of another place they can monetize. They keep violating these decrees, last year absorbing a $3B fine from the EU. Btw, that fine amounted to 3% of their cash on hand. Neither their business nor their stock was affected.

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