Essay Example on Spotify: From Piracy to a Billion-Dollar Music Streaming Giant

Introduction

Spotify is a global music streaming company, making a disruption in the music industry. Before the company, piracy in the music industry had hit ballooning levels and was over the roof. At such a trying time for the industry, Spotify managed to remain mostly legal and offer content legally, but with some lawsuits come and costing them millions of dollars. However, the company has strived from its inception in 2006 to rise to the apex of the music streaming industry. Today, it is a billion-dollar company that is respected and honored in the music space. Nevertheless, the company has to contend with strategic questions from time to time, to position itself accurately in the market for maximum gains.

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Porter’s Five Forces

Porter’s Five Forces Framework is used to analyze the competition for business. The primary concern of this assessment tool is to view the external environment of a business. The framework, which includes five variant forces, could be applied to Spotify as follows:

The Threat of New Entrants

Entrants into a market always increase competition. Since the inception of Spotify, others who have joined the market include Apple Music, YouTube Music, and Google Play Music, all based in the United States. They are all subsidiaries of huge companies; hence the intensity they create in the market is enormous. The company must be wary of them and any other newcomers.

Bargaining Power of Suppliers

Suppliers, in this case, are artists and record labels that provide content to Spotify; such as Universal Studios and Case Study Analysis: Spotify. Independent artistes at one time complained that they are paid less than record labels, which stirred controversy about Spotify. The issue was again raised by Thomas Edward Yorke in 2013, claiming that Spotify paid new artists less, and thus pulling out his songs from Spotify. This shows the increased bargaining power of suppliers, which could threaten the revenue and profit margins of the business.

Bargaining Power of Buyers

Over the years, Spotify has had to offer some services for free, which used to be the privileges of premium subscribers. An example is providing mobile streaming to free users in 2013, and another one is removing the restriction of 10 hours of streaming per month for free users. These changes happen due to the increased bargaining power of buyers, which is only bound to grow as the years pass by.

The Threat of Substitute Products or Services

Music streaming service has alternatives other than Spotify. Platforms like Google Play Music and Amazon Prime Music offer considerable alternatives for music lovers. Therefore, the company must be wary of the threat posed by the said alternatives. YouTube also provides a free platform for music, unlike the subscription-based Spotify. Such acts

Existing Industry Rivalry

Even before Spotify joined the industry, some firms like Google Music, Amazon, and iTunes were already established in the market. They still provide intense competition to Spotify. Even if Spotify remains the market leader, the business cannot afford to slip up because the rivals in the market would quickly take up the opportunity.

Strategic Issues

The company has had issues of strategic concern to the business. Internal and external business environment of a business can easily affect its performance, and reduce the profit margins and revenue made by a firm. Strategic issues raise fundamental challenges that must be addressed to ensure business success in the long run. Spotify has had its highs and lows, and the long term future should be secured by addressing the low points in the market. The issues include:

The problems of royalty payment. When an organization is entangled in disagreements over royalty payments, it is likely to portray a negative image to the public. This negative image destroys the brand reputation, and it may end up losing consumers. The loss of customers is translated as a loss of revenue.

Legal struggles that have faced the company over the years have a negative net effect on the business. This has been most common on the grounds of copyright infringement, leading to losses in millions of dollars. The monies could have been used by the company to perfume other strategic duties.

Competition is always an issue of concern for any business in any industry. Spotify has worthy competitors all around it, which threatens its long term profitability. The firm must ensure that it maintains a competitive edge through the adoption of the right strategies against rivals. They must keep a check on firms companies like Apple Music and Amazon Prime Music through a competitor analysis approach, and establish countermeasures to the strategies of the rivals.

Using McKinsey 7S, an analysis of Spotify shows that their internal systems and strategy have been the most significant driving factor in achieving their top position in the industry. However, they have to be continually innovative and creative to maintain high levels of performance.

Leveraging on social media to spur growth may not rest well with all users. Social media platforms like Facebook have been accused of allowing loose ends in their platforms that have allowed third parties to mine data from them. If Spotify is hit by such a scandal, it may lose its credibility and lose a huge chunk of clients.

Operating in the publicly-traded market is both a plus and a threat to business progress. It has increased its pool of shareholders, which may mean derailed decisions and, therefore, slower growth.

The rapid growth that the business has experienced should be maintained through strategic planning. It is a strategic issue that could be viewed as a strength of the company in the SWOT analysis, and the company must take advantage of that for long-term benefits.

Strategic issues are evaluated through different techniques like PESTEL, SWOT analysis, McKinsey 7S, and Porter’s Five Forces. Through the assessment tools, it is easy to establish the external and internal environmental issues that the business needs to address in its strategic planning. Spotify must figure out the challenges and develop countermeasures to use in suppressing them, such that it does not lose competitive advantage.

Strategic Options

The different strategic optiosn include diversification, royalties policy, and development of a team on legal liabilities, as discussed below.

Business Diversification

The concept of business diversification sees a firm invest in other areas away from its central business model. Spotify’s business approach is domiciled in music streaming. However, the business can take advantage of its brand name and expand further in the entertainment industry. Other than just being an online service, they could expand into the physical market with a new line of services. Spotify, with its connection to the music fraternity, can organize concerts and shows with the artists and their management teams. This would mean that the organization has a new business line and venture, and has made a step ahead of the competitors. It would, in a great deal, assist in improving profits and allowing the business to continue expanding in the global market.

Clear Policy on Royalties and Engagements

Royalties’ settlement with content owners has been a thorn in the flesh of the company. Big names have withdrawn from the Spotify system, citing dissatisfaction with their royalties’ payment model. This causes a blow to the firm’s image and could cost them a fortune in trying to foster a positive image of the business. Therefore, the firm should get back to its drawing board and draw clear royalties’ policy, with which to engage artists whenever they sign up to work with Spotify. It has been a weak point in their organization, and they must ensure that they seal it before it continues to cost them billions of dollars. The complaints by artists should be no more at the point when the firm has wholly established a clear policy on this issue.

Establishing an Internal Team on Legal Liabilities

The company seems to be losing a lot in legal damages for infringement of copyrights and related errors. As such, the company needs robust management of matters of copyrights. The laws of copyright differ from country to country, and Spotify needs to look at them one by one. An internal team to analyze the laws from every jurisdiction covered should be established, to ensure that the company complies with the set rules and procedures. If the company could avoid half of the cases that come up against it on these grounds, it could save both money and the company’s image. It could also give opponents one less weakness to optimize on in the market. The team should also evaluate their relationship with Facebook and other social media features. It would help to establish the amount of damage the firm may suffer if they were to be accused of data breaches by users.

Preferred Alternative

Among the discussed options, Spotify must first consider strengthening its current business position and eliminating the bugs in their functionality. In this case, the bugs are the challenges destroying the business image in the public eye, in the form of lawsuits and standoffs on royalties. The business must, therefore, prioritize a policy framework that shall diminish the lawsuits and liabilities associated. This means that the company should give precedence to the two strategy options of creating a clear policy on royalties and establishing an internal team to evaluate legal liabilities. These two strategies should iron out the main challenges affecting the organization in their business model. They are the main grey areas even before thinking about expanded capacity and outdoing competitors in the long run. They would create a good platform to make further steps forward.

Conclusion

Spotify presents a business model that disputed the whole music industry. The actors in this industry either love or loathe Spotify. It is so because of the changes it has caused in the distribution and monetization of music. Issues of copyright have always dragged the industry, and they do not seem like ending. Spotify’s major problem is still what dogged the music distributors of the yesteryears. Copyright infringement remains the single most nagging factor in this trade, and whoever shall manage to cross the line against copyrights breach first shall have a very stable business. Spotify must make their business model more robust to ensure that it becomes the hero of artists in an area that has always made their efforts futile. A win for the artists shall be a win for Spotify and the music fraternity.