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<\/p>\nSpotify recently had its blockbuster NYSE debut in quite a unique fashion. The Swedish company became the largest company in NYSE history to avoid underwriting and legal fees in favor of a direct listing. With a market valuation of $26.6 billion, Spotify made waves in the news. However, the company traded down from its opening price, largely due to concerns regarding the growth potential and practicality of its modern business model within a fierce industry.<\/p>\n
Spotify’s supply chain utilizes a “product as a service” model. From a product perspective, Spotify provides music to customers. From a service perspective, Spotify provides an unmatched music-listening algorithm which keeps listeners listening. From the supply side, Spotify pays as little as $0.004 in royalties for each “listen” of a song. To put this into perspective, Drake’s song “One Dance,” which has almost 1.5 billion listens on Spotify, has accumulated as much as $6,000,000 in royalties. Spotify may have significant marketing and operating costs, but those figures are tiny compared to the royalty expenses.<\/p>\n
From the demand side, customers are willing to pay $10 per month for Spotify premium unlimited listening. This encompasses the service side of the business. Customers are paying not for the songs themselves, but for the service which curates the songs. This contains the explicit services of providing offline listening, playlist creation, no ad listening, etc. Further, this cost contains the implicit service expectation that Spotify’s services are up to par and that the music curation system is better than competition.<\/p>\n
From these two sides of Spotify’s supply chain, we can see one thing: consistency. Spotify’s margins will always be consistent for the average user, and thus for the company as a whole. The only factor which materially affects their financials is their user count. In this sense, investors can rely on Spotify for margin consistency, but any major company growth must be lead by user growth, which can be more difficult to retain in the long term.<\/p>\n
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Has Spotify’s supply chain design dug them into a hole as some investors think? I don’t think so. Lower royalties or higher subscriber prices seem like the only ways they can sustain long term growth when user growth flattens, but compare $10 a month for unlimited listens to $10 per album for 15 songs, and you begin to see how much consumers need Spotify. Also, look at how streaming has become 75% of the music industry, up from 10% in just 5 or 6 years. Artists need it just as much as consumers. That is the dynamic that gives Spotify the flexibility to improve its supply chain.<\/p>\n
Do you think Spotify is here to stay? Will its “product as a service” supply chain model hold? What do you see as the future for this industry?<\/p>\n
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https:\/\/www.forbes.com\/sites\/kevinomarah\/2018\/04\/05\/spotify-shows-the-way-to-a-content-economy\/#63e826fb72ac<\/a><\/p>\n https:\/\/www.theverge.com\/2018\/4\/3\/17194208\/spotify-ipo-nyse-music-streaming-market-valuation<\/a><\/p>\n <\/p>\n What Streaming Music Services Pay (Updated for 2018)<\/a><\/p><\/blockquote>\n