How Spotify looks like Amazon once did

As I thought about writing this post Amazon.com announced last Friday morning that it was making an offer to buy Whole Foods for more than $13B. I am thinking a lot about as to what kinds of changes Amazon might bring to Whole Foods.

Spotify.com is also moving closer to an IPO in order to raise cash despite its continued user growth. Expenses continue to outpace revenues – which were in excess of $3B last quarter. It’s a rare occurrence when the phrase “lose money but make it up in volume” isn’t a death sentence. But that’s where Spotify is today, and where Amazon.com was for a very long time.

Given that Amazon is now nearly twenty-three years old (on July 5) and Spotify just turned 11 it’s interesting to compare where Spotify is today to where Amazon was in 2006.   It took Amazon until 2001 to turn its first quarterly profit. Spotify is still seeking its first quarterly profit which does not appear to be imminent.

Back in the late 1990’s I bought a few shares of Amazon stock. I always have liked Amazon’s business model and back then I was aware that all the money Amazon was bringing in was going into creating distribution centers. At the time Amazon was almost solely focused on book selling. Yet by putting money into infrastructure, I (like many) figured Amazon was preparing to ship everyone else’s stuff. And that’s what happened. Of course before that happened a friend of mine who was giving me some investment advice directed me to sell my Amazon shares feeling that Amazon was going to drown in its own debt. So I subsequently did sell my shares for a small profit. We’re still friends (although that one still stings) but the moral of that story is never take advice on equities from a bond trader.

So take Spotify as a comparative. Where Napster failed, and where Limewire, Kazaa and Grokster’s file sharing went afoul of the law and were shut down.; Spotify has ‘succeeded’ in the sense that it has a vast coterie of artists who have accepted its pay-per-use model. Building that infrastructure is expensive. Really expensive. And still many artists like Taylor Swift and others feel that Spotify keeps too much of the fees it charges users. All the while Spotify continues to rack up losses ($600 million last quarter). Something’s got to give right?

One thing that’s important to keep in mind is the way Spotify’s users feel about the service. As far as I am aware, users (myself included) LOVE the service. The Spotify platform utility is really good with a great UI, intuitive search and just the right amount of relevant suggestions on other music one might consider based on your prior listening habits. The reward for Spotify is massive adoption with more than 140 million users and still growing rapidly. Jeff Bezos of Amazon has focused on delighting Amazon’s customers. Spotify has that same singular focus which is a long term winning play.

The way it can work for Spotify and artists is for Spotify to continue to get bigger. More users means more revenue for everyone and there’s certainly sure to be a critical mass tipping point where Spotify becomes profitable – and stays there.

Does that scenario sound familiar? It should because in several ways it’s similar to the arc of Amazon. Spotify has not delved deeply into subscription video and publishing, but you can be sure that it’s in their future plans. Video and publishing success for Spotify will not be easy, but with a large user base it has one heck of a good start.

As a musician myself I have been concerned about artist compensation, which will be an ongoing battle with Spotify. However, the ability to listen to a vast catalog of music, anywhere, anytime, has me listening to more music in the past few years than I had in many before that. I assume I am far from unique in that sense. And as a musician, more people listening to more music, makes me very happy.

One last note as it pertains to Apple Music. Apple too has been great for music listening overall. But I feel that it has lost the higher ground to Spotify. The same can be said of Pandora, which like Apple has modified its offerings to consumers to be similar to Spotify in some cases. Does Spotify have too big an advantage? I am willing to bet yes.

About markkolier

Futurist, entrepreneur, left lane driver
This entry was posted in Streaming Music and tagged , , , , , , , . Bookmark the permalink.

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