Blue Ocean Strategy Applied to Spotify-3145 Words
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Blue ocean strategy applied to Spotify
1.0 Introduction
Stiff competition and rapid technological changes characterize the contemporary business environment. Businesses that would like to maintain a competitive edge must think beyond the obvious by creating a unique product and service portfolio to reduce cutthroat competition. Successful businesses must be unique and innovative to produce unique goods and services that address evolving consumer needs. The blue ocean strategy best describes what business must embrace as a growth strategy. Running towards exploiting new market opportunities as opposed to competing over the same market environment with the same products and services. When the competition is on the same products, the focus is on price reduction to attract the customers and make the organization stand out over others. Price competition results in reduced profit margins while the cost of production remains constant hence making the venture less attractive and exposing the business and industry to risks of collapse.
The traditional approach to sustaining the business through price competition is known as the red ocean strategy. Red ocean strategies tend to crowd the market with many producers and marketers using the same strategy of marketing and products in the market. It is a terrible competition that results in the extinction of the industry and reduced profitability and attractiveness into the venture. It turns out that when the only reference for differentiation is price, firms may become desperate. To win customers and control large market share at the expense of extremely reducing the profit margins (Mi 2015). For businesses to sustain competition and grow their market share, there is a need to create new markets from unexploited potential. Such companies need to be innovative enough to develop products and services that are unique to differentiate their markets. Value innovation replaces blind price competition over the same products and services. This work looks at how the company Spotify has embraced the blue ocean strategy to remain competitive and grow its market share.
2.0 Spotify Company Background
Spotify is an international business founded in 2006 with its primary business model as providing music streaming services to its customers. Martin and Daniel founded the company with the main focus of providing a new experience to the music enthusiasts. Through their platform, the consumers enjoy a rich playlist based on their tastes and preferences online. The artists also earn money through the platform arising from the content they offer and the amount of airplay from the streaming customers. Spotify business has to negotiate terms of service with the artistes from country to country to enable the sharing of their patented music through their platforms. Within less than two decades, Spotify Company has continued to diversify its services to new markets across more than 57 countries globally (Spotify.com 2019). Spotify has grown due to its ability to differentiate its services and leverage on innovation to help create new target market segments that never existed before in the industry. The company has two subscription options, namely Spotify and Spotify premium, through which the customers pay a monthly or annual subscription in return for access to a quality favorite from across the world.
3.0 Application of Blue Ocean Strategy
Spotify created a blue ocean strategy by providing a streaming platform for the best music playlists in the world. During this time, the music industry was saturated with several players competing for selling CDs and downloadable music from apple and other competitors. Most of the firms in the industry were engaging in red ocean strategies characterized by challenges of music piracy to help reduce prices for control of sales and large market share. Spotify used the four ERRC grid framework of blue ocean strategy as part of differentiating their music streaming business model. The Spotify Company transformed the music industry by enhancing the customer experience at a time when most people relied on tablets, phones, iPods to listen to music. The company created a new platform where the consumers would listen to a collection of unlimited favorable quality playlists at lower prices. Advanced analytics helped to fetch intelligent consumer information on consumer characteristics and understand their music tastes and preferences to suggest playlists that captured their mood and choice. Spotify capitalized on improved internet speed to connect to its music platforms through streaming to create a new world of opportunity (Mohamed 2015).
4.0 Spotify Four action Framework ERRC GRID in Blue Ocean
Spotify used the ERRC grid framework developed in unlocking the blue ocean strategy in the company. Spotify eliminated the need of consumers to invest in buying music albums from different vendors as part of creating a favorite playlist for consumers. Spotify understood the need to reduce the demand in investing in devices like costly iPods to enjoy the ideal music. Initially, music enthusiasts would require a lot of money to invest in buying albums from different music producers to access their favorite tracks. Spotify eliminated the demand for purchase such devices as they brought together those tracks in a single platform where the consumers would get them. Spotify also eliminated the need for the internet, especially in locations where the user did not have access to the internet. They created a platform where the user can download music and watch or listen later in locations without access to the internet (Kim & Mauborgne 2015).
Spotify also reduced the need for the customers to create their playlists from a collection of old and new music stores. It provided an excellent online music library where they could retrieve such music by a click of a button. The need of the customers to manage their music was reduced by the fact that the Spotify platform would provide such services to the consumers at free cost with quality sound. Most of the industry players also required forced advertisements that would bring distractions to the flow of music for users. Spotify reduced these advertisements by creating a premium subscription for users with little distractions by ads (Clarke 2015.).
Spotify also ensured that it raised the consumer experiences in listening to music by reducing the hassle of creating a playlist from different artistes. The customers were able to access good music regardless of the physical or geographical barrier, which initially would make it difficult for music fans to access such music. The software innovation raised the customer experiences and quality sound from their favorite music collection (Spotify.com 2019).
Spotify also created a new market demand that never existed before, where the consumers would subscribe monthly or annually. Watch and listen to favorite music at convenient places such as homes, cars, work, and social places. The Spotify platform created a unique value through innovation and experience never had before for better satisfaction of its customers. By creating uncontested markets, the company benefited from millions of subscribers to its music streaming platforms (Spotify.com 2019). Spotify used artificial intelligence and data analytic techniques to understand the tastes and preferences of its consumer base based on the type of music they like playing most of the time. Through the use of these technologies, they customized their services to meet the demand and needs of their online subscribers.
5.0 Historical Development and Blue Ocean Ppplication to the Growth
Since early 2000 the online music platforms had continued to grow. Many businesses are investing in streaming music to create incentives for the artistes to sign contracts with such platforms and reduce the impacts of piracy. However, very few companies showed enthusiasm towards innovation into new untapped business models that would attract more subscribers and create more value through enhanced experience. Spotify entered into the market from the onset through utilizing innovation to create enhanced value for its customers. Consumers would watch and listen to the rich and diverse music playlist uploaded on the online platform for free. (Spotify.com 2019) The platform did not charge the users for downloading the songs, but they must allow the advertisements to run in their streaming. However, the company also created another premium subscription through which the user could avoid the ads in the streaming. The streaming industry initially attracted little innovation and product innovation with the focus of many industry players on creating service that the consumer could use easily. It was characterized by the kind of service through which the consumers would d cerate their playlists by typing the title of the song or album and then click play. Many companies would offer services where the streaming applications and devices were easy to use, creating stiff competition across players. Spotify understood from the onset that the free download was less attractive and attracted less revenue as compared to iTunes from apple. However, in the long run, it would become more profitable as more subscribers buy into the idea (Spotify.com 2019).
Spotify created a platform through which the consumers would have access to their favorite music. Discouraged piracy was negatively affecting the music industry due to internet access, where most people would share music albums. By 2012 the company has managed to win the interest of 22 million subscribers into their platform for creating value for their unique services through improved customer experience. Half a decade in operation, the business had attracted more than 35 million hits into its platform, with more than 160 million subscribers (Spotify.com 2019). One method through which the Spotify music created a new customer value is through offering a new streaming platform. The customers would listen to their favorite music un-interrupted by the advertisements. It also created a free premium platform and used it as a basis for creating a large customer base through the promotion. The Spotify music platform also created a solution for the challenges of music piracy. It ensured that the artistes also benefited mostly in terms of income from the audience who loved their songs.
From the onset, the Spotify Company continued to focus on value creation by creating new platforms that would align to the customer needs. The Spotify platform continued to increase its subscription base, and through its data analytics technology, customers would get customized playlists that match their tastes and preferences. As the platform accumulated data, it would make the user have an easier time getting suggestions on playlists based on the market intelligence reports (Kim and Mauborgne 2015). The experience created was suitable in reducing the kind of hassle the user would undergo in looking for favorite songs through the internet. The platform continued to grow the number of subscribers, and the company would later help improve a two-sided market place by increasing the monetization for the creators of the content and cost savings for the consumers. Both the creators of the content shared through their online platform, and the consumers benefited from the music market platforms.
Over time Spotify provided solutions to the ailing music industry that was characterized by systematic issues with piracy and declining revenue from the artistes. The artistes wanted a platform that would discourage piracy and polluted sound quality arising from pirated copies. The increased subscription base provided the customers with genuine platforms where they would get the undiluted and uncorrupted quality sound. The producers also found a platform through which they would reach large masses of the audience while still earning revenues by signing exclusive contracts (Burke, Stel, and Thurik 2009).
The ability of the Spotify business to build on a business model of innovation and creating enhanced value for the customer experiences helped to provide unique services initially untapped. Spotify followed the blue ocean strategy through six essential steps of challenging the pre-existing market boundaries and business models. It created more value chains from the process of music to the consumers and benefits along the supply chain (Mohamed 2015). The Spotify business model looked at the bigger picture, initially refusing to be drawn into profit margins but looking at the future returns that may arise from an increased subscription base. Spotify focused beyond the existing demand of the music industry to exploit the future potential provided by high internet speed and evolving information communication technologies. From the onset, the Spotify streaming business model kept thinking ways through which it can engage in innovation to enhance the customer experience and customize playlists to customer needs and preferences. They were building on execution into their blue ocean strategy without getting absorbed into the status quo but keep looking on the best ways to innovate with the customer-focused approach.
6.0 Recommended pathways for future development
Spotify needs to continue leveraging on innovation and product diversification to help increase profits and command a large market share. It needs to further negotiate with its artistes to help sustain their labels in the Spotify live streaming platform. Some popular artists such as Thom Yorker have removed their hits from the platform citing poor pay from Spotify Company(Spotify.com 2019). Such moves continue to put the company streaming experience at risk if other artistes can withdraw their albums from the platform. Spotify needs to build its partnership with artistes on trust and loyalty. Ensure they create a win situation for both artistes sharing their music on the platform and maximizing the company earnings.
Spotify could also invest in event sponsoring to try and exploit the significant potential to earn revenue from buy-in tickets to live events. Through live concerts, the company may get a better platform to partner with other major brands that need advertisements to promote their products and services. Hosting parties and events will ensure that the company generates additional revenue streams offline through subscribers in their platform. The most important thing is that the tickets for live concerts and events are higher than the subscription fee online (Helinski 2017). There are unlimited opportunities in partnering with other brands like event promoters so that they can tap into more opportunities for generating revenue offline. A single ticket for live events or parties costs an average of 50 dollars while the subscription fee may cost 20 and 10 dollars (spotify.com 2019). It shows that there are many opportunities that Spotify can tap into sponsoring events through ticketing. They can create other revenue generation streams by advertising their services and selling products.
Spotify can also generate more revenue streams from selling merchandise directly through their online platforms. Artistes create a lot of income from selling their merchandise with labels. Much of the revenue generated from the Spotify platform goes to paying royalties to artists. Tapping into business marketing opportunities will help the company generate additional revenues. The online business is providing a lot of untapped opportunities to the business. The increased percentage of people getting connected to the internet indicates there is potential for online marketing. The large subscription base in Spotify platforms canals makes up potential buyers of other products apart from music. The Spotify Company will make additional profits through partnering with other companies who manufacture products so that they can sell the products online and generate profit margins (Helinski 2017).
The low-income countries continue to have access to smartphones and internet connectivity. There are many such countries in Africa, Asia, Latin America, and the Middle East where Spotify Company has not reached. The new markets provide opportunities for the company to expand its services. The blue ocean strategy requires that the business create or exploit new markets to reduce the levels of cutthroat price competition. Currently, Spotify operates in 57 countries globally, showing that there is potential to expand its operation to more countries with greater access to the internet and smartphones (Mohamed 2015).
Revenues generated from the live streaming business is expected to increase by approximately 10 percent in most of emerging and low-income economies. The increase in cheap smartphones and affordable and accessible internet to communities helps to unlock those opportunities which Spotify business can exploit (Kim 2015). In the future, the Spotify business can use the new untapped market opportunities to test the new products and services as part of its diversification strategy. The emerging economies continue to attract artists and major brand promoters as the destinations for their activities. The new emerging economies also provide the best platforms where the Spotify Company can establish dominance over other competitors. Global expansion is a good idea towards reducing competition and creating new opportunities for service and product diversification owing to consumer changing tastes and preferences.
It is vital that Spotify also thinks about giving artistes more freedom to maximize their earnings from new hits within their streaming platforms. This can happen, for instance, by allowing some songs to be included in the premium subscriptions only. The artistes can also have the freedom to create a fan base within the Spotify online platforms. The artists can also have the freedom to cap the number of times their new hits can be streamed for free before making purchases. Allowing some autonomy of the artistes in redesigning how they want to maximize their revenue within the platform will make more big names want to sign in to Spotify platforms. The big brands in music will have a chance to maximize their income and at the same time, increase profit and subscription base for Spotify. The company can also use artificial intelligence technologies to maximize the impact of the advertisement.
7.0 Conclusion
The blue ocean strategy is very critical in ensuring that an organization maintains a competitive edge in the current evolving business environment. Blue ocean strategy is different from the red ocean strategy, which focuses on cutthroat competition within the same market segments resulting in price reduction and low-profit margins. Blue ocean strategy ensures that the company engages in innovation to create new unique products and services that have no close substitutes. The businesses can also exploit untapped markets and create a new customer base to avoid competition. Spotify has employed a blue ocean strategy since it is inception by creating a unique service that targets unique market segments. It has eliminated costs and obstacles in getting access to quality music. It has reduced the struggle for accessing live stream music and piracy, and it has created a new enhanced experience for the music enthusiasts. There are many pathways to the future blue ocean strategy. Such opportunities include tapping into new markets, marketing merchandise, event, and party sponsorship to help create revenue streams offline.
8.0 References
Burke, A.E., Van Stel, A.J. and Thurik, R., 2009. Blue ocean versus competitive strategy: theory and evidence. ERIM Report Series
Clarke, J., 2015. A Market Level Analysis of Innovation. Otago Management Graduate, p.1.
Helinski, C. 2017. The Application of the Blue Ocean Strategy Assessing Opportunities for Stationary Fashion Retail Companies Targeting Competitive Advantages.
Kim, W. C., & Mauborgne, R. (2015). Blue ocean strategy: How to create uncontested market space and make the competition irrelevant. Massachusetts, Havard Business School Publishing Corporation.
Kim, W.C. and Mauborgne, R., 2015. Value innovation: a leap into the blue ocean. Journal of business strategy.
Kim, W.C., 2015. Blue ocean strategy: from theory to practice. California management review, 47(3), pp.105-121.
Mi, J., 2015. Blue ocean strategy. Wiley Encyclopedia of Management, pp.1-1.
Mohamed, Z.A., 2015. Analysis of the Use of the Blue Ocean Strategy; on 14 Different Agencies Strategy; Case Study An. Integration & Dissemination, 4.
Spotify.com 2019. Company information ( profile). Retrieved from https://newsroom.spotify.com/company-info/
Spotify.com 2019.culture and trends. Retrieved from https://newsroom.spotify.com/category/trends-data/
