Managing Innovation Report: Spotify

Introduction

Every company desires to be unique and stand out in their market. The struggle to be the automatic choice for intended users continues day by day, in an attempt to be the first and the best. Identifying a niche and attaining a competitive advantage is a constant struggle, especially in the digital world, which can be extremely difficult. Beating out the competition keeps them on their toes, looking for new ways to rebrand and reinvent themselves into what customers need at a particular time. A state of constant competition between members in a market space is called the Red Ocean. Red oceans describe the above market space, characterized by stiff competition (Bretcu, (2018). In a situation where a company manages to achieve a state of little to no competition, they take the lion’s share of the market, hence define the rules within it. In this state, they are the sole provider of service or product and have a significant influence on what goes within what they dictate. Since they are a monopoly, they are not defined by any limits thus can explore new areas. This is what is known as the blue ocean. It is a state of differentiation in unexplored opportunities. The research below is based on the company Spotify, depicting how it succeeded in using the blue ocean strategy within the competitive music industry, accompanied by the many threats enabled by limited access to the internet. It also provides a detailed report on how Spotify stays in constant innovation to remain different as a brand.

Concept of the Blue Ocean Strategy

It refers to a theory that was coined by Renee Mauborgne and W. Chan Kim in regards to how a company can move up by creating new demand and eliminating competition. They detail frameworks on how to achieve that state by creating blue oceans. The concepts involve how to innovate value, strategies involved in the formulation such as pricing, and redeveloping new market rules. It mainly means looking for virgin markets or creating a currently unexisting industry. Lastly, how to overcome threats to implementation, such as breaking the status quo (Kim & Mauborgne, 2015).

The concept of making the competition irrelevant is completely possible. The intention is not to be the best in the industry, but to redefine a new space with your own rules. As stated earlier, red ocean strategy involve achieving a low cost of production and branding ones products to be unique. The competition is cut-throat, with everyone they to outdo each other. On the other hand, Blue Ocean strategy involves innovation (Kim & Mauborgne, 2015).

Examples of companies that have implemented the blue ocean strategy are Apple with ITunes and iPad, Tesla with electric vehicles, Netflix with movie streaming and Bloomberg with financial information. Spotify is also one such example, and the report below details how they leveraged the strategy.       

Figure 1: The differences between Blue Ocean strategy and Red ocean

When a company manages to leverage the Blue Ocean Strategy,the company can set standards with their own rules in their respective fields.This means that they do not need to spend money trying to beat the competition, in ways such as intensive marketing. Another advantage is a company can achieve maximum profitability with the move. The disadvantage is that it requires a lot of unique innovation, notvphysically mostly, but from a perspective angle. The risk of course is that once an opportunity is explored, the risk of that market flooding is high. Therefore, one who has succeded in achieving a ‘blue ocean’ has to constantly keep protecting this position.

Application of Blue Ocean Strategy by Spotify

Introduction

Spotify is a media service company that was launched in 2006 by Daniel Ek. It provides its subscribers with unlimited access to over 50 million songs. As of 2019, they have 248 million subscribers. The platform enables users to categorize their tracks base on various sections, such as artist, genre album, and so much more. As opposed to other music platforms, it allows unlimited streaming, with the number of streams becoming the basis for artists to be paid in royalties. Over the years, it has become one of the most popular and successful companies of its kind, with it becoming an essential gauge of the success of a new song or album. It also allows users to interact with the app. They have also upped the quality of the sound and developed a community around it. Spotify completely changed the game by enabling listeners to personalize their playlists to their tastes and preferences over a broad scope of choice (Goodwater Capital, 2019).

Historical Development

Considering all the prominence, Spotify has gained over the years, it is vital to acknowledge the unique features it has provided ever since it was founded. It has 248 million subscribers. It is vividly apparent that they managed to outshine the existing and old competitors by differentiating themselves by venturing into new markets. Given the situation that was there during the inception of the company, it is incredible how Spotify managed to a foothold in the music industry (Vonderau, 2019). The fact that the online music idea was completely foreign in that it had not been done in the way Spotify managed to makes the achievement much more admirable. Introducing the concept of not having to buy a CD had not happened. At the time, the music media industry was characterized by piracy. Spotify sought to end this, or at least reduce it. While most companies at the time offered the download option, they provided unlimited streams based on the level of subscription (Spotify premium or free) for only 120 dollars a year. Artists of the time were not getting the recognition they deserve in terms of royalties and payment for their songs being listened to. Spotify helped provide a high level of transparency by working with record labels and artists to get the most out of their music by giving back seventy percent of their earnings back to them. It is available in seventy-nine countries. Their primary drive is the ability to provide the right kind of music for everyone at the right time. At the time, no one gave the ability to customize their playlist, an idea that has now caught on. They have also partnered with various social media platforms to extend the personalized experience with their friends and family.

Figure 2: Strategy Canvas – Spotify vs. competitors

With the streaming business growing rapidly, the above chart shows how Spotify compares to some of its competitors. When Spotify began, it ventured into the unexplored market. However, the factors defining the current landscape include the rise of rivals, newbies and substitutes, customer preferences, legal disputes and limitations, criticism, market factors, suppliers, and buyers’ bargaining power. The chart above shows how Spotify compares to its closest competitors, indicating that the market has become flooded. Some factors indicate the strength and weaknesses it possesses in this competitive industry (Annex 1a, 1b).

The four action framework

The four action framework of value addition through differentiation, the main elements have involved connecting the artist and listener and providing a different experience to the user. Providing an easy and friendly interface for users has been key during the experience. As stated earlier, the intention to provide a personalized experience based on genre, mood, artist, playlists, and any other categories they may prefer. Secondly, the subscription cost has also been a bone of contention for music lovers. Getting a vast choice of music choices for an affordable fee is essential to the listeners Spotify has a package that allows users to access music with the accompaniment of advertisements in between. Thirdly, having an up to date system that goes in line with new software versions and multiple devices is crucial. This includes Mac, android, social media apps, tablets, phones, android televisions, and computers. The application should also work smoothly and not fail or have bugs with constant updates to fit existing and new users in lines with digital changes. The other action is being able to deal and balance social pressures and criticism from either artists and music labels and users or both. These are the main stakeholders in the music streaming industry; thus, good relationships should be maintained or else risk failure.

 

Eliminate o   Piracy of music and videos o   Artists not being paid for the music played	Raise o   Transparency in payment of artists and music/record labels o   Personalized music interface o   Music access o   Advertisement variety
Reduce o   Subscription fees o   Convenience and variety	Create o   Customized playlist creation and customer experience o   One-stop music access o   Expansion to new geographical sectors o   Extension to a new niche or market gap in streaming business

Figure 3: The Four Actions Framework in relation to Spotify

Spotify enables one to access videos and music in various software systems in the world. Although they began by offering all their services for only paid packages, they eventually added the free account access with adverts in between. In addition to that, they have given their users access to numerous songs, where they even help make a playlist. Users can even listen to songs as soon as they are released. The playlist they develop is put at the top of the list. Lyrics also accompanies the songs on the screen with a short development story. One can also apply different filters to their search to narrow it down. This is what set them apart from the beginning and put them up there since they started their blue ocean strategy. Spotify also has expanded to 71 countries from its original geographical scope. History as shown that their penetration into the US drastically increased their profit margins. With a little adjustment, the same can be true for their expansion goals. They reach a vast amount of listeners. They have remained at the top of the game for a long time, even with many competitors cropping up.

Spotify’s Business Model

As discussed earlier, Spotify introduced a different dimension in music access when it was introduced first in Sweden. They gave birth to the idea that one can access music without having to buy it physically. A selection of songs from anywhere at any time (Jacobson et al., 2016). Bringing together a vast pool of music selection that one can access both online and offline and also gaining exclusive privilege by subscribing to a premium account was also another great innovation. From all that, one can be able to make it their own based on their various preferences.

On the other hand, artists were and are still trying to fight piracy to get their dues fairly. The above ideas were alien at the time. As it has continued over the years, various changes have been made to their business model canvas, exhibiting different results every time. Pioneering in the above idea did not come easy. It followed a specific business model, which they can attribute to their success thus far. In regard to the advertisement, there have been alarms raised for them being too repetitive (Björkdahl & Holmén, 2013).

A significant element for Spotify is how they make revenue and also distribute it. They offer what is called freemium services. They have premium subscribers and adverts for the free accounts. As already stated earlier, they have a lot of subscribers, thus a lot of views for the adverts, both audio and visual ones. They are 30 seconds; each appears in between songs and below the screen. There are also opportunities for sponsors to support playlists or songs for seven days. They get paid for hosting their adverts for specific brands. In turn, they expose their customers to a variety of products and increase their awareness. For the premium accounts, the fee is $9.99 monthly with a free trial period — the subscription upgrades to more features. Once one has subscribed, they have unlimited free music, HD music, even offline. One can also link their account with woofers, cars, and television sets. It also gives access to the Spotify family, where they pay and have multiple users at a time (Reime, 2011).

Spotify’s target market is also another important element. The free accounts have shown the most activity since their introduction. Their idea of users is music lovers who are not willing to pay for the service. Ideally, they would love multiple genres and artists too. It also appeals to artists and record labels that want to market themselves — lastly, advertisers who wish to increase their exposure. The platforms within which one can access Spotify are their website, mobile phones, computers, TVs, smart devices, and social media. The above channels make their content readily available and convenient to listen to. Spotify goes as far as to provide personalized playlists to their listeners. In combination with that, they provide high-quality music. The application is also very easy to use. This makes it flexible for users of all ages, making it diverse.

 

Key Partners Artist Content suppliers Media and internet applications partners Advertising companies Record labels companies Right holders	Key Activities Obtaining content for the application Troubleshooting and managing the site Making updates on the demand for varied uses Increasing exposure for their content Finding new niches and expanding the market base Constantly forming partnerships and new contracts.	Value Preposition Variety of music collection Convenient music access both geographically and time-wise Free and affordable music access Customized playlists with a personal touch A variety of advertisements	Customer Relationships Readily available online and offline content HD quality sound Customized playlists provided The loyal fanbase, the Spotify community, and networking on social media platforms such as Facebook The user-friendly and secure app interface	Customer Segments Music lovers –all genres   Consumers looking free music and are not willing to pay Independent artists looking for more exposure Marketers and advertisers
	Key Resources Existing brand name Digital platform Customized product Music collection they provide More than 1600 employees Over 100 million monthly users and 50 million paying ones New updates and changes they provide with time		Channels Website Computer, web, mobile applications, speakers and television sets Social media Smart devices Spotify community Billboards	Cost Structure Legal Salaries to their employees Copyrights General IT operations of the application Licensing fees

Figure 4: Spotify’s Business Canvas – 2013 and 2019

Future opportunities and growth

An important aspect of the blue ocean strategy is to adapt to change and continuously grow (Agnihotri, 2016.). With the introduction of new streaming mediums like Pandora, YouTube Music, Amazon, and Apple Music, offering various attractive offers, they must innovate multiple ways to stay on top. It is not crucial to pioneer in a market landscape, but to remain at the top of it. All that should be done while maintaining low cost and profit levels. Differentiating oneself keeps one a step ahead of the competition to stay relevant. Spotify shows no signs of slowing down. The company needs to find a way to reduce the ease with which new competitors can enter the market. These would regulate and protect Spotify as a brand internationally.

There are opportunities to expand into new markets, to be accessible in all countries. Many untapped countries could appreciate the services provided by Spotify. It would be great if they would serve a worldwide population. They could also invest in inter-media partnerships.  They should also form partnerships with various manufacturers and social media platforms. It is essential to acknowledge the direction in which the world is moving in digitally and take proper steps to accommodate them. Majorly, social media platforms are taking over the world, and the same is expected for the future. Spotify has already made connections with certain apps, such as Twitter and Facebook. Teaming up with more media platforms is useful in ensuring it continues to stay relevant.

Eliminate Piracy of music and videos Criticism and disagreements with stakeholders Lack of payment of independent artists/ labels for their pieces	Raise Transparency in the number of artists and music/record labels Personalized music interface Music access Advertisement variety Number of partnerships and contracts with various stakeholders
Reduce Subscription fees Convenience and variety	Create Customized playlist creation and customer experience One-stop music access Expansion to new geographical sectors Expansion to a new niche or market gap in streaming business Entry barriers into the market

Figure 5: The New Four Actions Framework for Spotify

Spotify has also experienced various issues with Apple as its Apple music remains to be a worthy competitor. The disagreements have been due to Apple feeling more entitles to the clients Spotify gets through their particular devices. They have since resolved their issue and allowed their clients to access Spotify. There have also been issues with artists about payment. Some artists, such as Taylor Swift, went as far as to withdraw their songs. Spotify uses a seventy- thirty ratio for all revenue gotten from streaming in the app. 70% is shared between the record companies and the artists accordingly. They should work on improving their transparency to higher levels. This would include expanding their direct band page to maintain the relationship with listeners. It is evident that Spotify has not developed a sustainable financial strategy relating to its customers, adverts, suppliers, and artists. It should be addressed to avoid issues in the future and maintain smooth running and an upward trajectory in growth. They could also venture into movie streaming with a unique twist of their own, as it has proved to be an idea worth further exploration with promising niches.The chart below shows how the company has performed after introducing a new invention over the years. It goes to prove that the blue ocean strategy of constant reinvention works, and never stops.

Figure 6. Growth trend – Spotify

In conclusion, there are many ways for them to continue to maintain their competitive advantage while reaching more people. Maintaining their old dream of providing unlimited low-cost music free from piracy, and merging it with a new music-related niche is the only way for them to stand out in the current red ocean (Gündüz, 2018).

Conclusion

Spotify has shown its ability to identify unexplored needs in the music streaming industry in the past. They have managed to remain relevant since they began, thus can continue at the same pace. Strategizing and planning better will make their expansion easier and set them apart in the already flooded market to avoid plateauing and eventually losing. Given the ease of entry the industry poses, Spotify needs to keep changing with the times to be sustainable and not collapse. The company needs to readjust their approach, and invent an entirely new way of doing things while eliminating its threats, recreating a new ‘blue ocean’ again. The blue ocean strategy application in this company gave rise to new ways of access music lovers, thus giving way to a whole new perception in the world. Spotify is an excellent example of how the blue ocean idea is practical, once one grasps the concept and applies it continuously. Intensive market research and focus groups could help get answers to the gap yet to be filled, which gives way for other applications to entice Spotify users. Response to those needs may be the answer to jumping out of the red ocean. As this industry shows more promise in the days to come, an increase in customer delivery, geographical scope, accessibility, and convenience, among other differentiation factors, will do the job.

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