Wednesday, March 27, 2013

Spotify's Strategy - Road to success

The business insider article “Spotify Plans to Take on Netflix and HBO with Streaming Video Service”
dated March 25th, 2013 talks about Spotify’s plans to launch a subscription based video streaming service. Will this succeed? I believe yes. They definitely have a strategy to their strategy!

Spotify, one of the largest online music streaming providers, gained popularity when it ventured out to create new business ecosystems by taking risks and targeting the market. The key idea behind this is to take steps for the company’s own benefit or advantage. Such features align with the SHAPING STRATEGY.

The goals of this strategy include:
Communicating a shaping view – Future view of the industry with opportunities for all participants.
Developing a shaping platform – Standards that support participant activities.
Shaping acts and assets- Commitment and capability

 Spotify had a 2 sided- market business model. One side with the customers and the other with music providers. The main challenge was of providing quality music. To ensure this, Spotify provided lucrative offers to music labels and artists which eventually lured them to provide music on Spotify. Also, customers could easily adapt to the platform due to the variety in services. They provided a free version of the service along with the premium and unlimited subscription based versions. Also, music providers were able to promote their music and reach larger audience in lesser time, hence benefitting from the platform. They ensured long term commitment to all participants. Thus, they kept in mind interests of all by creating opportunities for all. Their platform provided standards for both music providers and customers, reducing the cost of participation. Spotify looked at long term perspectives and the future of the market
The best time to adopt a shaping strategy is when there is a major shift in the technological or regulatory environment. Piracy was at its peak before Spotify came in. Different countries were passing laws for piracy control. At this time, Spotify strategized to create a long term structural advantage and critical mass of participants in order to unleash increasing returns.

Spotify also had higher risks in an unpredictable environment, by providing a free version of their product. Costs were high and there was no guarantee on the kind of profits they would make. Partnership which Facebook was a great move, but that also involved the risk of sidelining customers who were not active on Facebook.

Versioning and Bundling of services was probably one of the best strategies which they used. This helped in increasing value of their product. They also aimed at reducing the cost of switching to spotify.The end result was that customers locked in to other platforms started exploring the potential benefits of Spotify.

What lies in the future?
Pandora is one of Spotify’s major competitors. I think product differentiation is one of the key areas on which Spotify should focus now in order to combat the high competition from Pandora. Spotify could think of strategies such as partnership with different distribution channels such as car companies to offer a service to stream a user’s library to their car. They can improve the services of their like based radio stations. They should leverage their network effects to their advantage.

Good strategy is one of the key points to success. As shown above, innovation, ideas, analysis planning etc also relate to the strategy chosen. An organization may choose any strategy – Adaptive, Visionary, Classical or Shaping. The aim should be to achieve success.


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