Spotify Porter’s 5 Five Forces: 2022 Detailed Overview

Written by nikolastsiri in Porter's Five Forces Analysis

Porter’s Five Forces Analysis of Spotify

 

Key Facts

 

Name Spotify Technology S.A.
Industry Digital Entertainment& Streaming Services Industry
Founded April 2006
Headquarters Stockholm,Sweden
CEOs Daniel Ek
Revenues Euro 11.72billion, FY 2022 (Annual Report)

Euro 9.66 billion, FY 2021
Operating Income/Loss Euro( 0.659 )billion, FY 2022 (Annual Report)

Euro 0.094 billion, FY 2021
Competitors Apple Music, Amazon Music

 

 

Company Overview

 

Headquartered in Stockholm, Sweden Spotify is one of the leading Digital Music Company having established itself as one of the leading brand in the global music industry ranked 28th in the category of Communication Sector by Fortune 50. It was founded by Daniel Ek and by Martin Lorentzonin 2006.The Company gave a record revenue of 11.72 billion Euro in FY 2022 while 10.25 billion are reported from Premium Subscription only declared by Statista. The company went for registration on New York Stock Exchange in 2018 with user presence in more than 61 countries, with more than 159 million active users and maintaining a library of more than 35 million songs as of March 2018.

Today we are going Porter’s Five Forces Analysis of Spotify:

 

Porter’s Five Forces Analysis

 

Porter’s Five Forces Analysis is used to determine the competition and profit margin in the Industry and guide the company’s to keep strategizing its operations in a better competitive position. It is invented by Professor Micheal E. Porter in 1979,at Harvard Business School.

 

Spotify Rivalry among Existing Competitors

 

  • Spotify Business and Rivalry among Existing Competitors:The company claimed itself one of the largest companies present in 184 countries with 489 million MAUs (Monthly Active Users) with a growth rate of 20% and 205 million Premium subscribers with an annual growth rate of 14% ,as of December 31,2022

 

The Company has net assets worth of 7.63 billion Euros in FY 2022 while 7.17 billion Euros in FY 2021.The Company has an employee count of 8,359 in FY 2022,6,617 in FY 2021 and 5,584 in FY 2020.Majority of employees are based in United States ,than Sweden and least in UK.

 

  • Amazon Music: Amazon Music is also providing music streaming services via subscription only model which is advertisement free, the subscription for non-prime users cost average US$ 10.The Amazon Music is highly famous in United States as it’s listeners reached to 52.5 million in FY 2023, while 50.7 million in FY 2022 and 48.3 million in FY 2021 declared by Statista.

 

  • Spotify and Pandora Stiff Competition in USA: The Spotify Competing with Pandora in the United States and able to defeat Pandora in terms of subscribers also and in term of revenue also. The Pandora is a Radio Internet Company lost its active users from 76.2 million Q4 2013 to 47.64 million users in Q4 2022

 

Spotify Threat of New Entrants

 

  • Research and Development: Spotify expensed out 1.38 billion Euros in their research and development mentioned by Statista in FY 2022 while the expenses in this regard were 0.912 billion Euros in FY 2021 and 0.837 billion Euros in FY 2020.So any new company needs such amazing research and development for customer attraction and retention.

 

  • High Capital Investment and Application of Artificial Intelligence for a better Competitive Streaming Company:

The Spotify Company recently acquired Sonantic which one of the famous and leading Artificial Intelligence Company for 93 million Euros for a better text to speech capabilities thought out it’s platforms on July 2022.

 

Spotify Bargaining Power of Suppliers:

 

  • Environmental Sustainability – Supplier Collaboration: The Spotify Company has launched different programs with suppliers for better and environmental sustainability including “GHG” Greenhouse gas emissions programs, awareness and climate change awareness through engaging listeners and creators.

 

Spotify is also driving towards Net Zero emission by 2030 and avoiding carbon emitting projects. Also Spotify developing “Internal Streaming Emission Dashboards” to get adhere with better environmental friendly practices approach.

 

  • Acquisition of Supplier or Other Services Provider: The Company Spotify adopted the strategy of acquiring other best services providers to make it’s final service offer a better one. Only in FY 2022 the company acquired Podsights and Chartable for a purchase consideration of 83 million Euros for providing better Podcasts in February 2022. The company also acquired Findaway for a better audio book content services provision for 117 million Euros on June 15th

 

Spotify Bargaining Power of Buyers

 

  • Customer Satisfaction Rate and Increasing Subscribers Base of Spotify in USA:The Company has 78.5 million users only in US in 2020 while it is expected that Spotify will have 100.6 million users by 2025declared by Statista.
  • Spotify Premium Subscriber Base – A Remarkable Increasing Trend from 2015 to 2022:The Company has Premium Subscribers of 180 million in Q4 2021 which jumped up to 205 million Premium Subscribers in Q4 2022.The Spotify Company experienced a very positive growth face from 18 million Premium Subscribers in Q1 2015 to 100 million Premium Subscribers in Q1 2019 which eventually increased to 205 million Premium Subscribers in 2022.

 

In such an increasing trend it is eventually proved that the buyers have least choices and least bargain power towards Spotify services.

 

Spotify Threat of Substitute Products or Services

 

  • Healthy Leisure Activities and Sporting Activity Trending: Health Leisure Activities addressing health issues after COVID-19 Life Style especially where physical activities diminished a lot including home office trending other sporting activities will be boomed and trend changer may impact the Spotify business negatively.
  • YouTube as a Replacement Product or Service Provider: YouTube and Spotify share same services, music library and other digital music streaming and services .While YouTube is free or least costly plans and offers while Spotify is competing on better podcast services. Overall in any point of time YouTube and Spotify face tough competition and Spotify may face any adverse effects from YouTube offers and business strategies.

 

 

 

References

 

  1. Forbes, Spotify, Available at Forbes
  2. Fortune 500, Spotify. Available at Fortune 500
  3. Spotify, Annual Report FY 2022
  4. Statista (May 28, 2023) – statistics and facts/ Statista. [online] Availableat Statista
  5. Spotify ,About
  6. BBC News ,How Spotify came to be worth billions, March 1st,2018.Avaialable at BBC News
  7. Statista,(August 17,2022) Number of Amazon Music listeners in the United States from 2017 to 2023 (in million).Available at Statista
  8. Statista ,(February 7,2023) Number of active users of major music streaming services in the United States from 2016 to 2025 (in million).Available at Statista
  9. Statista ,(February 7,2023) Number of Pandora’s monthly active users in the United States from the 4th quarter of 2013 to the 4th quarter of 2022 (in million).Available at Statista
  10. Statista ,(May 23,2023) Number of Spotify premium subscribers worldwide from 1st quarter 2015 to 4th quarter of 2022 of 2022 (in million).Available at Statista
  11. How to Geek (March 23,2023) YouTube Music vs. Spotify: Which is Better for Streaming .Available at How to Geek

 

 

 

 

 

 

 

 

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