Daniel Ek: Spotify will kill file-sharing, be a European home-run

Next Story

Rumor: Nikon D3s to have 14fps and 1080p and unicorns

It’s true to say, without a hint of hyperbole, that 25 year old Daniel Ek’s Spotify has taken the global music industry by storm, including Facebook’s Mark Zuckerberg. Even in markets it hasn’t launched in yet (including the US), Spotify is generating a lot of attention and is now valued at €170 million. Music lovers have discovered ways to circumvent regional limitations on the software and are already using the service heralded by some as the future of the music industry. And that suits the music industry just fine, especially since they’ve invested in it. At a Glasshouse event at the Royal College of Physicians in London last night, an assembled throng of the tech business community listened to Ek’s thoughts.

“Despite making every mistake in the book in my previous companies,” says Daniel Ek, “with Spotify things seem to be working out. It’s true that we underestimated how long it would take the labels to come in, though: we started the company in 2006, but didn’t launch a product until 2008 because it took so long to get the labels on board.”

Ek was interviewed by Virginia Eastman, former BBC business journalist and now Principal at executive search firm Heidrick & Struggles‘ London office. At one point she asked “So will you have the Beatles before iTunes?”.

“I don’t know. Hopefully!” said Ek.

It wasn’t a surprise to read one wag’s comments on Twitter earlier in the evening, who asked: “Can anyone confirm rumours Daniel Ek will be making an entrance dressed in white surrounded by hundreds of children?”: That’s how significant Spotify and Daniel Ek are right now.

So what lessons does this 25 year old CEO have to share with other start-ups? Eastman began by asking his advice about funding; specifically, whether going for Angel investment right away is a prudent course of action for small teams with great ideas.

“Yes,” says Ek. “Try to get Angels involved. Get someone in with a network, who can help you open doors. But remember that, ultimately, you’ll be doing the work yourself. There aren’t many people who can help with the actual work. Remember, too, that you have to live with them for the life of the company: be careful who you allow to invest. You should do as much due diligence on your investors as they do on you.”

Ek later focuses his advice into three main points. “First, get down and do the work. There will be a lot of sceptics, but if you believe in it, go for it.

“Second, be sensible about economics. If you write a forecast, you have to accept that it will not work out. I’ve never seen a single one that worked out. Be realistic about your burn rate. Concentrate on keeping your costs low and working out which information to pay attention to.

“Third, listen to smart people. With Twitter and other social networking tools, you can get a lot of advice from great people. I learn more from Twitter than any survey or discussion with a big company. Put your consumers in focus, and listen to what they’re actually saying, not what they tell you. Look behind the feedback into the stats and see how people are actually using the product.”

Ek looked satisfied with his answer; I suspect he’s given it a few times before. The discussion quickly moved on to Spotify itself. “What percentage of your users are premium subscribers?” asked Eastman.

“We don’t give out exact numbers. It’s not double digits yet, but we think we can get there. We’ve always realised that the vast majority will be free users, but as long as that’s on a big scale, that’s OK. The numbers work.

“In July, we accounted for 35% of digital music revenues in Sweden. We have a million users in Sweden, out of a population of only nine million. And that’s the key to success: scale. In any freemium model, if you’re getting double digits or higher, you’re doing well. We’ll get there. We’re already growing at 50% month-on-month, doubling our revenue every two months.

“Now, a lot of people doubt the model. I know that. And sure, comparing against CDs, it’s not a good model. But if you compare it against the number of illegal downloads, it’s pretty good, especially as we scale up to the bigger numbers.

“And it takes time for advertisers to wake up to the new medium, but they are waking up: we’re proving now that we’ll be around a while. A lot of advertisers are re-booking as they see our model working.”

“What will limit your growth?” asked Eastman. “Competition or regulation?”

“If there’s anything that should, it’s competition; a better product. If it’s regulation, then there’s something wrong.”

“Is iTunes a competitor?”

“No, not really. Our main competitor is piracy.”

“Do you think Spotify is capable of turning the tide against piracy?”

“Well, actually, yes. I think so: there have been a lot of surveys of user behaviour, post-Spotify. One point seems consistent throughout them: that 80% of Spotify users say they have stopped filesharing. And, for the majority, it hasn’t affected their spending.” If that’s true, it bodes very well.

Next, Eastman asked about the future of Spotify’s revenue streams: what proportion of revenue will come from subscriptions, and what proportion from advertising? And what did Ek think about the business models of the future?

“The majority for us will be subscriptions, perhaps 60% against 40% advertising. I believe in a freemium model, because information ultimately wants to be free.

“We need something new. The news and entertainment industries are in heavy decline, yet people want to consume more content than ever, and from a grater variety of sources.

“We need to be creative. It’s not about one business model any more. Some of the revenue will come from advertising, some from subscriptions, some from merchandising, some from one-off sales…”

Eastman also asked: “What’s the next big challenge after mobile?” Spotify has released an iPhone app, one for the Android platform, and one for Symbian Series 60 phones.

“Making it easier for people to handle and share their music,” said Ek. “Particularly playlists. At the moment, there’s an ecosystem around Spotify, including sites like ShareMyPlaylists.com, but those sites are really just playlist aggregators. That’s not a concept we intend to replicate. We’re talking about real sharing and management tools.”

During audience Q&A the BBC’s Tim Weber asked two questions that many in the room have on their lips: when will Spotify be profitable? And what’s the exit strategy?

“I don’t find that first question very interesting,” says Ek. “In fact, we could have been cash-flow positive already if we wanted, but we chose to grow quicker, and we always will. Mark Zuckerberg made the same decision with Facebook. We’re in a fortunate position, because we have investors who believe in the product and are allowing us to pursue the vision. We believe in our goal and we believe we can execute it. I don’t really care about short term profitability.

“In terms of exit strategy, there have only ever been a few billion dollar exits. I want to build a company like SAP, a big company, run from Europe, and a standalone business. Our goal is to build a self-sufficient, European company. We hope that we can build a sustainable business that can live on its own.

And who knows. Maybe one day, it’ll be us acquiring interesting businesses.”

  • http://www.twitter.com/julesmorgan Jules Morgan

    “Can anyone confirm rumours Daniel Ek will be making an entrance dressed in white surrounded by hundreds of children?”

    Epic.

    This actually sounds like it was a great interview. Is there a video of it anywhere ?

    • http://www.twitter.com/julesmorgan Jules Morgan

      Oh, and I enjoyed the random hyperlink to SAP :)

  • http://musically.com/blog/2009/09/18/spotify-boss-reveals-some-statistics/ Music Ally | Blog Archive » Spotify boss reveals (some) statistics

    […] don’t give out exact numbers,” he said, according to TechCrunch. “It’s not double digits yet, but we think we can get there. We’ve always realised that […]

  • http://blog.alexguest.me Alex Guest

    “Is iTunes a competitor?”

    “No, not really. Our main competitor is piracy.”

    This guy is good. Turns the discussion to piracy and how Spotify is somehow the saviour of the music industry.

    Of course, piracy is a competitor of iTunes hence iTunes is a competitor of Spotify.

    Is he really 25?

  • http://www.thestartup.eu Stefano Bernardi

    “I don’t find that first question very interesting,” says Ek. “In fact, we could have been cash-flow positive already if we wanted, but we chose to grow quicker, and we always will. Mark Zuckerberg made the same decision with Facebook. We’re in a fortunate position, because we have investors who believe in the product and are allowing us to pursue the vision. We believe in our goal and we believe we can execute it. I don’t really care about short term profitability.

    “In terms of exit strategy, there have only ever been a few billion dollar exits. I want to build a company like SAP, a big company, run from Europe, and a standalone business. Our goal is to build a self-sufficient, European company. We hope that we can build a sustainable business that can live on its own.

    And who knows. Maybe one day, it’ll be us acquiring interesting businesses.”

    If you’re going to think anyway, you might as well think big.
    I love his determination and vision. Inspiring.

  • Samuel Ryan

    I loved spotify and I still do, but once again I feel let down by the major labels. Take a look at what artists Lily allen (Famous here, very big etc.) said about how her label treats spotify:

    I asked her what percentage she gets from it, she gets nothing. How are artists supposed to support spotify when their labels don’t pay them anything for listens?

    • Shin

      Rather than complain about Spotify…one might ask why she continues with a label that she knows is screwing her?

      • Frank Rigal

        Spotify could actually do much more damage to the artist than piracy. Very few artist have the courage to tell the truth about this issue. And ALL major record companies screw the artists, ALL the artists. You might just as well say: “How come she keeps singing when she knows that. She should just shut up and get a job in a bank.” Wrong approach. Actually Daniel Ek “forgot” to answer one question which was asked during the conferance: “how much does the artist make on Spotify”. That is quite interesting in the perspective of what he says several times under the interview: “contrary to piracy, the artist is actually making money out of Spotify”. Well my musician friends do not agree with that, and neither does Lilly Allen. For more of what the artists actually mean about the music industry (Spotify’s big friends and investors) read “Courtney Does the math”.

  • http://www.zdar.net/blog/liens-du-soir/spotify-chiffres-et-strategie-innovation-affaire-hortefeux-pub-radio-mac-os-sur-pc-et-la-vendredite-20090918.html Spotify : chiffres et stratégie, innovation, affaire Hortefeux, pub radio, Mac OS sur PC, et la vendredite… | zdar.net

    […] va tuer le partage de fichiers […]

  • http://www.jfamadei.me Tortue

    Spotify is a really nice tool but it won’t feed my 80Gb iPod…thus I’m wondering why and how they will kill the P2P.

    • http://www.thestartup.eu Stefano Bernardi

      Long term vision dude.
      In a few years you’ll be connected everywhere and cheap, and won’t need any 80gb device as it’ll all be on the fly.

      • Aaron

        Arguable at best. I give you 10 years at least until everywhere has at least 3G access.

      • http://www.facebook.com/people/Kim_Bjorkland/604484265 Kim Bjorkland

        Short term vision – today, data is expensive (even broadband) in MOST countries outside of USA, Canada, and EU. Ever traveled to Brazil or Australia?

    • http://www.theglitch.ws Jason Hansen

      I see that complaint all the time… it won’t fill my insanely large X amount of GB’s on my mp3 player. Can you really listen to 80 GB’s worth of music in a day or even a week?

      • http://www.jfamadei.me Tortue

        1) There is not only MP3 but also some lossless codec (ALAC here) and in that case 80GB is SMALL. Will I listen all ? Certainly nope but at least I have all with me.

        2) Just like the quality of movies on Blu-Ray have a FAR better than VOD, I much prefer the sound of my losslessly compressed music than spotify’s stream.

        2) All my music by stream ? So I have to pause everytime I lose the connection for whatever reason ?

  • http://blog.verticportals.com Claus@VerticPortals

    I love strategy and the music business is a great case. God blog post.

  • luckybleu

    that’s a bold statement ,saying spotify will end piracy.Not without the help of legislation and rights societies going after every illegal site with the same determination as when they went after the pirate bay.
    Choose not to be profitable at this time?The business model makes this unprofitable at this time.

    • Adam

      Yeah, because going after illegal sites has proven so effective. They did an amazing job shutting down pirate bay.

  • Addam

    How is this any differnt than Rhapsody or Napster?

    Oh yeah its a web only play with a young cocky CEO so it must be better – or is its shiny web 2.0 ajax interface?

    Im confused – not by the product or the direction (this is where music is headed) but by why this company is getting the attention when there are others who have done this well for years?

    Anyone care to enlighten me on what I am missing?

    • Steve Brammer

      Technology wise Spotify is much better than Rhapsody or Napster. If you haven’t tried Spotify then you just won’t understand. But basically think of using iTunes but with direct access to everything that they sell. No buffering and playback/FF/rewind so near to instant that for most users it doesn’t matter, it just feels the same to them as using iTunes. The music that you play most often is automatically cached and the streaming technology is peer to peer.
      That’s why Spotify is better. Does that enlighten you?

  • http://www.12xo.com Addam

    How is this any different than Rhapsody or Napster?

    Oh yeah its a web only play with a young cocky CEO so it must be better – or is its shiny web 2.0 ajax interface?

    I’m confused – not by the product or the direction (this is where music is headed!!!!) but by why this company is getting the attention and valuation when there are others who have done this well for years?

    Anyone care to enlighten me on what I am missing?

    • RD

      FWIW, your comment comes off as cocky too.

      Just sayin’

  • http://tritondigitalmedia.com Jim Kerr

    I’m still at a loss as to how Spotify is better than Rhapsody. Their pricing even seems similar. I just signed up for Rhapsody-To-Go for the iPhone app, and it’s fantastic.

    As mentioned above, in an always connected world (and my iphone is basically always connected), why do you need to download songs? In fact, I deleted the 1000 songs I had on my iPhone drive and am planning on using it for video now.

  • Mike

    It doesn’t look that much different than Pandora, which is already available in the U.S. Am I missing something here?

  • Kristian Carter

    Mark Zuckerburg ≠ The Global Music industry. Might you also, in the interests of balance, point out the article in this week’s NME, which points out that most musicians actually fucking hate Spotify?

    • http://spotinews.wordpress.com/ JB

      That NME-article was pure garbage with very few correct facts…

  • http://www.ignimedia.com tenthings

    Spotify, you need to allow third party developers to build on your social platform, much like an API for social music.

  • http://kizz.tv Pierre Col - Kizz TV

    The future of multimedia content delivery is peer-to-peer, not streaming. It is a technical evidence.
    And to allow right owners to widespread “fairly shareable contents” the solution is on http://www.ubicmedia.com.
    Stay tuned, intriguing news from Hollywood coming soon…

    Disclaimer : I’m an investor in UbicMedia…

    • Adam

      Spotify is peer-to-peer!

      • http://kizz.tv Pierre Col - Kizz TV

        Spotify is not using a regular P2P network/protocol like eMule or BitTirrent…

    • Samuel Ryan

      anyone else think their logo looks ever so slightly similar to spotify?

  • http://www.gorankem.com Adam Wexler

    love daniel’s response to when will spotify become profitable! it’s a new day & the savvy investors are waking up to this fact. i don’t even think facebook is the best example. i would point to linkedin & reid hoffman. build it & they will come –> then AND only then, monetize

    i can’t believe he mentions merchandising as a potential line item. that’s awesome! they really are trying to build a cult, aren’t they?

  • Jaggs

    To all of you asking what’s the difference between Spotify and this or that? It’s impossible to explain until you’ve actually used it. Think of a place where you’ve got every album you could want available to play in its entirety anytime anyplace. Plus playlists and the rest. No hunting around for free vs fee tracks, or only being allowed to play via controlled playlists. Spotify is amazing, and as their music collection grows it just gets more and more cool. All that said, I wouldn’t put it past the record labels to do something stupid and wreck the momentum just as it starts to really deliver. Stupid is as stupid does.

    • GAry

      the experience is great, I’ve used it. the issue is that the economics don’t work and they get worse with scale. if it doesn’t work and it is shut down, the labels aren’t the stupid ones here, spotify’s inverstors are

  • GAry

    the hype on this is amazing. what’s the news here? young, cocky ceo with no business model makes hyperbolic statements in interview? feels like 1999.

    how can he compare spotify to facebook? facebook’s value is not based on content owned by its partners, facebook created its own value and has no licnesing obligations. with every new user and every song play spotify incuirs licensing and technology costs. anyone remember imeem? what’t he difference? punters are suddenly going to flock to subscriptions? ala rhapsody and napster?

    • Peter S.

      He’s got a chance.

      • GAry

        agreed, he does have a chance, but not a good one.

        what irks me is the media hype and spotify’s taste for the spotlight, when they really lack on the model.

  • http://www.12xo.com Addam

    @Jaggs – I dont think you’ve used the other streaming subscription services. You dont need to hunt for anything, its all clear and clean and you have access to full albums, singles, playlists, album art, content, blah blah blah.

    I’m going to try out Spotify for sure but im still confused as to what makes it revolutionary or soo much better than the other streaming music services that have been around for years.

  • http://www.facebook.com/people/Chiwuzie_Sunday/1818365785 Chiwuzie Sunday

    Spotify sounds like a great deal for users, but what about the Artists?

    • Peter S.

      If the labels actually cooperate as opposed to aiming to collect the most money to fund exorbitant lifestyles, there will be a buck for the artists too. If the labels cooperate.

      • Frank Rigal

        I think it is ok to be positive. But just for fun, take a look at Larry Lessig’s book “Free Culture”. The guy is the most competent copyright lawyer on the web, and he does not agree with the big media. Actually his book has a sub-title saying: “How Big Media Uses Technology and the Law to Lock Down Culture and Control Creativity”.

  • Adam

    He’s 25????

    He looks about 40 to me.

    • Pilot

      +1. Yep, too bold for someone who is 25 years old.

      • Thomas M.

        So by that logic, is every 25 year old more or less the same person?

        I don’t mean for it to sound like I’m attacking you, but comments like these drive me loco.

      • Pilot

        I just wanted to say that the guy on photo can’t be 25 old. He looks close to 35-40 . I did not mean to offend all bold people.

    • Pilot

      Yep, another thought came to my mind: trying to sell access to the whole catalog or music subscription (is not that there business model?) is DEAD idea today.

  • Joe The Musician

    would you join OJ Simpson if he was teaching a free football camp?

    im sayin, when someone shows you what they are capable of, dont forget. the record labels have no place in the “perfect” music industry we are so close to…

    they inhibit creative freedom and attack their own support system.

  • http://www.facebook.com/people/Nicos_Nicolaou/1034615253 Nicos Nicolaou

    holy *** check their blog :

    Sep 18
    – Music catalogue updated with 73,226 tracks
    Sep 17
    – Music catalogue updated with 65,582 tracks
    Sep 14
    -Music catalogue updated with 111,678 tracks

    and daily promotions for gifts, new albums exclusively to premium members etc

    if this had success to the home of pirate bay (sweden), why not worldwide ?

  • http://www.gizmo5.com Michael Robertson

    By all accounts Spotify is a nifty music service. But anyone with a shred of business sense knows the economics prevent them from ever making it as a sustainable operation.

    Assume 100 users and one month of activity:
    9% (Ek said single digit paid subscribers) pay $10/month = $90
    If free revenue is 40% and paid is 60% that means he expects to generate $60 from advertising from the other 91 users.

    Total revenue is $150. Assume 50% of this money goes to pay for music royalty rates which is a HUGE *unsustainable* percentage.

    Assume he pays 1 cent per song play (which is what US companies pay).
    This means for $75 you get 7,500 song plays for 100 users or 75 songs per user per month which is only 2.5 songs per day/per person which is
    absurd.

    Say that instead of 1 cent per interactive song play they have a sweetheart deal at half that rate. Ok, now they’re up to 5 songs per day which is not a music listening service but a sampling service. Now we’ll go into pure fantasy land
    and assume that they get all their servers for free, bandwidth for free, office space for free, every sales person, manager and engineer
    works for free so they can give 100% of their revenue to the industry for royalties. At 1 cent per song play they would still be able to pay
    for just 5 songs per user per month. If they’re paying 1/2 cent then it’s 10 songs per user per month – but remember this assumes ALL of
    their revenues goes to pay for royalties. Presumably investors involved wants to generate a profit right?

    I know many people love Spotify but they will go belly up as long as they have to continue to pay their per song fee.

    p.s. Yes, I know Spotify charges more than $10/month – it’s closer to $16 but even fewer than 9% (the gracious number I used) will pay at $16.

    • will

      i assume that given the piracy problem that the record labels will probably be accepting a very small per play fee.
      and considering that spotify have raised a few quid from investors, they probably have a sustainable business plan, otherwise how on earth did they get the investment?

blog comments powered by Disqus