Discuss about the Business Strategy Spotify 2016.
A business strategy is to design a plan to achieve the short term or long term objectives. In the assessment of the case study about Spotify 2016, the problem is faced by the Spotify is the increased competition and the competitor is the Apple music. The Spotify is doing the sole business of the Music Steaming. The company re-define its marketing strategies as well as the corporate and business level strategies to gain the competitive advantage. Looking at the history of the Spotify, then in the year 1999, with the growth of the playback music records, the vinyl and the cassettes have been replaced by the CD that lead to increase the revenue of the company. The use of the CD is beneficial to access the small and cheap cassette player and offers the much higher quality of the sound and fidelity (Ferrari, et al., 2015). Moreover, recorded music becomes famous because of the development of the new platforms of Mass media like radio.
In the case of the Spotify 2016, Business strategy is basically a plan of action to formulate, evaluate, and implement the decisions in the favor of achieving the long term objectives. It’s a documented plan for the company to achieve the goal of the company. Strategy is important because it gives the business time to get a sense of how they are performing, what their capabilities are, and if these abilities are helpful for them to achieve the goal. It also identifies trends and opportunities in the future and also helpful in understanding the broad change in the market. It creates the vision and clear direction for the company to work. By creating a business strategy, a company can create a competitive edge in the market. The business strategy of the company includes the stages such as, Strategy formulation, Strategy evaluation, Strategy implementation and Strategy monitoring. All these stages of the business strategies focus on the achievement of the long term objective (Bozovic, 2017). The long term objective of the Spotify is to gain the competitive advantage and to increase the revenue of the company. The increased competition is the biggest challenge faced by the Spotify and because of this reason company established a new business model where the music labels are the name given to the recording companies. These recording companies as per the new business model, contacted personally to the artists to produce a music for them. This business model or strategy is very helpful for the Spotify to compete in the market. These models are helpful in handling all the activities like production, advertisement, promotion and the distribution of the music (Lu, 2016).
Business level strategy
The corporate level strategies are different from the business level as it involves the overall growth of the organization, whereas the business strategy is focusing on the one particular unit. The Spotify also adopted the corporate level strategies as the company decided to enter into the digital industry with the rise of the internet and new devices. The company Spotify also focused on the overall business of the company and focuses on the other competitors to gain the competitive advantage (Ranjan, 2013). There are “big five” major labels that are mainly concentrated and these are: Sony Music, universal group, EMI, Warner music group and BMG. After a few years, the apple also launched the iTunes model which will become the biggest competitor for all. The use of the digital medium is the corporate level strategy used by the Spotify and this strategy has positive as well as negative impact on the organization (Swanson & Herzig, 2013). The positive point is that adopting new technology and uses of digital medium results into the increase in the sales revenue of the company. On the other hand, the negative impact of this is that it also creates a problem of the music piracy, which is increased because of the rise of the internet.
The industry analysis involves the analysis of the internal as well as the external environment. This analysis is better explained with the help of the porter’s five forces model. The porter’s five forces analysis with regard to the Spotify is explained as below:
- Threat of New entry: - For Spotify, the threat of new entrant is low as the new entries have to acquire the catalogue for the streaming services. This is difficult for the new entrants to acquire as it involves huge cost as well as the company also need to generate the large number of the active users in comparison to the Spotify. For this, the companies need to build the business relations at the low level as compared to the already established companies (Seabrook, 2014). However, there are many factors of low threat of the new entrants such as the access of the suppliers, apple case, customer acquisition, Switching costs, etc.
- Bargaining power of the Suppliers: - The big five major labels already hold the 80% of the market share and these five labels are Sony music, Universal, BMG. Warner music group and EMI. It has been analyzed that the streaming services gain the bargaining leverage only if they have the strong market share as well as popularity (IFPI, 2016). The power of the supplier to bargain decreases with the small label and low popularity. However, it is the label catalog on which the bargaining power of supplier is dependent. The Spotify is the strong label having enough market share, so it is concluded that the result of the bargaining power of supplier is high.
- Bargaining power of Buyer: - There are two types of buyer for the Streaming services. One is the customers who want to buy the music and others are the business to business clients. There are many factors on which the bargaining power of the buyers is decided upon and these factors are defined below:
- Profile of buyer
- Price for the music
- Quality of the music
- Product differentiation
All these factors decide the bargaining power of the buyers of the music. The results of this analysis show that there is a high tendency of the bargaining which slowly goes to the level of the moderate.
- Threat of substitutes: - No doubt, the substitute products can affect the competitive environment as the people prefer to purchase the substitutes instead of the product. Talking about the current situation of the music industry, then there are many substitutes of the streaming services are available in the industry like physical records, TV, Radio, Internet and satellite radio and piracy. After analyzing the industry, it is fund that there is no as such threat of the substitutes because streaming services already replaces records and downloads completely. The threat of the substitutes can be evaluated as high because of the emergence of the video and internet services (Hyder, et al., 2016).
- Rivalry among industry: - It is stated by the Micheal Porter that the intensity of the Rivalry can be calculated as the industry’s structure, exit barrier and growth rate. As it is clear that there are a huge number of the competitors like Apple iTunes, Sony music, Universal group of music and high growth rate and exit barrier, results into the rivalry among the industry ranges from the medium to high risk (Ingram, 2016).
The current business model used by the Spotify is very unique and this model was introduced in the year 2016. This model consists of two special markets, free and the premium. Both the elements allow its users to listen the unlimited music on demand at any time and for unlimited time with the help of laptops, tablets and mobile phones. The free service of Spotify is for shorter periods and for the limited people, whereas the premium service is the long term usage of the unlimited music without any interruptions and users can have the access of the higher quality radio and music (Javier, 2016).
Moreover, the new model of the Spotify provides the mobile app also for easier access by the customers on their android or smart phones. This model is very helpful in generating the sales for the company. The company here, in this business makes use of the digital model just to compete in the music industry and to gain the competitive advantage over the iTunes model, Sony music or the universal music group. The adoption of the latest technology and digital media is the corporate level strategy used by the Spotify for the successful business gains and to increase the sales revenue (Ferrari, et al., 2014).
Corporate level Strategies
The strategic issues that are faced by the Spotify decrease the level of the revenue and the main issues were shown below in the form of points: -
- Increased level of the competition
- Music piracy because of the use of the digital medium
As per the findings of this report, it is found that the company built the business level and the corporate level strategies to face the competition as well as to bring the latest technology in the company for the successful growth. The biggest competitor for the Spotify was the Apple music store or iTunes. The Spotify uses the vertical integration also to overcome the losses and the challenges.
However, it is recommended that, the Spotify should open up the maximum opportunities just to attract new users. It is very important for the Spotify to cope up with the latest trends to improve its services as well as for the application of the vertical integration in the business. The company has the opportunity of doing the video streaming with the support of the Netflix company. The company should follow some policies in regard to the investments and should invest some amount of the revenue in the production of its own content. The company should also need to take the corrective actions to avoid the situation of the music piracy as this will lead to the legal actions against the company. Therefore, all the important points should be kept in mind before making the business and corporate level strategies.
Bozovic, D., 2017. Unicorns Analysis: An Estimation of Spotify's and Snapchat's Valuation, Available at: https://www.ethz.ch/content/dam/ethz/special-interest/mtec/chair-of-entrepreneurial-risks-dam/documents/dissertation/master%20thesis/master_dimitribozovic_Final.pdf
Ferrari, S., DeFerrari, D. & Simantel, B., 2015. Spotify Analysis, Available at: https://christineosazuwa.com/wp-content/uploads/2015/03/Spotify-and-Streaming-Music-Analysis.pdf
Ferrari, S., DeFerrari, F., Simantel, B. & Osazuwa, C., 2014. Spotify and Streaming Music Industry Analysis, Available at: https://christineosazuwa.com/portfolio/spotify-and-streaming-music-industry-analysis/
Hyder, Yash, Akash & Dhruv, 2016. Playing a new tune in a disrupted market, Available at: https://akashmjn.github.io/spotify/Spotify-Presentation.pdf.
IFPI, 2016. Global Music Report: Music consumption exploding worldwide, Available at: https://www.ifpi.org/downloads/GMR2016.pdf
Ingram, M., 2016. Spotify’s Financial Results Reinforce Just How Broken the Music Business Is, Available at: https://fortune.com/2016/05/24/spotify-financials/
Javier, F., 2016. Music Streaming Industry Analysis, Available at: https://www.slideshare.net/FranciscoJavierValde5/music-streaming-industry-analysis-65641415
Lu, K., 2016. 9 International Growth Strategies from Spotify, Available at: https://www.oneskyapp.com/blog/spotify-global-expansion/
Ranjan, T., 2013. Spotify's Strategy - Road to success, Available at: https://strategyatheinz.blogspot.in/2013/03/spotifys-strategy-road-to-success.html
Seabrook, J., 2014. Revenue Streams: Is Spotify the music industry’s friend or its foe?, Available at: https://www.newyorker.com/magazine/2014/11/24/revenue-streams
Swanson, K. & Herzig, M., 2013. A Case Study on Spotify: Exploring Perceptions, Available at: https://spea.indiana.edu/doc/undergraduate/ugrd_thesis2013_bsam_swanson.pdf
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