Spotify’s Business Model, Generic Strategy & Growth Strategies

Spotify’s business model, generic strategy, intensive growth strategies, Porter’s, Ansoff’s, streaming music business competitive advantage analysis
Spotify’s mobile app icon along with other apps’ icons on a smartphone display. Spotify’s business model mutually depends on the company’s generic competitive strategy (Porter’s framework) and intensive growth strategies (Ansoff Matrix), which facilitate international expansion of music streaming operations. (Public Domain Image)

Spotify Technology S.A. applies a business model, generic strategy, and intensive growth strategies that interdependently support multinational expansion. In its business model design, the music streaming company integrates a revenue model with a general business model type that suits operations in providing a marketplace platform for music creators and music consumers. In relation, Spotify’s generic competitive strategy and intensive strategies are directly based on its business model, leading to a system of model aspects and business strategies that ensure organizational growth and expansion in the international on-demand digital content market. The result of this synergy among the generic strategy, intensive growth strategies, and the business model brings operations into alignment with Spotify’s corporate vision and mission statements, and helps deal with competitors, such as Apple, Google, Pandora, and Amazon. Thus, Spotify’s competitive position remains strong for a foreseeable future of continuing global expansion and potential business diversification.

Spotify Technology S.A.’s business model, generic competitive strategy, and intensive growth strategies permeate its organizational design. The business model fundamentally defines how the music streaming company operates. For instance, Spotify’s corporate culture and related human resource management strategies are built upon the requirements and definitions from the business model and the generic and intensive growth strategies described in this business analysis.

Spotify’s Business Model Design

From a top-level perspective of its business, Spotify Technology S.A. has a platform business model, which is a major category of business models. A platform business exploits the advantages of network effects for organizational development and strategic management, especially in implementing generic strategies for competitive advantage and intensive strategies for growing the streaming music marketplace. For example, Spotify benefits from more artists and music consumers using its online service as the business expands globally. Still, theory and practice show that a company can have one or more business models or a combination of different designs for business modeling. Thus, from a more specific perspective of the on-demand digital content streaming business operations, Spotify’s business model design has the characteristics of the following business models:

  1. Network effects business model and network orchestrator business model
  2. Freemium business model
  3. Unlimited subscription business model

Network Effects & Network Orchestrator Business Models. The application of network effects in Spotify’s business design is observable in the value of increasing the company’s user base. Network effects refer to the positive value and benefit of each additional user, who in this case may be an artist (content creator), or a subscriber (content consumer). For example, the benefit of Spotify’s value chain, resources, and capabilities is increased when more artists and consumers join the platform. The company applies the network orchestrator business model by administering its platform as a marketplace where artists and fans meet. The network effects and network orchestrator business models maximize the music streaming user base and, consequently, economies of scale, which is necessary to support Spotify’s generic strategy for competitive advantage. These business models depend on the effectiveness of the company’s intensive strategies for growth by attracting and retaining more artists and music consumers. The two business models are a major factor in the business strengths enumerated in the SWOT analysis of Spotify Technology S.A.

Freemium Business Model. The freemium business model is typically considered as a revenue model because, in this case, the model defines how Spotify’s revenues are generated from its user base. The company’s streaming service is available in two tiers: the advertisement-supported free tier and the premium tier. For example, Spotify’s users can access songs for free, but with intermittent advertising integrated into their listening experience. In contrast, subscribers who pay for the company’s premium service can enjoy music without advertisements, along with other premium functions and features that are not available to free-tier users. This business model relates to Spotify’s generic competitive strategy by making the streaming music service available to practically every online person, regardless of intent or capacity to pay for the service. The freemium business model also relates to the company’s intensive growth strategies by enabling competencies in penetrating and developing markets. These growth strategies are supported through the easy and wide accessibility and availability of Spotify’s free and premium online services.

Unlimited Subscription Business Model. This business model involves two main factors: subscription to Spotify’s premium service and unlimited access to the service. The business design emphasis of this model is on customers’ recurring payments to access value-added services. For example, such value is in the form of Spotify’s premium features, starting with the removal of advertising. The company’s cost leadership generic strategy supports this business model by ensuring attractive affordable subscription prices. Also, the intensive strategies of market penetration and market development support Spotify’s unlimited subscription business model by growing the number of artists and subscribers to keep the business model feasible and profitable.

Spotify’s Generic Competitive Strategy and Intensive Growth Strategies

Generic Strategy for Competitive Advantage. Spotify applies the cost-leadership generic competitive strategy, which in Michael E. Porter’s framework involves a low cost position for strategic advantage, and a broad scope for strategic targeting. A low cost position creates strategic advantage for the music streaming business in terms of making the service’s price attractive in the international market. On the other hand, a broad scope is strategically targeted for the purpose of building Spotify’s network of online users. Both of these characteristics of the generic strategy support the network effects business model and the network orchestrator business model by attracting music artists and subscribers worldwide. As Spotify’s user base grows, the online digital content distribution platform becomes more attractive to artists and fans through network effects. This generic strategy requires that the business apply intensive strategies for rapidly growing the market reach of Spotify’s platform operations.

Intensive Strategies for Growth. Spotify’s main intensive growth strategies are market development and market penetration. These two strategies are simultaneously applied in order to strengthen the company’s competitive position as the biggest and leading music streaming business in the global market. Based on the Igor Ansoff Matrix, market development aims to further expand Spotify’s service availability to more countries and regions. On the other hand, market penetration is an intensive strategy that aims to grow the number of users of the on-demand music streaming service in existing markets where the company already has operations. Market development and market penetration provide competitive advantage to Spotify’s operations based on economies of scale, while also supporting the network effects business model and the network orchestrator business model: as the population of artists and subscribers grow, the music-streaming platform becomes even more beneficial and valuable to the artists and subscribers. In addition, these intensive growth strategies increase the cost leadership generic strategy’s effectiveness via economies of scale. The application of these intensive growth strategies requires related changes in Spotify’s organizational structure, as more business offices or locations are added. Product development is also applied as an intensive strategy for Spotify’s growth. For example, the company develops and introduces new products, such as new apps and music-related services, sometimes with the involvement of business partners via new alliances.

Implications of Spotify’s Business Model and Generic & Intensive Strategies

Spotify Technology S.A.’s successful multinational expansion, organizational growth, and strategic positioning are attributable to the effective implementation of a business model, intensive growth strategies, and generic competitive strategy suited to the operational objectives of the music platform enterprise. The company’s business model characteristics may change as the organization and music streaming service evolve. For instance, further acquisitions and expansion with new online services in addition to curated playlists and related programs is realistically expectable in Spotify’s future. These future changes may lead to additional business models or design characteristics added to the overall platform business model. Also, Spotify could adjust the relative significance and prioritization levels of its intensive growth strategies, with some modifications of the cost leadership generic strategy for the competitive advantage and growth of the streaming music business.