Business Management, Company Analysis

Spotify SWOT Analysis: Internal & External Strategic Factors

Updated on Updated on by Peter Garcia
Spotify SWOT Analysis Framework, Strengths, Weaknesses, Opportunities, Threats, competencies, competitive advantages, music streaming business case study
The interface of a Spotify app on an iPhone. A SWOT analysis of Spotify Technology S.A. illustrates competition, criticism, and imitation as threats that combine with the company’s weaknesses to impose strategic challenges to growing in the music streaming industry. (Public Domain Image)

Spotify Technology S.A. grows as a major music streaming service provider. The company’s multinational operations continue to expand, despite competitive challenges involving other firms that offer digital content distribution services, such as Pandora, Google Play Music, and Amazon Music. This expansion trend is related to the internal and external strategic factors discussed in this SWOT analysis of Spotify. The SWOT framework specifies the strengths and weaknesses (internal analysis), and opportunities and threats (external analysis) pertinent to the company’s operations, with consideration for the strategic challenges characterizing the music streaming industry. These external and internal strategic factors require Spotify to innovative to overcome competitive rivalry and possible business stagnation, as competitors hinder the company’s international growth. Relative to competing large technology firms like Apple, Google, and Amazon, a consideration of the SWOT factors can improve the company’s strategic decisions in reaching its goals and keeping a leading market position.

Spotify experiences a variety of strategic influences, although the strengths, weaknesses, opportunities, and threats included in this SWOT analysis are some of the most readily observable regarding the on-demand media streaming business.

Spotify’s Strengths and Weaknesses (Internal Analysis)

Strengths (Competencies):
1. Strong brand based on service popularity
2. Wide reach and easy accessibility of media streaming services based on technological benefits
3. Demand-side economies of scale for music streaming and related services
Weaknesses:
1. Payment agreements with rights holders
2. Dependence on Internet connectivity and its issues in various markets around the world
3. Dependence on other technology companies, including some competitors
4. Imitable business model involving computing systems and online service provision
  • This SWOT analysis table is best viewed using HTML5-compatible browsers.

In this SWOT analysis of Spotify, the business strengths are based on the extent and nature of its online services. These strengths are among the core competencies of the enterprise, as discussed in the VRIO Analysis of Spotify Technology S.A. In a similar way, the weaknesses are based on the technological dependence of the business on other firms that operate in the same industry or related industries. Thus, Spotify enjoys the benefits of the efficiencies and scalable nature of digital technology-based services. However, at the same time, the company suffers from the innate technological issues and strategic challenges of its music streaming business model and its related characteristics. Despite these weaknesses and threats in the industry, the business manages to use its strengths to grow and become a leading player in the on-demand media streaming services industry. The table above presents Spotify’s internal strategic factors (strengths and weaknesses) that form part of the SWOT analysis elements.

Strengths. Spotify’s strong brand is based on the popularity of its music streaming services. Even though the company started its international expansion in 2009, the business has steadily expanded to offer its digital media services to a continually increasing user base. This growth is codependent with the Spotify brand, which is a major strength in this SWOT analysis. The brand strength contributes to competitiveness that reduces the ability of smaller music streaming firms to convince consumers to transfer from the company. Thus, this internal strategic factor shapes Spotify’s development in terms of how it organizes its business around the brand and its utilization in various music streaming markets worldwide.

Wide reach and easy accessibility of media streaming services is a value proposition and another strength relevant in this SWOT analysis of Spotify Technology S.A. This internal factor involves the ability of the company to provide its streaming services to consumers around the world. This ability is due to the online nature of Spotify’s business operations. The strength is also based on the global proliferation of the Internet and online devices. As a result of this internal strategic factor, customers can easily access their preferred music via Spotify’s web site or mobile apps. In the circumstances involved in this SWOT analysis, such strength helps retain customers, who would likely leave the company if its on-demand music streaming services were not as easily or widely accessible. This strength of the platform business supports the achievement of the corporate mission and vision statements of Spotify Technology S.A.

Another strength of Spotify is the demand-side economies of scale of its business. Such economies of scale build on the other strengths shown in this SWOT analysis. For example, the strong brand and wide accessibility of the online service leads to a major share of the market and the correspondingly large user base. This business condition strengthens Spotify through the business size needed to reach effectiveness and efficiencies through economies of scale. This SWOT analysis stresses the benefits of such an internal factor, including the reduction of fixed costs per account or per customer, and optimization of profit margins. Through this business strength, Spotify has reached profitability despite payments to rights holders, such as artists or production companies, and other costs.

Weaknesses. This SWOT analysis shows that Spotify’s weaknesses are representative of its business model and the nature of resources used to support its music streaming operations. For instance, payment agreements with rights holders are a major weakness that affects and potentially limits the success rate of the company. In order to provide on-demand music to its target market, Spotify needs to pay the creators or producers of such digital content. For example, the company pays production companies like Universal Music Group for royalties and related rights. In this SWOT analysis, such an internal factor is a weakness that limits Spotify’s profitability by taking a major chunk of the company’s subscription revenues.

Another weakness to consider in this SWOT analysis of Spotify is the dependence on Internet connectivity. This internal strategic factor is based on the online nature of the business. The actual benefit of the music streaming service and its value chain depends on the speed of the customer’s connectivity to access such service. For example, in developing countries, slow Internet connectivity and relatively high costs reduces the attractiveness of Spotify’s service. In this SWOT framework’s background, such an internal factor is difficult to overcome. Nonetheless, the trend of improving connectivity worldwide reduces the negative effects of this weakness.

Spotify’s dependence on other technology companies is a related weakness listed in the SWOT analysis table above. Such dependence is an internal strategic factor that involves not just third-party providers but, more notably, some of the company’s competitors in the music streaming industry. For example, Spotify depends on Apple’s App Store, which is a primary gateway for accessing and installing mobile apps. Similarly, the company relies on Google Play for mobile apps in Android devices. Considering that both Google and Apple have their respective music streaming services, this weakness puts Spotify’s business under the bargaining power of these two major competitors. Based on this internal factor, this SWOT analysis points out strategic challenges, such as the company’s payment of 30% commission or fees to Apple on revenues generated via the Spotify iOS app.

The imitable characteristics of Spotify’s business model are another internal factor that weakens the company. This weakness is based on the fact that other firms can develop similar online media streaming services that directly compete against the company. The existence of many music streaming service firms is an indicator of this strategic weakness. This SWOT analysis shows the importance of developing Spotify’s uniqueness as a brand and service, to reduce the impact of such an internal strategic factor. Still, the vast song collection and brand popularity help in protecting the company’s music streaming business from the effects of imitation.

Spotify’s Opportunities and Threats (External Analysis)

Opportunities:
1. Potential growth and expansion in new music streaming markets
2. Diversification of online services to include new or different products for the same or new target market and market segments
3. Growth through new partnerships with mobile device manufacturers and other firms
Threats:
1. Competition with major technology companies
2. Legal disputes and challenges
3. Criticisms from artists and other stakeholders
  • This SWOT analysis table is best viewed using HTML5-compatible browsers.

Spotify’s opportunities and the threats against its business are the external strategic factors in this aspect of the SWOT analysis. As an external analysis of the music streaming company, this aspect considers the influence of various market and industry factors that are not under the direct control of the company’s decision-makers and administration. Opportunities can shape Spotify’s strategic trajectory, although the threats may hinder the business from exploiting these opportunities. Continuous growth and its achievement of profitable performance reflect the company’s effectual efforts in bringing its financial goals into fruition. The above table lists this aspect of the SWOT analysis of Spotify.

Opportunities. The opportunity to grow and expand in new markets is an external factor based on Spotify’s current limited operations. For example, the company’s focus remains on music streaming markets like the United States and the European Union, and has limited or no presence in many developing countries. In light of this market position and operational expansion, Spotify can establish operations in additional markets, and intensify its market penetration efforts in its current markets. As shown in the SWOT analysis table, this external strategic factor brings the opportunity to grow and improve profitability, especially as economies of scale are increased in the company’s music streaming operations.

The SWOT analysis table for Spotify includes the opportunity to diversify online services through new or different products. This external strategic factor is based on the company’s limitation of focusing on music streaming operations. Considering the capability to establish, maintain, and manage IT systems for these operations, Spotify has the opportunity to develop new products, which may involve offering other types of digital content, or some other services that take advantage of the worldwide user base of the business. Based on this SWOT analysis of Spotify, such an external factor leads to the opportunity to create new revenue streams or increase current revenue sources, as the company grows and expands in the midst of cutthroat competition with multinational technology firms.

Spotify has the opportunity to grow via new partnerships with other enterprises. These partnerships can increase the company’s market reach and impose strategic challenges against firms like Apple and Google in the music streaming industry. In this SWOT analysis of Spotify, this external factor has the potential to facilitate business growth. However, the opportunity requires careful negotiations to ensure mutually beneficial agreements. The company has already embarked on such a partnership to make its product the primary music streaming service included in Samsung’s consumer electronics. This opportunistic strategic move helps create competitive advantage against Apple Music in Samsung devices. Spotify can take this external strategic factor further to create new partnerships with other consumer electronics manufacturers.

Threats. The threats to the business are based on stakeholders’ and competitors’ actions, which are assessed through the Porter’s Five Forces analysis of Spotify Technology S.A. In this SWOT analysis case, competition with major technology firms is among the top issues that threaten the music streaming company. This external factor involves the competitive forces coming from such services as Google Play Music and Apple Music. This factor in the SWOT analysis underscores how a competitive environment hinders Spotify’s growth, considering the market positions of such competitors. This external strategic factor threatens the company in practically every market, as major competitors already have a global presence and the potential to penetrate more markets with their respective music streaming products.

Legal disputes and challenges are a threat against Spotify Technology S.A. in terms of costs and legal restrictions. This external factor is a common threat among major technology firms. In this SWOT analysis of Spotify, such external strategic factors are based on ongoing legal disputes with competitors like Apple Inc., involving fees amounting to 30% of revenues generated through apps via the App Store. Along with the other issues identified through the PESTLE analysis of Spotify Technology S.A, such disputes are external factors that require funds and threaten the public relations standing and brand image of Spotify.

The SWOT analysis table also includes criticisms as a threat to Spotify’s business. Criticisms are external factors that damage the company’s brand and its relationships with stakeholders. For example, criticisms about revenue sharing could discourage artists and music producers from allowing their content on Spotify. This condition threatens the digital content streaming business by potentially limiting content that target consumers are looking for. Ultimately, this SWOT analysis should direct Spotify’s administrative attention to how such an external strategic factor could reduce the company’s profitability and share of the streaming music market.

Key Points from the SWOT Analysis of Spotify Technology S.A.

The strengths and weaknesses in the internal analysis element of this SWOT analysis illustrate Spotify’s strategic positioning as a leading music streaming business that grows based on popularity, among other contributing factors. However, the company needs to continually improve its business strengths and its product features to address such weaknesses as the imitability of its business model. Such improvement may require modifying Spotify’s corporate structure. On the other hand, the external analysis element of this SWOT analysis identifies opportunities and threats that define the future organizational development of the company. For example, the company has the opportunity and potential to become an even bigger digital content distributor by entering new markets or penetrating more of its current markets. Despite such potential, Spotify faces the threat of tough competition. These strengths, weaknesses, opportunities, and threats included in this SWOT analysis suggest that Spotify should develop core competencies to strategically exploit emerging opportunities and protect its business against the threats of competition, imitation, and criticism.

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