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Bài phân tích về 5 forces và SWOT của Spotify Online music streaming services are one of the most popular music consumption trends today. Instead of downloading or purchasing music, users can access online music streaming platforms to listen to music from any internetconnected device. Among these, Spotify has emerged as a major player in the music industry, considered one of the leading online music streaming services worldwide. This report will include an analysis of Spotify Technology SA that examines the SWOT, Porters 5 Forces that impact the company
INDIVIDUAL ASSIGNMENT INTERNATIONAL BUSINESS STRATEGY SPOTIFY TECHNOLOGY SA COMPANY GROUP’S MEMBER: Quach Dinh Nam HS170815 Nguyen Thi Thuy Trang HS173032 Nguyen Bao Giang HS173237 Phung Phuong Thanh HS180026 Vu Thu Huong HS173147 Luong Thi Hong Nhung HS179017 CLASS: IB1715 LECTURE: Bui Thuy Duong COURSE: IBS301m TABLE OF CONTENT I II INTRODUCTION - Nguyen Thi Thuy Trang BODY Background of Spotify Technology SA Company - Vu Thu Huong ● Basic information of the company ● Core value ● Mission, vision Determine level/scope to analysis forces - Vu Thu Huong Analysis SWOT of Spotify Technology SA Company ● Strengths - Nguyen Bao Giang ● Weaknesses - Nguyen Bao Giang ● Opportunities - Luong Thi Hong Nhung ● Threats - Luong Thi Hong Nhung Porter’s Forces Analysis ● Threat of new entry - Phung Phuong Thanh ● Bargaining power of buyers - Phung Phuong Thanh ● Bargaining power of suppliers - Nguyen Thi Thuy Trang ● Threat of substitute - Nguyen Thi Thuy Trang ● Threat of rivalries - Quach Dinh Nam III CONCLUSIONS - Quach Dinh Nam IV REFERENCES - Quach Dinh Nam Vu Thu Vu Thu Nguyen Luong Thi Phung Nguyen Thi Quach Huong Bao Giang Hong Phuong Thuy Trang Dinh Nam Nhung Thanh 10 10 10 10 10 Huong Nguyen 10 10 10 10 10 10 10 10 10 10 Bao Giang Luong Thi 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 Hong Nhung Phung Phuong Thanh Nguyen Thi 10 Thuy Trang Quach Dinh Nam Average I 10 Introduction Online music streaming services are one of the most popular music consumption trends today The report will conduct an analysis of Spotify Technology SA, focusing on its strengths, weaknesses, opportunities, and threats (SWOT), as well as an examination of the company using Porter's Five Forces model This will provide insights into Spotify's position as a prominent global player in the online music streaming industry, which has become a popular method for consuming music compared to traditional downloads or purchases II Body Background of the company - Vu Thu Huong a, Basic information of the company [1] Spotify Technology SA based in Stockholm, Sweden, was created in 2006 by Daniel Ek and Martin Lorentzon as a provider of online music and media streaming Spotify's major services include music, digital video, and podcasts, which provide users with access to millions of songs and other material from producers all over the world Spotify is currently available in the majority of European nations, as well as the United States, Australia, New Zealand, and portions of Asia b, Core Value [2] Spotify’s core values include “passionate, innovative, sincere, collaborative, and playful.” These values are what the corporation considers as the guiding principles that keep everything within the expectations of the management They also ensure the success of the mission and vision statement by ensuring everyone stays realigned to the goals and objectives of the company c, Mission, Vision [3] [4] Spotify’s mission: Unlock the potential of human creativity by giving a million creative artists the opportunity to live off their art and billions of fans the opportunity to enjoy and be inspired by it The mission statement of Spotify is based upon the idea, which is as follows: “We envision a cultural platform where professional creators can break free of their medium’s constraints and where everyone can enjoy an immersive artistic experience that enables us to empathize with each other and to feel part of a greater whole.” Determine level/scope to analyze forces - Vu Thu Huong Spotify now allows more listeners than ever before to find, manage, and enjoy over 100 million music, million podcast items, and 350,000 audiobooks on demand They are the world's most popular audio streaming subscription service, with over 574 million users and 226 million customers in over 180 regions With this report, to better analyze the forces Analysis, our group is aiming at the global scope Analysis SWOT of Spotify Technology SA Company a, Strengths Brand Reputation: With a strong brand reputation, Spotify has become a market leader in the music stream market Customers, market share, catalog quality, and long-term stability all play a role in making it popular It’s the world’s most popular audio streaming subscription service with over 574 million users in over 180 markets [5] The brand value of Spotify has risen continuously in recent years and had a net worth of 11,114 million dollars in 2023 [6] Early Mover: is one of the earliest companies that entered the music streaming field (from 2006) This provides them a huge advantage over the newcomers in this industry They know the market and customers better, and from that earned this position through providing highly rated music services It has gained a high market share Personalized user experience: Spotify spends about 1,387 million dollars on research and development [7] It employs a variety of algorithms, including data-sifting technology, artificial intelligence, and machine learning Allows the platform to provide highly personalized content recommendations for users based on their listening habits This feature gives them the potential to form relationships and create bonds between brand and customer One of the special features of personalized user experience is Spotify Wrapped - which uses customer listening history to create a personalized summary of what they've been listening to throughout the year It usually includes a user's favored artists, most listened-to songs, their favorite genres, and top podcasts This campaign becomes a “weapon” that helps this platform hit up the social network each year Freemium model: Spotify’s freemium model allows it to attract a wide range of users by offering both a free, ad-supported tier and a premium, subscription-based tier This model is considered a competitive advantage that helps this brand differentiate itself from other competitors in the market Statistics show that with nearly half of users choosing the free version, Spotify can still generate revenue based on ads on the platform Besides, the freemium business model has also proven its effectiveness by creating a conversion rate from free to paid users of up to 46% for this platform [8] Highly effective localized pricing strategy: Spotify employs a localized pricing strategy in which fees across different subscription tiers vary per country As of end-2022, the lowest prices for a monthly individual premium subscription can be found in emerging markets at just below $2, while the highest prices are above $20, found in Europe [9] b, Weaknesses High royalty cost: A significant earning of Spotify’s revenue goes towards royalty payments For example, the publishers, composers, copyright holders, record labels, etc These costs can impact the company’s profitability and limit its ability to invest in other areas, such as content acquisition and technology development According to Statista, Spotify paid out 75% of its revenue in royalties [10] Limited revenue streams: Spotify only has two reportable revenue streams, its Premium Service and Ad-Support Service While the freemium model has successfully attracted users to the platform, converting free users to paying subscribers can be challenging Furthermore, the ad-supported tier’s revenue per user is significantly lower than that of premium subscribers, limiting the overall revenue potential from the free user base Although revenues across these two segments continue to grow year-over-year [11] the lack of other sources could be detrimental to Spotify in the long run It makes the company vulnerable to unpredictable changes in its sources of revenue, such as a potential decrease in the number of paying subscribers or a decline in ad spending due to an economic downturn Regional restrictions: Spotify’s regional restrictions can be a drawback for users, as the availability of features and content may vary based on their geographical location Certain countries may have limited access to specific features, such as podcasts, or may face delays in releasing new music due to licensing agreements and regional restrictions, creating an uneven user experience globally Lack of competitive differentiation: Despite Spotify's commanding position in the streaming music market, the company lacks anything that might be termed a differentiating feature Spotify's services, platform structure, and other characteristics are almost the same; the company does not provide anything unique or different The only differentiating traits are brand reputation and premium features, which may change at any moment c, Opportunities Expanding into new markets: Because Spotify operates globally, the company has yet to fully capitalize on a number of markets Spotify can keep broadening its footprint in developing nations and areas where the use of music streaming services is continuously increasing The company may be able to produce more income and users as a result of this expansion Additionally, Spotify has a lot of chances in the music industry because of its brand Success in the upcoming years may depend on the adoption of novel company techniques [12] Video release: Spotify has been able to expand its services into new categories like podcasts and audiobooks and offer a better listening experience because of its focus on research and development To preserve its current user base, draw in new clients, and diversify its revenue streams, the business can still expand Music videos present yet another area for development As of right now, the only videos available to viewers are relatively large ones that repeat while playing If full-length videos are added to this function, customers won't have to utilize another streaming site like Youtube to watch music videos—instead they can stay on the Spotify platform Endorsements: Influencers and celebrities have a sizable fan base, and their endorsements aid a company in growing its market Britney Spears, Justin Bieber, and Barack Obama have all backed Spotify and given followers access to their personal playlists Influencers will support the business more often as the music streaming market becomes more competitive Live content integration: In July 2020, Spotify launched as a video podcast to join the video streaming market However, the market for online video streaming is extremely competitive, so the platform must work really hard to establish its reputation and draw in new consumers Spotify has a big chance to improve user experience and give a sense of immediacy by integrating live content By offering live radio, listeners can participate in interactive programs, follow broadcasts in real time, and stay up to date on audio events, interviews, and news new music [16] 10 Additionally, customers will be able to virtually attend live performances, increase access to exclusive shows, and have a more engaging experience thanks to live streaming of concerts and events User retention and engagement on the platform may rise as a result of this direct content integration d, Threats Fierce competition: Spotify's market position is seriously threatened by the intense competition in the music streaming space Rivals with substantial financial resources and steady user bases, such as Apple Music, Amazon Music, and YouTube Music, are able to make investments in marketing, original content, and technology breakthroughs Spotify must constantly innovate and set itself apart from the competition to draw in new customers and keep existing ones Furthermore, if Spotify can't properly compete and adjust to changing customer preferences, it runs the danger of losing market share and growth prospects as these rival platforms keep improving and expanding their offers Negotiate copyright fees: Negotiations over royalty rates pose a serious concern as well Any appreciable rise in royalties might have a big effect on Spotify's finances because the streaming service depends on licensing deals with record labels and copyright holders Spotify may experience financial pressure that necessitates changes, such boosting subscription pricing to preserve profitability, if music license costs rise noticeably However, if customers believe the service is less affordable than other platforms, higher subscription costs may drive away customers Illegal streaming and piracy: Another concern is illicit streaming and piracy The ease with which users can obtain copyrighted music for free through illicit channels will erode the appeal of paying subscriptions and make it more difficult for Spotify to make money off of the service Because pirated music is so widely available, there may be a decline in the market for legitimate streaming services, which could lead to customers quitting or not using Spotify at all Typically in 2022, more than 80% of respondents used pirated content [33] 11 As a result, Spotify needs to keep up its efforts to stop copyright violations, fight piracy, and inform consumers about the value of supporting artists by using authorized streaming services Only YouTube is more susceptible to piracy attempts than Spotify The artist and the platform gain nothing when people are able to download music and keep listening to it offline They'll transfer their music to more secure and safe platforms [15] Consumers’ ever-shifting media consumption behavior: Spotify has competition from numerous other media platforms in addition to other major music streaming companies for users' ever-diminishing attention spans These include social media sites like Facebook, Twitter, Instagram, and TikTok; gaming platforms and consoles like Steam, Nintendo Switch, 12 Sony Playstation, and Microsoft Xbox; and video streaming services like Netflix, YouTube, and Twitch Users between the ages of 18 and 64 spend an average of one hour and two minutes per day listening to music on streaming services like Spotify and one hour and two minutes per day listening to podcasts, according to We Are Social and Meltwater's Digital 2023 research [14] These figures, meanwhile, are insignificant when compared to the amount of time spent streaming or viewing TV In order to offer fresh experiences, services, or content that can draw in and even retain more customers, Spotify must thus keep up its innovative streak Economic uncertainty: Consumer spending may be impacted by economic downturns or global economic uncertainty, which could result in decreased advertising expenditures, lower subscription rates, or more price-sensitive customers These elements may have a detrimental effect on Spotify's earnings and future growth Forces Analysis a, Threat of New Entrants The threat of entry for the music streaming industry is notably high, with formidable barriers such as high sunk costs, incumbents’ competitive advantages and their competitive pricing strategies Despite the challenges, it remains a desirable journey for aspiring entrants 13 The global music streaming industry is ruled by industry giants like Spotify, Apple, Amazon, Google, and Tencent In 2022, Spotify claimed the top market share by subscribers with 188 million subscribers, comprising 32.10% of the market, followed by Apple Music, Tencent Music, Youtube Music, and Amazon Music These industry giants collectively command over 80% of the market share [17], leaving little room for new entrants to establish a foothold New entrants face the first barrier is high sunk costs that are crucial for Research and Development (R&D) in platform development The need for an innovative and differentiated platform is crucial, yet the investments made by industry leaders in new services, features, technology in platforms make it challenging for newcomers to compete on the same level [18] Marketing and promotion, vital components for gaining market share, are further complicated by the established players' existing customer bases and competitive subscription fees, including offering free trial offers, creating a high barrier for entry Salaries for general and administrative purposes, especially for experts, researchers, and programmers, add to the financial burden for new entrants Secondly, the competitive advantage held by incumbents is underscored by their extensive patent portfolios For example, with Spotify alone securing 1110 patents globally, which belong to 449 unique patent families and 965 patents are still active [19] Pioneering brands like Spotify hold sway, benefiting from current reputation and pre-commitment contracts that secure top-quality content from leading record labels, distributors, and aggregators like Universal Music Group, Sony Music Entertainment, Warner Music Group, and Music and Entertainment Rights Licensing Independent Network [20] Furthermore, Apple, Google, and Amazon's ownership of application store platforms, coupled with their ability to charge in-application purchase fees, creates a distinct competitive advantage 14 The competitive pricing strategies employed by industry leaders, such as Apple, Spotify, and Amazon, may lead to the exclusion of potential new entrants in the market The consistent pricing alignment[21] and the provision of one-month premium free trials by these established players create an attractive option for users Additionally, due to their existing customer base, these incumbents can maintain a very affordable price, making it more likely for their users to be willing to pay for the service This situation presents an obstacle for newcomers, as they should offer a more affordable price to attract new users and establish their credibility in the shadow of these industry giants To thrive in this intensely competitive environment, emerging players need to not only develop unique features but also showcase their credibility to secure a position in the music streaming industry b, Bargaining Power of Buyers In the music streaming industry, the buyers are individual users distributed globally, with each account corresponding to a single person Assessing the bargaining power, it falls in the middle but tends to lean toward the lower side, influenced by several factors that shape the relationship between firms and their diverse user bases First notable characteristic is the lack of buyer concentration, with widespread potential buyers around the world, each accounting for only a small fraction of sales, the influence of any single user may seem limited Moreover, firm's implementation of price discrimination strategies further highlights their understanding of the nature of their user base For example, when Spotify increases their subscription prices on July 24 of 2023, they adjust prices based on local factors and market demands For some detail, while the premium subscription in the US is going up by $1 to $10.99, in the UK, it's increasing by £1 to £10.99, and in France, it now costs €10.99 [21] This adaptability reflects firm's acknowledgment of the diverse buyer segments and their ability to tailor pricing strategies Additionally, the possibility of bundling offers users a range of choices, further weakening their buyer’s bargaining power Whether opting for Spotify's Standard Plan, Family Plan, Duo Plan, or Student Plan [22], or considering alternatives like Apple Music with its Individual, Family, Premier [23], buyers have the flexibility to select plans that align with their specific needs and preferences, thereby generating increased revenue for firms 15 However, individuals within the music streaming sector have an abundance of options for accessing music through various streaming platforms Despite the availability of products from platforms like Spotify, Apple Music, and Amazon Music, there is a notable absence of substantial differentiation With identical subscription prices, similar technology, and user-friendly interfaces across these platforms, the associated costs of switching are minimal, if not entirely absent This situation enables consumers to easily explore alternative platforms, compelling service providers to consistently innovate and improve their offerings in order to maintain user loyalty c, Bargaining Power of Suppliers The bargaining power of Spotify's suppliers is high Record labels and artists play a vital role in shaping Spotify's operations and financial performance The music streaming service depends greatly on obtaining licensing agreements with these providers to access their music libraries for streaming purposes Record labels and artists possess valuable content that is crucial for Spotify's platform They have the ability to negotiate beneficial terms such as royalty rates and revenue-sharing deals With the growing popularity of streaming services, suppliers may gain greater leverage to request increased compensation for their music, which can directly affect Spotify's expenses and financial performance Suppliers' exclusive agreements and licensing constraints can restrict the accessibility of specific content on Spotify If artists or labels choose not to make their music available or give exclusive rights to competing platforms, it may lead to reduced user interaction and potential subscriber losses for Spotify Furthermore, the level of differentiation of the product and switching cost of suppliers also affects their bargaining power In the music industry, major record labels hold a unique position of power due to limited alternatives and the challenging and costly process of changing suppliers For example, there are several major record labels like Universal Music Group, Warner Music Group, Sony Music Ent that control a significant portion of the music licenses [24] These labels account for nearly 65% of the industry's market share by label ownership And these also dominate 80% of all major Spotify playlists [25] This gives them huge power in 16 their agreement with Spotify In addition, Universal Music Group, Sony Music Ent., and Warner Music Group themselves are also the leading music distributors, accounting for nearly 80% of the industry's market share [26] To reduce the impact of supplier bargaining power, Spotify frequently negotiates and establishes extended licensing contracts Building and maintaining positive connections with record labels, artists, and publishers is crucial for securing a consistent flow of music content Furthermore, Spotify's initiatives to support independent musicians and broaden its content options can decrease its reliance on major labels and mitigate the influence of suppliers to some degree d, Threat of Substitutes There is a significant risk of substitutes for Spotify in the music streaming industry The emergence of alternative platforms and services providing comparable music streaming experiences presents a considerable challenge to Spotify's standing in the market Spotify’s direct competitors such as Apple Music, Tencent Music, YouTube Music, Amazon Music, Deezer and many other platforms all have the potential to replace Spotify These platforms offer comparable features, access to extensive music catalogs, and personalized recommendations [27] Therefore, users subscribed to these platforms may consider them as viable alternatives to Spotify The competitive entry of video streaming platforms such as Netflix, YouTube, and Twitch; social media platforms like Facebook, Twitter, TikTok, and Instagram; gaming platforms and consoles like Steam, Nintendo Switch, and Sony Playstation, is a threat to Spotify's position 17 in terms of music discovery and sharing Users can find and enjoy music content directly on these platforms According to the Digital 2023 Global Overview Report by We Are Social and Meltwater, users spent an average of three hours and 23 minutes watching broadcast or streaming television, and using social media sites, which averages at two hours and 31 minutes [28] This reduces the need for dedicated music streaming services Alternative music consumption formats like digital downloads, CDs, and vinyl records can be considered as replacements for streaming services Although the appeal of these formats has declined, there are still consumer segments that favor owning physical copies of music or purchasing digital versions Traditional radio stations continue to play a substantial role in music consumption While streaming services provide personalized and on-demand music, radio stations curate playlists and create a communal listening experience In addition, users can use the radio completely free of charge, just need to have an audio playing device The content Radio provides includes genres such as shows, hot news, or linear information Some people prefer radio content over Spotify due to this Additionally, for individuals who prefer not to pay for music streaming, piracy presents an enticing and easily accessible alternative There are numerous websites and networks where individuals can freely download and distribute music, despite its illegality, posing a significant threat to the music industry 18 To address the challenge posed by alternative options, Spotify places emphasis on setting itself apart and offering distinctive value propositions This includes personalized playlists, algorithm-based recommendations, exclusive content, and partnerships with musicians and podcast creators Through providing a seamless and customized user experience, Spotify aims to maintain its competitive advantage and retain users, even in the face of substitute platforms and alternative methods of music consumption e, Intensity of Rivalries The music streaming industry is considered a highly competitive industry Looking at the chart showing market shares [29], we can see that Spotify's competitors come not only from large corporations such as Apple Music, Amazon or Youtube music but also from niche markets (Beatport Link specializes in EDM), or local competitors (Tencent music in China or Deezer in France) Next, regarding the industry's growth rate, according to the report of the International Federation of the Phonographic Industry (IFPI), the industry's growth rate increased continuously from 2015 to 2022 [30] Combined with an expected compound annual growth rate (CAGR) of 13% from 2023 to 2030 according to Grand View Research [31], the music streaming sector shows itself to be an industry with high growth potential However, this growth also increases competition as companies try to capture a larger market share, luring new subscribers in the expanding market 19 Another reason for rivalry intensity in music streaming industry high is that it has a low switching cost Spotify's competitors such as Apple music can also provide the same amount of music, podcasts or similar products at a similar cost, forcing companies in the industry to continuously innovate and differentiate their products and services [32][33] In conclusion, in a highly rivalry-intensive market like music streaming, Spotify must focus on continuous innovation to strengthen its competitive position The need for differentiation becomes important to attract and retain users in a market where the product offerings are similar, emphasizing the importance of innovation as a strategic imperative for survival and success III Conclusions Is Music streaming industry attractive or not? The music streaming industry is facing many challenges that are reducing its attractiveness The market is controlled mainly by large corporations such as Spotify or Apple Music, creating a huge barrier for new businesses wanting to enter the industry Input costs, including R&D, operations and market research, or copyright issues increase financial pressure for new entrants The fact that the music streaming industry has low switching costs creates many conditions for competitors to substitute Product differentiation is also difficult because competitors can also provide product services with similar quality and price This poses creative, innovative challenges to attract and retain customers In short, these factors all make the industry difficult and unattractive for new businesses Spotify competitive position Spotify has a high level of brand recognition, making it one of the most widely known names among consumers when it comes to music streaming services Second, Spotify has played a pioneering role in the industry with its unique business model They have succeeded in combining the paid and advertising model, also known as Freemium, providing flexible choices for users and helping them build a diverse user community Finally, technology plays an important role in Spotify's competitive strategy Their user personalization capabilities are powerful, helping to provide a unique and personalized music listening experience for each user They use smart algorithms to recommend music based on 20