India’s Music Streaming Industry & Spotify Business Model
COST STRUCTURE
Spotify is a digital music, podcast, and video service that gives users
access to millions of songs and other content from creators all over • Spotify’s business model is cost-driven, with substantial automation and
the world. Spotify’s most valuable asset is its proprietary software low-cost value propositions trying to cut costs.
• Transaction expenses, a fixed cost, are most likely the main cost driver.
platform, which has more than 100 million active users worldwide.
• Other key cost drivers include tech infrastructure, sales/marketing and
Spotify is also the current market leader in India with 26% of share.
customer support/operations, latter two being fixed costs.
VALUE PROPOSITION CUSTOMER SEGMENTS KEY RESOURCES
KEY FIGURES • Accessibility - Music for everyone - Spotify’s business strategy is Its technology talent is
• 30 Crore MAU for music by being available on-the-go either multi-faceted, with two responsible for maintaining
streaming apps in India on your smartphone or on a desktop. interdependent client the platform, while its
• Affordability - Spotify pioneered categories that are both customer service crew
• 46 Crore music streams
the "Freemium" business model, required to operate: provides support. Initially, it
played per day in FY23
which provides users with free and 1) Musicians who produce the has relied largely on
• FY23 Revenue – Rs 2400Cr paid tiers of service. music. outside finance, having
• Customization: Allows customers to 2) Listeners who stream it over raised $2.56B by Mar’16.
KEY PARTNERS search their favourite songs and the internet. Current valuation is ~$30B.
[Link] create playlists, recommends music.
[Link] Partners • Performance: Through actual, CHANNELS
[Link] Partners tangible outcomes, the company has • Spotify’s main consumer channel is its website, where the
[Link] Partners proved great performance. majority of its customers are acquired. There is also the
Spotify has several brand • Brand/Status: Spotify has developed mobile app for both iOS and Android.
collaborations. Developers can also use a strong brand as a result of teaming • Business development team, which contacts record
the company’s APIs and software up with several well-known brands to companies, is the main point of contact for musicians.
development kits to create apps. raise brand recognition and sales. • The company relies on advertisement via social media and
demonstrations at conferences.
SPOTIFY REVENUE MODEL Current Premium Plans in India Comparing Free & Premium
1. Attract a large base of users with a free
service- Freemium plan gives users access
to a catalogue of millions of songs. The
free service has basic functionality, but
users have to listen to ads that partially
subsidize the free plan.
2. Convert free users to premium -Spotify
converts free users to paid users as the
premium service has additional features
and it removes ads. In India, currently
about 40% users are premium users,
generating 90% of total revenue, almost
same as the global average.
3. Manage retention and churn - As a user’s
lifetime value (LTV) - how much Spotify can
earn from a user over time - increases, the
longer the company can retain users.
Spotify’s premium churn rates are currently
falling, which is reassuring.
4. Balance cost of free and premium -
Spotify pays record labels close to 52% of
the revenue generated by each stream.
Royalties cover about 75% of overall cost.
5. Finance it all with the revenue stream
from premium - The particularity of the
freemium model is that you have to cover
the costs of free and paying users.
Mapping Business Outcomes to Understanding the Target Market Segment
Product Outcomes Target Market Segment
KPI Tree • Demographic segment: Students and working professionals between the ages of 18 and
Our Goal: Increasing the number of active 34 who are looking for quality music for entertainment.
subscribers to the subscription plan. • Technical Proficiency: Fairly tech-savvy, uses a smartphone and modern apps regularly.
Product Outcome: Converting new and free • Geographic segment: Majorly urban-dwellers in Tier 1, Tier 2 and Tier 3 cities.
users to subscribers, getting subscribers to • Income: Average monthly income more than Rs 30,000 per month.
renew. Link to KPI Tree
Secondary Research
• 30Cr MAU for music streaming apps and 46Cr music streams played per day in FY23.
• Over the past three years, the industry in India has witnessed a surge of about 1.6X in
daily streams to reach this number.
• Vernacular music saw the most growth – 34% of total music streams in FY23.
• User penetration rate is 5.9% in 2023 and is expected to increase to 7.1% (~10Cr
consumers i.e., a growth of 2Cr) by 2027.
• Spotify is the current market leader in India with 26% of total streams and 5.5Cr MAU.
• For Spotify, in the last 2-3years, diversity in the subscription packs has increased
(student plans, one-day and one-week packs etc.) which has led to more
subscriptions, mostly coming from the top 10 to 12 cities of India.
• The growth rate of subscription revenue has outpaced that of advertising revenue in
the last four years, for Spotify.
Current User Statistics by Age Group
Pain Points
• Many young adults like students have limited disposable income.
• People who don’t regularly listen to music may not find value in premium plans.
• Ad frequency in free plan is much higher when compared to competitor apps and
significantly affects the quality of listening.
• Better song recommendation and intuitive UI that is easier to navigate are especially
important for people who aren’t too invested in listening but would still like a good playlist
User Research & Problem Validation
Research Methodology User Survey Insights
As part of the primary research, a two-part study was performed to The survey was sent to the target market segment to understand their
understand the pain points of the target audience. listening habits and needs and what they are expecting to gain from a
• Survey: An online form was circulated to understand the paid music app subscription.
demographic, music app preference and listening habits of the
target audience. Following insights were gathered from the survey regarding their music
• User interviews: A follow up user interview was conducted with listening habits:
5 respondents to gain further understanding of the problem. • 80% respondents has a music app in their phone
• 30% listen to music everyday
User Persona 1 • 40% use a paid subscription
Name: Rahul Age: 25 • 50% found difficulty in finding new music of their interest
Occupation: Software Engineer Location: Bangalore effortlessly
“I am an avid music listener who likes many genres. I like Reason’s for not using a paid subscription:
listening to music when I am coding as it helps me relax and focus • People who aren’t avid listeners don’t see value in paying for
at the same time. The challenge is in finding a single app that gives music.
good audio quality, recommendations and great performance.’’ • Some of them, especially students find the premium plans too
expensive and even use crack app versions for their music needs.
User Persona 2 • Some people find that music streaming drain mobile data quickly
and therefore resort to a limited list of already downloaded music.
Name: Megha Age: 30
Occupation: Govt Employee Location: Jaipur
Are they looking for change ?
• 50% users do not find normal subscription plans too costly and
“I like listening to music during my daily commute. I prefer
are willing to pay if their concerns are addressed and if they find
vernacular music over international options and I am looking for a
value in the paid plans.
music app where I can easily create playlists and be updated of new
• Creating avenues to foster more engagement with the app may
releases and find more music of my interest during my limited
attract and retain paid users.
commute time.”
Digging Deeper into The Problem
Breaking Down the Problem
Redefining the True Problem
Do not find value in premium
Users, especially those who aren’t avid listeners, are
reluctant to pay for a premium as they don’t see the value
in it. Lack of active engagement with the application is the
hindrance, especially for free users, to convert to premium. Less engagement with the app Less time to listen to music
There is a need for a more enjoyable listening experience and
more utility from the app
Why Solve This Now
• User penetration rate for music streaming apps is 5.9% Job To Be Done
in 2023 and is expected to increase to 7.1% by 2027.
This is an increase of ~2Cr users and is important to tap When I think of listening to music, I start with a few free apps in
into it now. my phone
• Revenue from music streaming market in India is
projected to grow by 8.72% (2023-2027) resulting in a But I get frustrated with the ads in the free plans and think of
market volume of ~Rs 5000Cr in 2027. upgrading
• India is a fast growing market and research shows that
Indian consumer mindset is maturing in the direction Help me find more value from the application
that more and more consumers are now willing to pay
for digital services. So that I find the subscriptions worth the price
Possible Solutions
Music Trivia Live Music Discovery Find & Add Friends
Idea: There will be music and genre- Idea: Premium users will be able to find Idea: For premium users, app should give
related quizzes for premium users that they information on live performances by artists friend suggestions based on phone
can participate in inside the app. There whose music is available in the app. They numbers in contact list and should enable
should be leader boards based on will be notified of performances by artists searching by name or user name. Friend
performance across a number of quizzes they marked as favourites and will also be requests can be sent and friends will be
and the weekly winners get a reward such able to book tickets through third party able to share playlists with each other.
as free movie tickets. app integrations. There will also be suggestions based on
common interest and mutual friends.
Why it works: Why it works:
This idea is based on gamification and This idea works especially for college Why it works:
helps in fostering consistency and thus students who love concerts and Social engagement will add more value
more engagement. People would love the performances. This will be an ideal bonus and definitely improve overall engagement
thrill of competition and the prospect of point that will compel them towards with the app and leads to retention and
winning is a strong motivator for people to paying for a premium. less churn as this would be a feature
participate. unique to Spotify.
Total
Feature Reach Impact Confidence Effort
Score
Music Trivia Moderate Moderate Moderate Moderate 4
Live Music Discovery Moderate Moderate Moderate High 2.66
Find & Add Friends High High High High 9
High =3 Moderate = 2 Low = 1 Total = (R*I*C)/E
Designs for The Proposed Solution
Friends section on the top navigation bar. From there, user will be taken to friends list. The icons on top right here are for finding song
recommendations based on what your friends are listening to and for finding new friends. Inside a friend’s profile, the user should be able
to see their playlists if they have made it public or request them access to view their playlists and for copying them.
Key Metrics to Track Success
Type Of Metric Metric for Spotify Significance of Metric Want
Since the goal is growth in number of premium subscribers,
North Star Metric Number of paid subscribers
this should be the NSM
Number of free users converting to Free users are more likely to convert to premium than any
L1 (Primary Metric)
premium other group, directly contributing to the NSM
This is the pool of potential users who can turn into
L2 (Input Metric) Number of new users signing up
subscribers
Number of visitors converting to
Adoption Metric Number of users who visit the premium tab who sign up
subscribers
Engagement
Daily Active Users/Monthly Active Users Indicates that converted users find value and won’t churn out
Metric
Usage Metric Number of listening hours Higher listening hours means higher usage of the app
Retention Metric Number of users renewing premium This is the ultimate measure of retention in this case of growth
Satisfaction Metric App ratings Higher app ratings is the most visible indicator of satisfaction
Outcome Metric Increase in revenue from premium users Ultimate goal is growth in revenue from the growth in users
Health Metric Latency in loading music Latency should be less for the best user experience
Potential Pitfalls & Mitigation
Potential Pitfalls Mitigation
Some people prefer privacy and won’t want to There should be option for people who don’t
engage socially regarding personal preferences want to be discovered and don’t want to have a
like music social profile
Since this involves a lot of engineering effort, the
The MVP should be simple yet value adding
feature may take long to be pushed out
Exchanges will be based on one-tap requests
Engagement with friends will still be limited in
between friends which will still aid in the
the current proposed solution
expected outcome
There is a chance this feature will take a life of its
Further additions to this basic feature should be
own and distract users from the core functionality
minimal.
that is listening to music
