Group assignment assignment title business model canvas of spotify

Spotify Target Market Segmentation...3 1.1 Spotify Demographic Segmentation...3 1.2 Spotify Geographic Segmentation...4 1.3 Spotify Behavioral Segmentation...4 1.4 Spotify Psychographic

NATIONAL ECONOMICS UNIVERSITY

GROUP ASSIGNMENT MANAGEMENT OF INFORMATION SYSTEM

-GROUP ASSIGNMENT

ASSIGNMENT TITLE: BUSINESS MODEL CANVAS OF SPOTIFY

UNIT ASSESSOR: MR NGUYEN MINH TUAN

Hanoi, 04/2023

NATIONAL ECONOMICS UNIVERSITY

INTERNATIONAL SCHOOL OF MANAGEMENT AND ECONOMICS Bachelor of Business and Administration in Entrepreneurship Management

Assignment Brief

Group

Student declaration We certify that the assignment submission is

entirely my own work and We fully understandthe consequences of plagiarism We understandthat making a false declaration is a form ofmalpractice

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TABLE OF CONTENT

INTRODUCTION 3

I Customer segments 3

1 Spotify Target Market Segmentation 3

1.1 Spotify Demographic Segmentation 3

1.2 Spotify Geographic Segmentation 4

1.3 Spotify Behavioral Segmentation 4

1.4 Spotify Psychographic Segmentation 5

2 Mass market 6

3 Niche market 6

II Value proposition 6

III Channels 7

IV Customer relationships 8

V Revenue streams 9

1 Subscriptions 9

2 Advertising 10

VI Key resource 11

VII Key activities 12

VIII Key partnerships 13

IX Cost structure 14

CONCLUSION 17

REFERENCES 17

Spotify was established by Spotify AB in Stockholm (Sweden) on October 7, 2016 It

is a digital music, podcast, and video service that allows users access to millions of songs andother works by artists across the world On March 13, 2018, Spotify formally entered theVietnamese market As of January 2018, Spotify had more than 75 million paid customers,making it the music streaming service with the most users worldwide, surpassing mightyrivals like Apple Music (Apple Music ranked 2 with only 27 million paying users) Spotifybegan in Sweden and today serves most of Europe, North America, and portions of Asia.Spotify can be downloaded and used on any platform, including the web, mobile devices, anddesktop applications (Mental Itch, 2023)

BUSINESS MODEL CANVAS

I Customer segments

In order to make the freemium business model work, Spotify relied on a three-sidedcustomer base: music and technology enthusiasts, artists and music labels, as well asadvertising companies

Picture 1: Spotify target customer

Source: simplilearn.com

1 Spotify Target Market Segmentation

1.1 Spotify Demographic Segmentation

Although the brand is popular among all age groups, it is stronger with youngaudiences 29% of Spotify users are members of the millennial generation, and 26% areunder 24 years of age In fact, in 2020, Spotify was the most popular online music service

in the US for those aged 12 to 34 In contrast, the over 55s Spotify age group of usersmakes up 19% Spotify’s freemium subscription is highly popular among younger users –71% of people using Spotify for free are under 35 years old (start.io, 2022).

1.2 Spotify Geographic Segmentation

The Spotify customer segmentation is largest in Europe, with 66 million users in Europe

vs 48 million in the US, 33 million in Latin America and 18 million in the rest of the world(start.io, 2022) In the US, the target audience are frequent users of the audio streamingservice 30% of US listeners tune in to the music app on a monthly basis and 28% listen to itweekly – a figure that has grown steadily over the past decade

Picture 2: Share of Spotify users in the United States from 2013 to 2021

Source: start.io

1.3 Spotify Behavioral Segmentation

Spotify users typically enjoy the personalized experience offered by the platform.More than a third of the time spent on Spotify is listening to playlists, of which 36% arecreated and shared by other users Streaming preferences are highly variable depending onlocation In 2022 so far, the most streamed track on a weekly basis among the globalaudience is Heat Waves by Glass Animals, whereas in the US, it’s First Class by Jack Harlow(start.io, 2022)

Picture 3: Most- streamed weekly tracks on Spotify in the US 2022 (million streams)

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Source: start.io

Spotify’s success goes beyond music streaming In 2022, the brand took the top spot

in monthly number of podcast listeners (32.5 million), overtaking even Apple Podcasts,which moved to second place with 28.5 million listeners

1.4 Spotify Psychographic Segmentation

Spotify’s popularity among Millennials correlates with the generation’s attitude tomedia consumption in general: 60% say that audio is the most immersive form of media.Spotify’s vast audio library of 70 million song titles and nearly 3 million podcasts appealsdeeply to younger listeners aged 14-35 This segment tends to veer away from mainstreammusic and look for more indie and alternative styles (start.io, 2022)

Spotify uses a multi-sided platform model for its customer segmentation which isoriented towards two customer segments, firstly the community of young people looking fornew affordable ways to listen to music and secondly the advertisers looking for ways to reachthis community with their advertising Spotify needs to build up a community to create andlarge audience attractive for advertisers, since out of the total members or users of Spotifyonly a 25% are premium users or paying customers, which covers part of the expenses, butthe members listening to the free version have to listen to advertising in-between and this iswhere revenue is generated from the advertisers So the two revenue bases are the premiumusers/ paying subscribers or the advertisers advertising on Spotify (start.io, 2022)

2 Mass market

The increased number of users meant diverse segments of users getting on board AndSpotify configured their services in response to users’ evolving requirements Faced with

freshly emerging demands from the expanded users, Spotify is morphing from a mere musiclibrary to a medium for the mass market This evolution may be best described through thedevelopments in Spotify’s music sharing and discovery features.

II Value proposition

Spotify offers five primary value propositions: accessibility, pricing, customization,performance, and brand/status

The company creates accessibility by providing music artists with a means to earnmoney through their music It gives them the option of streaming their work so they do nothave to rely solely on revenue from downloads through services such as iTunes The firm alsoprovides access to consumers by making this music available in a streaming format

The company offers a pricing value proposition It provides a free version of its

service Its premium version costs only $9.99 a month, and it offers a 30-day free trial so

customers can try it out There is also a premium version for students that costs only $4.99

a month

The company enables customization by allowing customers to search for songs andcreate playlists for their music based on artist, genre, album, record label, and othercategories

The company has demonstrated strong performance through tangible results.

Specifically, it has partnered with a number of brands to increase their awareness and sales

High-profile examples of positive outcomes for these partners include the following: BMW

used Spotify’s solution to launch a branded app that created music experiences for road trips,resulting in the creation of over 14,000 playlists and a 30% completion rate Reebok used

Spotfiy’s solution to launch a branded app that enabled users to create fitness playlists,

resulting in 365,000 visits, 150,000+ downloads, and over one million page views Hello

Bank! Used Spotify to create a custom crowd-sponsored platform enabling customers to

sponsor music projects, resulting 12,792 active users and 110 out of 120 sponsored projects

Volvo used Spotify’s solution to create a marketing campaign with a music connection,

resulting in over 2 million YouTube views and over 6,000 shares of the promotional videoOnline fashion retailer Iconic used Spotify’s solution to run an ad campaign, resulting inincreased awareness of the brand among customers (48% said it increased their interest)The company has established a powerful brand due to its success It has half a billionregistered users, more than 100 million active users, and 40 million paying subscribersglobally It provides access to more than 30 million songs with thousands of curated playlists.Lastly, its average cross-platform user spends 148 minutes a day listening to its offerings

III Channels

Spotify has various channels for users to stream music and podcasts These include:

Website: The majority of Spotify's clients are acquired via its website, which also

serves as its primary distribution route Communities for users, artists, developers,advertisers, investors, and vendors are available on its website

Mobile app: Users can download Spotify on both iOS and Android operating system.

All of its customers' demands are met via its mobile apps Spotify offers several apps,including "Spotify: Play Trending Music" for users, "Anchor" for podcasters, "Spotify forArtists" for artists, "Soundtrap Studio" for recording, and "Spotify Live" for interactionsbetween artists and listeners Revenue from Spotify's mobile apps totaled $6 million in March

2023, of which $3 million came from iOS and $3 million from Android Spotify has a total of

26 million mobile app downloads, including 6 million for iOS and 20 million for Android.There are a total of 21 applications for Spotify, including 10 for iOS and 11 for Android.Spotify: Music was both the most downloaded app and the top-grossing app last month.( Sensor Tower, 2023)

Partnerships with other companies: Spotify also has 84 partners, 62 are technology

partners and 22 are channel partners which allow users to stream Spotify on connecteddevices (Partnerbase, 2023)

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IV Customer relationships

Social media: Use entertaining social media posts to promote the business Spotify

offers a digital product, which makes it simple for it to demonstrate its capabilities online.They do this in a creative way by creating playlists that contain complete phrases

Here, Spotify responds to a curious consumer with a smart tweet from its Twitteraccount In fact, Spotify made a playlist that spelt out the phrase "Scott, Mr Welcome to theparty We're here for a good time, so don't worry about a thing We'll be here when you need

us Just shout and we will come running!" Spotify may connect to its real product whereasother firms may put pictures, videos, or other types of material on their social media sitepages Some individuals may view this playlist and discover songs they enjoy That couldassist in introducing them to Spotify (Shower, M ,2022)

Email marketing: Connecting with your customers (and potential consumers) in a

way that aligns their requirements with your solution is the foundation of marketing.Personalization is essential to successful marketing because of this

Personalization is much more crucial in email marketing This is due to the fact thatyou have access to your customer's direct line of communication (as opposed to ads, whichtend to be more general) The recipient will be more inclined to click through if you providemore pertinent content because you are directly addressing his or her wants

This idea is clearly illustrated in Spotify's email marketing campaign, which youshould check out In order to deliver a tailored email experience and increase in-appengagement, they make use of every piece of client data they possess (Sendinblue, 2023)

Customer service: Spotify has Great Focus on Social Customer Care Spotify values

its relationship with customers Actually, they excel at both keeping customers happy andproducing material that deserves to be shared In 2015 and 2016, they received two WebbyAwards for their social media customer service, and some of their interactions with others

almost functioned as advertisements (Rodoplu, I , 2022)

V Revenue streams

Spotify has two main streams of income: advertising (13% of total revenue) and

subscriptions (87% of total revenue)(Spotify, Annual Report, 2022).

Picture 4: Total revenue stream of Spotify in 2022

Source: Spotify annual report

1 Subscriptions

In the case of the subscription: Spotify generates revenue by selling Premium service

to the subscribers They can have unlimited online and offline high-quality streaming access

to catalog of music and podcasts, on any devices and no commercial breaks In the Vietnammarket, Spotify offers 3 kinds of subscription pricing plan: Mini (2,300VND/day), Individual(59,000VND/month) and University student (29,500VND/month)(Spotify, 2023a)

2 Advertising

On another hand, Spotify provides unsubscripted-user free access to their music withlimited features and many advertisements In this case, Spotify earns money from advertisers.This strategy serves as an incentive to scale businesses and attract global listeners(Fleischer,2017) It might make the non-paying people feel uncomfortable but on the other hand,encourage them to upgrade their account for a better music experience Spotify has a variety

of ad formats They are created with the goal of interacting well with the audience but notinterrupting or disturbing their listening experience.There are 3 main formats of advertising

on Spotify: Audio ads, Video ads, and Podcast ads

Audio ads: is the most common advertising in this app They will appear between

songs in a playlist, maximum 15 seconds This is when listeners are most focused and theycan't scroll or press any skip button Audio advertising is considered a very effective way toadvertise because under normal circumstances, it is very difficult to get customers' attention

or ask them to listen or watch ads from beginning to end As Spotify said on their website:

“you can guarantee your message will be heard…75% of Spotify listeners…remember adsmore when the ads recognize their moment or setting”.(Spotify, 2023b)

Video ads: Different from regular promotional videos Spotify's system keeps the

customer's device in mute and volume up mode- Eliminates the case where listeners refuse tohear audio from the videos Spotify provides 2 kinds of video ads: Video takeover andsponsored video For example, sponsored session: “Trading 60 seconds for 30 minutes” Thesponsor gives the free users 30 minutes of uninterrupted music if they watch a 60 secondsvideo (Spotify, 2023c)

Sponsored Playlist: This format is more special in that it offers the opportunity to

sponsor some of Spotify’s most popular owned & operated playlists - many fans can beinteracted with (Harrison, 2023)

Video takeover: The most basic format of advertising This is a kind of ad break

(15-30 seconds) played after finishing a song

Podcast ad: This is a mid-roll ads - means a minute advertising video will appear

when the podcast has played 40-70% - the listener pay attention the most- the reason whyMid-roll ads have higher cost than Pre-roll ads (Bloomads, n.d)

Beside, Spotify also provide some display format for advertisement such as

Homepage takeover (a banner at the center of Spotify’s homepage, last 24 hours); welcome Back Ads (shown whenever the users return back to the app); Branded Moments (“right user right time” - sportswear ads in a workout playlist) (Kakar, 2018)

VI Key resource

They have a very complex system to meet the needs of millions of users around the world, including: IT infrastructure, music catalog, music contracts, employees and user data