Analysis

Spotify vs Apple Music: a tale of two freemium strategies


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Yesterday’s news that Spotify now has 30 million paying subscribers brought the company’s competition with Apple Music into focus again.

Since June 2015 when Apple’s streaming service launched, Spotify has added 10 million paying subscribers, while Apple Music has signed up at least 11 million – the figure it released in mid-February.

That’s 21 million new paying customers for streaming music, with the caveat that we don’t know how many of them were previously paying for other services.

At this point, the competition between Spotify and Apple Music is fuelling strong growth for both services, and their differing takes on “freemium”.

For Apple, it’s a free three-month trial accessed through the Music app preloaded on all its devices, plus iTunes on the desktop, but then a hard stop where users must start paying to continue using it. For Spotify, it’s the much-discussed permanently-free tier, with the upgrade to premium being optional for users.

The temptation for journalists and music-industry execs alike is always to look for The One Model That Will Win – if Apple Music is winning, Spotify has to be losing and vice versa.

The truth appears to be more positive, for now: both models are ‘winning’ if the goal is converting free music listeners into paying subscribers. Far from putting the brakes on Spotify’s premium growth, Apple Music’s launch has spurred both product and marketing innovation at its rival.

The result: Spotify’s rate of subscriber growth has accelerated, but also its conversion rate has crept up from 25% in May 2014 to around 30% now.

It’s a moment, perhaps, for music rightsholders to sit back and let the competition between the two companies continue to bubble, including resisting the pressure to enforce long-rumoured restrictions on Spotify’s free tier in order to make the service more like Apple’s.

The obligatory note of caution: Spotify’s subscriber growth may be encouraging, but the model behind it remains mired in questions when it comes to its long-term sustainability.

Apple has the profits from its hardware business to soak up the costs of Apple Music’s three-month freebie, while Spotify bears the burden of its 70 million (ish – it hasn’t officially announced 100 million active users yet) free customers as an independent company.

Even with an incoming $500m of convertible loan notes, Spotify is the poorer relation if its battle with Apple becomes a long-term slugfest for new subscribers.

Right now in 2016, both companies are ‘winning’ but one of Spotify’s major challenges remains plotting a course to financial sustainability, to ensure that its half of that victory is not ultimately pyrrhic.

Stuart Dredge

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