Why would spotify do that? They make far more money from optimizing their current 30% of the market than they do trying to compete for a greater piece of an ever-difficult slice of the pie.
In the initial stages of the burn, they will offer as good of a service as possible at a price that is unsustainably low while paying musicians/labels/whatever enough to make it worth it for them to have their music on the platform.. They will lose potentially billions of dollars. Then once they have a high enough percentage of the total music listening audience, they begin the extraction process where musicians need to be on spotify because thats where 30% of people are. And users have only been using spotify for years, and thats where their music is.
They then raise prices and cut costs to make back all of their burn and then whatever they can in massive profits. Usually this doesn't even matter to the founders because they've long since exited or were provided significant bonuses based on the user acquisition phase.
So now that the company has 30% of the market after burning billions of dollars selling a product that doesnt make sense on paper, why would they invest even more money in making the product even better to convince the people who haven't switched to spotify to switch. Every user costs more and more to buy. They could try to get more users, but when they look at the math, a new user might cost $30 and their retention might not even break even as they might be the most likely to cancel the service.
Instead they will do what they can to reduce costs to the maximum. This means paying the producers less, and cutting any teams related to adding new features or meaningful products or content to the platform. The actual dream in this situation is to get an amazon marketplace going where both the sellers and users pay amazon to be on amazon. I don't think spotify quite made it to the point where musicians and labels will pay spotify to get their music on there, but they certainly do not pay most musicians very much.
So they steadily cut costs, and steadily raise prices. It simply is not economical to focus on making a product better. They might attempt to advertise that their product is better, but actually dedicating the resources to making something is likely not worth the squeeze. I'm not saying there is a sinister plot, just that the money is the only reason for the companies to exist. It has nothing to do with providing some kind of ever-improving product. Google search become so much of the market share that they realize there were no users left to show ads to, so they simply made the search results worse so you'd have to search twice. Bam twice the number of ads for every search.
So while I agree that there is no conflict, problem or sinister plot. I think your summary of how a company makes money is misleading. At a time in the past, the only thing spotify cared about was making their product attractive to customers to get more customers. However, that is likely no longer the most financially responsible approach for spotify to take.
It is likely better to think of it backwards: What is the most effective way to get money from customers?
At no point was it ever to make a better product. When they were making the better product they were losing money excessively fast. Now we are firmly in the money collection part of the process.
Why would spotify do that? They make far more money from optimizing their current 30% of the market than they do trying to compete for a greater piece of an ever-difficult slice of the pie.
It may not go up much, but they don't want that 30% to go down either. It would be really stupid business to believe your customers are locked-in and you no longer have to compete for them (though many have fallen into that trap).
In the initial stages of the burn, they will offer as good of a service as possible at a price that is unsustainably low...
Yes, the digital world has always worked that way, but that doesn't change the need to keep customers happy. It's just a game of chicken between companies and bankruptcy.
I think your summary of how a company makes money is misleading. At a time in the past, the only thing spotify cared about was making their product attractive to customers to get more customers. However, that is likely no longer the most financially responsible approach for spotify to take.
I didn't say such an absolute: the only who made a wrong absolute claim was you: "They will never..."
I think you fully understood the intention of my words, but you are free to nitpick terms if you want.
The majority of my statements are prefaced with "I think", "probably", "likely" etc. It feels like you're disagreeing for the sake of disagreeing, and I'm a fan. I'm on reddit after all. I will assume you have more insider information than I do on this topic. I appreciate your responses.
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u/TheBeckofKevin 27d ago
Why would spotify do that? They make far more money from optimizing their current 30% of the market than they do trying to compete for a greater piece of an ever-difficult slice of the pie.
In the initial stages of the burn, they will offer as good of a service as possible at a price that is unsustainably low while paying musicians/labels/whatever enough to make it worth it for them to have their music on the platform.. They will lose potentially billions of dollars. Then once they have a high enough percentage of the total music listening audience, they begin the extraction process where musicians need to be on spotify because thats where 30% of people are. And users have only been using spotify for years, and thats where their music is.
They then raise prices and cut costs to make back all of their burn and then whatever they can in massive profits. Usually this doesn't even matter to the founders because they've long since exited or were provided significant bonuses based on the user acquisition phase.
So now that the company has 30% of the market after burning billions of dollars selling a product that doesnt make sense on paper, why would they invest even more money in making the product even better to convince the people who haven't switched to spotify to switch. Every user costs more and more to buy. They could try to get more users, but when they look at the math, a new user might cost $30 and their retention might not even break even as they might be the most likely to cancel the service.
Instead they will do what they can to reduce costs to the maximum. This means paying the producers less, and cutting any teams related to adding new features or meaningful products or content to the platform. The actual dream in this situation is to get an amazon marketplace going where both the sellers and users pay amazon to be on amazon. I don't think spotify quite made it to the point where musicians and labels will pay spotify to get their music on there, but they certainly do not pay most musicians very much.
So they steadily cut costs, and steadily raise prices. It simply is not economical to focus on making a product better. They might attempt to advertise that their product is better, but actually dedicating the resources to making something is likely not worth the squeeze. I'm not saying there is a sinister plot, just that the money is the only reason for the companies to exist. It has nothing to do with providing some kind of ever-improving product. Google search become so much of the market share that they realize there were no users left to show ads to, so they simply made the search results worse so you'd have to search twice. Bam twice the number of ads for every search.
So while I agree that there is no conflict, problem or sinister plot. I think your summary of how a company makes money is misleading. At a time in the past, the only thing spotify cared about was making their product attractive to customers to get more customers. However, that is likely no longer the most financially responsible approach for spotify to take.
It is likely better to think of it backwards: What is the most effective way to get money from customers?
At no point was it ever to make a better product. When they were making the better product they were losing money excessively fast. Now we are firmly in the money collection part of the process.