MGMT449 Loyola Marymount University Spotify Application Case Study Questions

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MGMT449

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1.How is Spotify a platform? What participants are part of it?In what way Spotify grows and become successful through its platform and the participants?

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For the exclusive use of S. Alhagbani, 2019. ,(6 SM-1642-E August 2016 Spotify: Face the Music (update 2016) Facing Increased Competition After sampling some of the new music releases of early 2016, Daniel Ek ended his Spotify session. Soon, millions of Spotify users would learn he had just listened to Andrew Gold’s cover of The Beatles’ “Norwegian Wood,” as the profile of Spotify’s CEO was one that every new Spotify account followed by default. Some users might be curious enough to click and listen to the album, share it on Facebook, or include one of its songs in a virtual mixtape that could be posted online. The company was proud of the social features of Spotify’s client software, which had probably played an important role in the tremendous growth the service had enjoyed since its launch back in 2008. But Spotify was making lots of other noise. The company had just raised $1 billion in convertible debt and the media were full of speculation that the company was preparing to fight off the threat of the technology giant Apple’s new streaming service, Apple Music.1 Did Spotify have something to fear? After all, it was the world’s leading on-demand music streaming service. In early 2016, it reportedly had more than 100 million users, 30 million of whom paid a monthly fee for Spotify’s premium services.2 It had entered the difficult U.S. market with great success, and it already had a presence in more than 50 countries. Spotify’s catalog contained more than 30 million songs, including the libraries of all the major recording labels. Yet not everything was so favorable. While Spotify had been able to fend off other competitive threats, Apple’s streaming service, Apple Music, was gaining users at a frantic pace. In just six months, it had attained 10 million paid users, a milestone that took Spotify many years to achieve.3 And this happened while Spotify had still been unable to achieve profitability – net losses in 2015 had gone up to ¤184.5 million,4 and the company had yet to post a profit since the service’s debut in 2008. Some analysts pointed to how other companies offering streaming music, such as Rhapsody, had been unsuccessful in the past. Spotify was going to face the biggest challenge in its short existence, and Ek was probably aware that the company could not afford any misstep. Despite its impressive success up to that point, some believed it still could go on to become yet another casualty in the troubled history of digital music. This case was prepared by Professor Govert Vroom, and Isaac Sastre, case writer, as the basis for class discussion rather than to illustrate either effective or ineffective handling of an administrative situation. August 2016. Copyright © 2016 IESE. To order copies contact IESE Publishing via www.iesep.com. Alternatively, write to iesep@iesep.com or call +34 932 536 558. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means – electronic, mechanical, photocopying, recording, or otherwise – without the permission of IESE. Last edited: 2/9/18 1 This document is authorized for use only by Salman Alhagbani in 2019-Summer-Strategic Management_1 taught by TSUHSIANG HSU, Niagara University from Jun 2019 to Aug 2019. For the exclusive use of S. Alhagbani, 2019. SM-1642-E Spotify: Face the Music (update 2016) Sp The History of the Music Industry The Music Industry Before the Digital Era In 1999, the recorded music industry was at its peak. With $38 billion in global revenues,5 it was riding a wave of growth as more convenient playback media such as the CD had replaced vinyl records and cassettes. CDs combined the accessibility of a small and cheap cassette player with much higher sound quality and fidelity. Recorded music came into existence with the invention of the phonograph by Thomas Edison in 1877, which enabled sound to be reproduced using an engraved cylinder, the “record.” Recorded music would become popular throughout the 20th century with the emergence of mass media such as the radio, which brought music to millions of homes. Music enthusiasts wanted a way of listening to their favorite songs without having to wait for them to be broadcast again on the radio or television, and sales of recorded music exploded. Soon, a new business model emerged where recording companies, called “music labels,” contracted artists to produce music for them. These labels acted as both producers and publishers, coordinating and handling the recording, manufacturing, promotion, marketing and distribution of music. The finished records were sent to final distributors (from small music stores to nationwide chains or department stores, or eventually even online retailers such as Amazon), which sold them to the final customer. Recorded music was published in albums of several tracks (usually around 10). Some hit songs were released as singles, which could be sold for a lower price and were also used for promotional purposes, but the transition to compact disc (which had very similar production costs regardless of the length of the recording) had reduced the sales importance of the single. In 1999, this business model had remained undisturbed for decades. Eventually, the market had become concentrated in the so-called “big five” major labels: EMI, Sony Music, Universal Music Group, BMG, and Warner Music Group. These larger companies often also acted as the publishers of smaller independent companies, which lacked the capacity to develop effective distribution and marketing arms. This increased the major labels’ market share even further. However, in June that year, 1999, while the recording industry was enjoying its best year ever, a group of entrepreneurs launched the file-sharing service Napster. The service allowed users to share files easily through the Internet, and became the first step that would unravel the entire industry as it had been understood up to that point. The Digital Medium and the Rise of Music Piracy Two years later, in 2001, Judge Marilyn Hal Patel ordered an injunction against Napster, after the Recording Industry Association of America (RIAA) brought a suit against the company.6 Napster users had been using the service to share music in digital format illegally. In just two years Napster had amassed 60 million users, who were swapping more than 165 million songs a day without paying artists or labels.7 Music sales had been falling dramatically, which had prompted the RIAA to start an intense campaign against music piracy. Yet, despite its efforts, sales would continue in free fall for This document is authorized for use only by Salman Alhagbani in 2019-Summer-Strategic Management_1 taught by TSUHSIANG HSU, Niagara University from Jun 2019 to Aug 2019. IESE Business School-University of Navarra 2 For the exclusive use of S. Alhagbani, 2019. Spotify: Face the Music (update 2016) SM-1642-E years to come, reaching an all-time low of less than $16 billion in 2011.8 In a little more than a decade, the music industry had been cut in half. Figure 1 shows the dramatic drop in music spending per capita throughout the first decade of the 21st century, compared with the previous state of the industry. Figure 1 U.S. recorded music revenue – 2011 dollars per capita Source: Michael DeGusta, “The REAL Death of the Music Industry,” Business Insider, February 18, 2011, http://www.businessinsider.com/these-charts-explain-the-real-death-of-the-music-industry-2011-2. The industry, in general, blamed piracy for these lost sales,9 but Ek had his own opinion of what had happened: “I realized convenience quite often wins… It’s not that people don’t want to pay for music… It was the only point in time when the stolen product has been much, much better than the one you legally acquired… For me it was a pretty big given why we ended up where we ended up in the music industry.”10 What had happened? Three key developments had brought about the age of digital music: - MP3 compression technology. In 1993 the Moving Picture Experts Group – the group tasked with setting the standards for digital audio and video formats – published the MPEG-1 Layer III standard for digital audio, commonly known as “MP3.” The MP3 standard reduced the size of a music file by an order of 10, while keeping a quality that was nearly undistinguishable from larger, lossless formats on all but high-end playing This document is authorized for use only by Salman Alhagbani in 2019-Summer-Strategic Management_1 taught by TSUHSIANG HSU, Niagara University from Jun 2019 to Aug 2019. 3 IESE Business School-University of Navarra For the exclusive use of S. Alhagbani, 2019. SM-1642-E Spotify: Face the Music (update 2016) Sp devices.11 The result was that users could rip their audio CDs, store their entire record collection on their computers, and easily share it with friends. - The rise of the Internet. The Internet was opened to commercial operators in the early 1990s. In 2000, 43% of the U.S. population already had access to it, a percentage that rose throughout the years and reached 84.2% in 2013. 12 At first, most Internet connections were slow, and it took several minutes to download a single music track. However, soon faster connections were developed and offered by Internet service providers. These so-called broadband connections would eventually allow music tracks and videos to be played instantly. In 2015, it was estimated that there were over 147 broadband connections per 100 inhabitants in the United States, of which the vast majority (116) were mobile connections.13 - New devices. These new digital formats spurred the development of a wide range of software and devices capable of creating and playing digital music files. These devices had greater capabilities than the older analog or CD player technologies. For example, eventually a typical portable digital music player was able to contain the user’s entire music collection, rather than just the 60 to 90 minutes of a typical CD or tape. Users could browse and play any song easily and they could store and display information such as song title, band name or genre. They could then create playlists of their favorite tracks and easily move music between the player and their computers. All in all, these players possessed features and usability that were unheard of in older technologies. Portable digital players quickly became very popular. Later, the massive adoption of smartphones would further increase the user base and capabilities of devices able to play digital music. Despite the music industry’s efforts to stop them, file-sharing networks similar to Napster would emerge: Gnutella, Kazaa, Torrent, and eMule, among others. Trying to shut them all down became a never-ending game of whack-a-mole. The genie was out of the bottle, and the industry would have to figure out what to do with it. The First Steps to a Digital Industry The first companies that marketed digital music usually lacked support from the recording industry. For example, in 2000 eMusic launched a service offering unlimited track downloads from a library of 125,000 tracks to those who paid a monthly subscription.14 However, only artists from independent labels were available. By way of comparison, in 2016 most leading digital music services had libraries of 20 million to 30 million tracks. Likewise, in 2001 MP3.com was offering unsigned artists the chance to distribute their music through its website, paying them according to the number of downloads accrued.15 Both companies would change ownership and business models in the following years. MP3.com eventually shut down and sold some of its assets – including its coveted domain name – to CNET Networks in 2003.16 On the other hand, eMusic was still operating in 2016, allowing customers to download a fixed number of tracks for a set monthly fee. The initial reaction of the major labels to the new technology was litigious. As well as suing the makers and users of music-sharing networks similar to Napster, they also tried – but failed – to obtain an injunction to prevent the sale of the Rio PMP300, the first commercially successful portable MP3 player.17 This document is authorized for use only by Salman Alhagbani in 2019-Summer-Strategic Management_1 taught by TSUHSIANG HSU, Niagara University from Jun 2019 to Aug 2019. IESE Business School-University of Navarra 4 For the exclusive use of S. Alhagbani, 2019. Spotify: Face the Music (update 2016) SM-1642-E Indeed, the major labels’ first attempts to enter the digital market demonstrated the industry’s wariness of the new technology. In the early 2000s, two joint ventures backed by the major recording labels were launched: MusicNet – supported by EMI, Warner, and BMG – and Pressplay, backed by Sony and Universal. Both services had several limitations that made them unpopular with users (such as the limited number of tracks playable per month, and the limited number of tracks from the same artist playable per month). Furthermore, MusicNet and Pressplay only had the music of the labels that backed them, so users needed to purchase two separate subscriptions if they wanted to listen to all the major artists. Soon the labels abandoned these services: MusicNet was sold in 2005 18 and Pressplay was sold in 2003, merging with the Napster brand for the latter’s relaunch as a legal service.19 Both MusicNet and Pressplay came joint ninth on PCWorld’s list of the “worst tech products of all time.”20 The Success of the iTunes Model The industry, however, did not have to wait long for its first massively popular digital music service. In February 2003, Steve Jobs unveiled the iTunes Store during his keynote speech at a special Apple event. At launch, iTunes offered a catalog of 200,000 songs, with backing from major and independent labels, which sold for 99 cents a track.21 Initially, iTunes was available for only Mac computers, but support for Windows was added a few months later, greatly expanding the potential customer base.22 By the end of the year, the store had already sold 25 million tracks. 23 The service would grow exponentially, and by 2013 its customers had downloaded 25 billion tracks, and the catalog had expanded to 26 million tracks.24 Despite these numbers, Apple long claimed that iTunes’ music sales did not provide the company with significant profits.25 However, the iTunes sales drove sales of iPods, which had big margins for the company.26 On the heels of iTunes’ success, several companies replicated its model for selling digital music. For example, Sony launched the Sony Connect Music Store in June 2004, selling tracks and albums at the same price as iTunes.27 Likewise, Apple’s longstanding rival Microsoft launched Zune Marketplace in 2006.28 These stores were not as successful as iTunes: Sony Connect closed in 2008,29 while Microsoft discontinued the Zune brand and launched Xbox Music in 2012.30 Major labels fully backed these and other offerings, as they had done with iTunes. Nevertheless, iTunes and other similar stores still came with a significant restriction. Digital rights management (DRM) technologies were embedded in the tracks purchased. These limited the number and type of devices on which these tracks could be used, ensuring that the customer could not distribute the files freely after purchasing them. Moreover, they also allowed the stores to control how tracks could be used. For example, tracks purchased from iTunes could be played on no more than five devices. Moreover, besides a computer, only Apple devices such as the iPhone, iPod or iPad could play iTunes tracks. As a consequence, iPod sales skyrocketed in parallel with iTunes’ success, reaching 22 million in 2009.31 Likewise, Sony Connect tracks could be transferred only to compatible devices that supported Sony’s ATRAC3 format, such as the Walkman or the PSP (PlayStation Portable) gaming console. Meanwhile, Zune customers had to procure a Microsoftcertified device, such as one of Microsoft’s own Zune-branded line of players. This document is authorized for use only by Salman Alhagbani in 2019-Summer-Strategic Management_1 taught by TSUHSIANG HSU, Niagara University from Jun 2019 to Aug 2019. 5 IESE Business School-University of Navarra For the exclusive use of S. Alhagbani, 2019. SM-1642-E Spotify: Face the Music (update 2016) Sp However, this changed in late 2007 when a new entrant, the online retailing giant Amazon, launched its own digital music store. Labels allowed Amazon, unlike its competitors, to sell tracks without DRM.32 Users could buy from Amazon and play the songs on any number of devices that supported the MP3 format, including iPods, Zune players and Walkmans. Unlike Sony and Microsoft, Amazon was successful and quickly became the second largest digital music store in the United States.33 The competition soon followed its path: iTunes, the market leader, abandoned DRM in 2009.34 Artists too began to experiment with the opportunities that the digital format presented. For example, in 2007, the high-profile British band Radiohead skipped music labels and released their album In Rainbows directly to their fans as a digital download on the band’s website, letting customers choose the price they wanted to pay. 35 No sales figures were released. Attempts like Radiohead’s to upset the usual release process were, however, piecemeal. Streaming and the Smartphone Era RealNetworks was a company that had thrived in the 1990s developing video and audio streaming technologies for the fledging Internet. RealNetworks’ protocols allowed users to watch videos and listen to audio without downloading the files to their computer. In April 2003, RealNetworks launched a new service: RealOne Rhapsody (later shortened to Rhapsody). This became the first major label-backed music streaming service. Rhapsody offered a subscription model where users paid a monthly fee of $9.95 for the ability to stream an unlimited number of songs from a library of 330,000 tracks. Users could not download the tracks directly to their computers. Rhapsody was a moderate success, reaching 800,000 subscribers in 2009. However, its growth rate slowed and ultimately declined. In 2010 it had lost 100,000 subscribers, and analysts at the time doubted its ability to compete with other music services that were not using a streaming model. Rhapsody was spun off from RealNetworks in February 2010, in order to help the parent company achieve profitability.36 In 2013 the now independent Rhapsody acquired Napster, and started using that brand name for most of its business outside North America.37 Rhapsody’s failure to gain traction seemed to indicate that the market preferred stores with the iTunes model, where users could buy and own digital music. However, other streaming services soon appeared. Pandora launched in 2005 and was followed by similar services such as Slacker Radio and MOG.38 Pandora allowed users to listen to customized “radio stations” for free, while it got revenue through advertising. Its “Music Genome Project” analyzed and broke down songs according to multiple traits. Users could then “like” or “dislike” songs that were being played, and the service would attempt to learn their music tastes and play only music that would interest them. During the second half of the 2000s, smartphones became popular. They fused the functionality of a portable media player with a computer with an Internet connection, allowing users to access Internet music services while on the go. In 2010, nearly 300 million smartphones were sold worldwide.39 This greatly benefited streaming services, which could not be used on regular portable music players as an active Internet connection was required. According to Pandora, the introduction of a smartphone app in 2008 practically doubled its growth overnight. 40 This document is authorized for use only by Salman Alhagbani in 2019-Summer-Strategic Management_1 taught by TSUHSIANG HSU, Niagara University from Jun 2019 to Aug 2019. IESE Business School-University of Navarra 6 For the exclusive use of S. Alhagbani, 2019. Spotify: Face the Music (update 2016) SM-1642-E In 2013 Pandora claimed 70 million monthly users in the United States and Canada, dwarfing other subscription-based streaming services.41 One of these streaming services was Spotify, which was rapidly expanding in the U.S. market. Spotify Daniel Ek and Martin Lorentzon founded Spotify in Sweden in 2006 after having both worked for several Scandinavian-based online start-ups. Ironically, Sweden was infamous for hosting The Pirate Bay, the largest search engine for downloading illegal music and video content on the Internet. Spotify finally launched in October 2008 in Sweden and other Western European markets after announcing deals with all major labels plus several independent companies that allowed Spotify to stream their catalogs.42 Initially, Spotify allowed only a limited number of users to join its unpaid service. The company periodically sent out “invites” to its existing users, which they could use to invite their friends. Paid subscription users were not subjected to this and could join at any time. Spotify lifted the limitation in 2009 in the United Kingdom and proceeded to do the same in most of its markets in the following months.43 Spotify launched in the United States in 2011, when it already had 10 million users throughout Europe. This time, Spotify used a different approach. Instead of throttling free users, it offered six months of free premium use to all U.S. customers. Afterwards, they could pay for a subscription or start using the free, ad-supported version of the service. Spotify grew quickly in the United States, and in March 2013 it claimed one million paid U.S. subscribers – and six million worldwide.44 The growth did not slow down, and in March 2016 Ek announced on Twitter that Spotify had reached 30 million paid subscribers. In June that year, Spotify reported its total user base (paid+free) had reached 100 million active users45. Spotify kept expanding its presence over the world: Germany, Australia and New Zealand were added in 2012, and in 2013 the service became available in Italy, Poland, Portugal, Mexico, Hong Kong, Malaysia, Singapore, Estonia, Latvia, Lithuania and Iceland. In 2016, Spotify was available in more than 50 countries, spanning the Americas, Europe, Asia and Oceania. The Spotify Business Model In 2016, Spotify was offering two service tiers in most of its markets: free and premium. Both tiers allowed on-demand unlimited listening of every song in the Spotify catalog, an unlimited number of times, from any desktop computer or tablet. Users of the free service had their playback interrupted every few songs by short audio adverts. During the previous years, Spotify had slowly been increasing the number and frequency of the commercials, and also had added visual adverts to the user interface of free customers. However, premium users could listen to music without being interrupted by adverts, had access to higher-quality audio, and enjoyed other features. Spotify also provided a mobile app that could be installed on Android or iOS smartphones. Notably, only premium users could play music on demand with the Spotify mobile application. Free users were not able to select a particular song but could create a “station” that would play This document is authorized for use only by Salman Alhagbani in 2019-Summer-Strategic Management_1 taught by TSUHSIANG HSU, Niagara University from Jun 2019 to Aug 2019. 7 IESE Business School-University of Navarra For the exclusive use of S. Alhagbani, 2019. SM-1642-E Spotify: Face the Music (update 2016) Sp random music that followed certain user-provided guidelines (e.g., genre, era or artist). Table 1 shows the differences between the two service tiers and compares them with Pandora, the largest streaming service in the United States in terms of number of users. Table 1 Spotify service tiers in the United States compared with Pandora (2016) SPOTIFY Free PANDORA Premium Free Pandora One Mobile Desktop and tablet All devices All devices All devices Full catalog access Yes Yes Yes Yes Yes Playlists Yes Yes Yes No No Play tracks on demand No* Yes Yes No* No* Ad-free listening No No Yes No Yes Sound quality (kb/s) 128 128 320 64 192 Offline mode No No Yes No No $9.99 $0 $4.99 Monthly fee $0 * Maximum of six track skips per hour. Source: Prepared by the authors. Spotify often ran promotions to try to sign up more customers to its subscription services. In early 2016, it was offering a free month of premium service to all new users in several countries. It also entered frequent deals with carriers in order to offer bundles and discounts to Spotify customers. Spotify did little advertising of its own. Spotify’s functionality was simple. When the user launched the application, music started to play automatically, resuming the last active playlist. Users could search for any song straight from the home screen, access their list of favorite songs and artists, access their playlists, and browse the most popular tracks and artists of the moment. The radio feature brought several preset thematic radio stations and allowed users to create new ones using a variety of guidelines. Spotify also had a “discover” feature that suggested new artists based on the user’s listening habits. (See Exhibit 1 for several screenshots of the mobile and desktop Spotify clients in 2014.) Spotify had several social features. Inside the app, users could “follow” their friends to see what music they were listening to. Users could also follow artists, bands and other personalities in order to get news about them and be alerted if they released new songs on Spotify. Integration with Facebook and Twitter allowed users to see their friends’ activities and favorite music and artists and generated items about their listening habits on these social networks. Users could also share songs on Facebook, so their friends could listen to them even if they were not Spotify customers. This document is authorized for use only by Salman Alhagbani in 2019-Summer-Strategic Management_1 taught by TSUHSIANG HSU, Niagara University from Jun 2019 to Aug 2019. IESE Business School-University of Navarra 8 For the exclusive use of S. Alhagbani, 2019. Spotify: Face the Music (update 2016) SM-1642-E Spotify tried to develop even closer integration with Facebooki and at one point forced users to log onto Spotify using a Facebook account. This was badly received and Spotify soon reversed its plans. All users were also able to save and share their playlists through e-mail, messaging applications and social networks. A noncustomer could click and listen to the playlist but would be asked to register an account with Spotify. Playlists were a popular feature, and third-party websites, such as Playlists.net or Shareplaylist.net, had been set up where users could share, discuss and rate them. Spotify promoted autonomy within its structure, with the aim of fostering innovation and quick decision making and the speedy implementation of improvements, design changes or features. There were little formal dependencies between working groups (called “squads”), but cross-pollination and informal interaction between squads and particular members were strongly encouraged. The company even allocated 10% of its employees’ working hours to “hack time,” during which they were asked to come up with and test new ideas or features, in an unrestricted environment. This culture enabled Spotify to be agile and react quickly to changes in the environment, while pushing innovations quickly. As Ek put it, “we aim to make mistakes faster than anyone else.”46 Financial Performance When Spotify launched in 2008, it did so with major music labels taking 18% of its shares, for a contribution of 100,000 Swedish kronor ($13,500). 47 Spotify’s rapid expansion required significant investment but the company had no trouble raising capital. Between 2007 and 2015 it successfully completed seven funding rounds, reportedly raising a cumulative total of $1.06 billion with a 2015 valuation of $8.53 billion. It also raised an additional $1.5 billion in convertible notes and convertible debt in the first half of 2016.48 On the face of it, Spotify’s performance during its short life had been nothing less than impressive. In 2014 it surpassed ¤1 billion in revenue for the first time, and the number of users kept growing at a frantic pace. However, there was an obvious downside. Since its launch in 2008, Spotify had yet to post a profit. The explosive growth of the company had been accompanied by growing losses, as Spotify expanded into several markets in a very short time. Spotify’s financial situation was thought to be secure, given the amount of financing it had been able to secure. See Table 2 for Spotify’s financial data. The single largest expense was the cost of goods sold. This consisted mainly of the royalties Spotify paid to rights holders in order to get access to their catalog to offer to Spotify customers. Spotify signed several agreements with these rights holders, usually the publishing label. The agreements were valid only for a particular country, since laws and contracts could vary wildly between different countries. To launch in the United States, Spotify signed deals with all the major labels in 2011.49 i Sean Parker, founder of Napster and former Facebook president, served on Spotify’s Board. This document is authorized for use only by Salman Alhagbani in 2019-Summer-Strategic Management_1 taught by TSUHSIANG HSU, Niagara University from Jun 2019 to Aug 2019. 9 IESE Business School-University of Navarra For the exclusive use of S. Alhagbani, 2019. SM-1642-E Spotify: Face the Music (update 2016) Sp Spotify did not pay a fixed amount per stream. Rather, it allocated a fixed percentage of its monthly revenue to royalty payments. Specifically, in 2013 Spotify claimed that 70% of its revenue was being allocated to royalties.50 Tracks received an amount depending on how many times they had been streamed compared with the total amount of streams in Spotify. Royalties were allocated on a country-by-country basis, taking into account the revenues and plays of that country. Table 2 Spotify financial data 2009–2015, in millions of euros 2009 2010 2011 2012 2013 2014 2015 13.3 73.9 188.1 430.3 746.9 1,081.7 1,945.3 • Subscriptions N/A 52.6 156.9 374.8 678.7 982.9 1,744.4 • Advertising N/A 21.1 27.6 55.0 68.2 98.8 195.8 • Other N/A 0.1 3.6 0 0 0 5.1 N/A 76.8 183.8 386.5 614.5 876.1 1623.6 N/A 104 98 90 82 81 83 Gross profit N/A −2.9 4.3 43.8 132.3 205.6 321.7 Operating expenses N/A 19.0 51.2 120.7 223.5 370.7 506.2 • Research and development N/A N/A N/A 37,9 72.7 121.0 143.3 • Sales and marketing N/A N/A N/A 54.1 110.8 173.0 246.5 • General and administrative N/A N/A N/A 28.6 40.0 76.7 116.4 −18.5 −21.9 −46.8 −76.9 −91.2 −165.1 −184.5 −139 −30 −25 −18 −12 −15 −9 Active users at end of year (millions) 2.5 5 10 20 36 60 89 Paid subscribers at end of year (millions) N/A N/A N/A 5 8 15 28 Percentage of paid users N/A N/A N/A 25 22 25 31 Headcount N/A N/A N/A N/A 953 1,354 1,610 Revenues Cost of sales as % of revenue Operating income as % of revenues Source: Enders Analysis and case writers’ estimations based on public sources.51 Royalty payments were made to publishers and master rights holders depending on the particular agreements that Spotify had in place and any applicable laws of the particular country in question. Artists were then paid by the label or publisher according to their contractual royalty rates. Thus, different artists with the same amount of plays could receive very different royalty payments. See Figure 2 for examples of actual monthly royalty rates. This document is authorized for use only by Salman Alhagbani in 2019-Summer-Strategic Management_1 taught by TSUHSIANG HSU, Niagara University from Jun 2019 to Aug 2019. IESE Business School-University of Navarra 10 For the exclusive use of S. Alhagbani, 2019. Spotify: Face the Music (update 2016) SM-1642-E Yet, despite the large share of revenue destined to royalty payments, Spotify faced increased criticism from artists for the low amounts they received. The Musicians’ Union in the United Kingdom, for example, formally asked in 2013 that a minimum pay rate be set – something that would greatly increase Spotify’s costs if implemented.52 Spotify defended itself by pointing out that actual royalties received by artists depended on their deals with the labels that published them, but this did not stop some high-profile artists from publicly speaking out against the company, with some even pulling their songs from the service. Figure 2 Monthly royalty rates for five anonymized albums Niche Indie Album Classic Rock Album $3,300 Actual Monthly Royalties for July 2013 $17,000 Breakthrough Indie Album Spotify Top 10 Album $76,000 $145,000 Global Hit Album $425,000 Source: “Spotify Explained,” Spotify, December 2013, http://www.spotifyartists.com/spotify-explained/. Yet something was clear – consumers were massively embracing Spotify and music streaming. When Adele released her bestselling album 25 in November 2015, in just six weeks it sold 7.5 million copies in the United States alone. Yet in the same period, the hit song “Hello” from the same album was streamed 129 million times.53 The Music Industry in 2016 Significantly the music industry, which was once built exclusively on the sales of physical records through mainly brick-and-mortar stores, was seeing digital taking over as the biggest source of revenue. Renowned music store chains such as Tower Records were closing down, while music was increasingly being consumed in digital form. (See Exhibits 2 and 3 for data on the music industry in 2016.) In particular, in the United States – the largest market for recorded music in the world – the watershed moment had been reached in 2011. In that year, digital sales outperformed physical revenue for the very first time. In the U.S. market in 2015, CDs, vinyl records and cassettes accounted for less than one-third of industry sales ($7 billion according to the RIAA, a small 0.9% increase from 2014). See Figure 3 for revenue source distribution in 2015. This document is authorized for use only by Salman Alhagbani in 2019-Summer-Strategic Management_1 taught by TSUHSIANG HSU, Niagara University from Jun 2019 to Aug 2019. 11 IESE Business School-University of Navarra For the exclusive use of S. Alhagbani, 2019. SM-1642-E Spotify: Face the Music (update 2016) Sp Figure 3 Revenues of U.S. music industry by source (2015) Synch:* $204m (2.9%) Download: $2,382m (34%) Physical: $1,898m (28.8%) Streaming: $2,406m (34.3%) * Synchronization rights were royalties paid for permission to synchronize music with other media (i.e., films, TV shows or videogames). Source: Joshua P. Friedlander, “News and Notes on 2015 Music Industry Shipment and Revenue Statistics,” RIAA, March 2016, https://www.riaa.com/wp-content/uploads/2016/03/RIAA-2015-Year-End-shipments-memo.pdf. Regarding the labels, compared with the situation in 1999 the market had witnessed further concentration. The “big five” major labels had been reduced to three – BMG was sold to Sony in 2008, and EMI merged with Universal in 2011. In 2013 the three major labels accounted for nearly 90% of the distribution market of recorded music. Table 3 Recording industry U.S. market share in 2013 Company name Distribution market share of album sales and track equivalent (10 tracks = 1 album) Universal Music Group 37.7% Sony Music Entertainment 30.4% Warner Music Group 20.8% Others 11.4% Figures may not add up to 100% due to rounding. Distribution market share includes sales of music owned by the label and music owned by third parties (generally artists or smaller labels) but distributed through the label. Source: Adapted from “Nielsen Entertainment and Billboard’s 2013 Mid-Year Music Industry Report,” http://www.nielsen.com/content/dam/corporate/us/en/reports-downloads/2013%20Reports/Nielsen-Music-2013-Mid-Year-US-Release.pdf. This document is authorized for use only by Salman Alhagbani in 2019-Summer-Strategic Management_1 taught by TSUHSIANG HSU, Niagara University from Jun 2019 to Aug 2019. IESE Business School-University of Navarra 12 For the exclusive use of S. Alhagbani, 2019. Spotify: Face the Music (update 2016) SM-1642-E These major labels thus still controlled most of the distribution of music, which was now being delivered to customers through two main types of digital retailer: - Download operations sold single tracks or albums digitally. Users could select an album or a track, listen to a sample, and then pay an amount (typically around $1 for a song and $10 for an album) to download it to their computer or portable device. The market was dominated by Apple’s iTunes. Other relevant players were Amazon.com and Google Play Music. - Streaming allowed customers to listen to music without downloading it to their device. Thus, unlike with downloads, users never “owned” the tracks. Streaming services usually obtained revenue via paid subscriptions or advertising. Pandora was the market leader in terms of users, but Spotify had the most revenue. Other important players were Tidal, SoundCloud, and Apple Music. Interestingly, digital and physical customers seemed to display distinct consumer behavior. For example, the vast majority of digital unit sales were single tracks, but physical sales were dominated by albums, with singles not even attaining 1% of unit sales. The Competition In June 2015, Apple’s CEO Tim Cook uttered the famous words “and one more thing…” to unveil the company’s main new product during his keynote address at the Worldwide Developers Conference in San Francisco. The product, which Apple was going to push with all its considerable might, was the new streaming service Apple Music.54 In May 2014, Apple acquired Beats – a manufacturer of audio accessories and components – for $3 billion. 55 Beats also owned a streaming service called Beats Music, which Apple integrated into its product ecosystem and relaunched as the new Apple Music. The new service boasted of radio stations curated by famous DJs, social features that allowed artists to interact with fans, exclusive deals with artists, and integration with the Siri voice commands feature that most Apple products had. All this was at the same price point as Spotify’s premium service: $9.99 a month. As a promotional offer, new customers had three free months of the service. Apple, however, was not offering a free version of the service. (See Exhibit 4 for a comparison between Spotify, Apple Music and several other streaming music services operating in 2016.) Apple Music became an overnight success. In February 2016, Eddy Cue, Apple’s senior vice president of Internet services, announced that it had achieved 11 million subscribers in just six months.56 Spotify had taken five years to reach that figure. However, Apple Music was only one of several music streaming services that had been launched since Spotify had entered the U.S. market. Other big digital companies were trying to get a piece of the growing streaming market. In 2013, the tech giant Google launched its own subscription service, Google Play Music All Access, which came preloaded in all Android smartphones. The online retail leader Amazon.com included streaming music in its Amazon Prime membership plan in June 2014.57 This document is authorized for use only by Salman Alhagbani in 2019-Summer-Strategic Management_1 taught by TSUHSIANG HSU, Niagara University from Jun 2019 to Aug 2019. 13 IESE Business School-University of Navarra For the exclusive use of S. Alhagbani, 2019. SM-1642-E Spotify: Face the Music (update 2016) Sp And the streaming market was already crowded to begin with. Besides these new entrants, Spotify also faced competition from several other streaming music services. These could be divided into two kinds: - On-demand: The most similar competitors were other on-demand streaming services. Besides the aforementioned Apple Music, Amazon Prime Music, and Google Play Music All Access, other noteworthy services were Rhapsody, SoundCloud Go, and Deezer. These worked in a similar way to Spotify, allowing users to play any track they wanted from each service’s catalog. - Internet radio: These companies did not offer tracks on demand. Instead, users could listen to preset radio stations or create customized ones. This model allowed companies to pay reduced royalty rates compared with on-demand streaming services such as Spotify, and therefore they were able to offer lower pricing. Pandora was the most successful of those services. Competitors did not stand still as Spotify grew. For example, Rhapsody acquired Napster in late 2011.58 Deezer, while still not available in the United States, far surpassed Spotify in its international footprint: by 2016, it was available in 186 countries or territories.59 Moreover, there were strong rumors that Pandora, which had more than 70 million users, was preparing to launch an on-demand streaming service by the end of 2016.60 This intense competition had already claimed its first casualties. Last.fm, an Internet radio service owned by CBS Corporation, discontinued its music streaming service in 2014. In November 2016, Rdio – a streaming service launched by Skype founders Janus Friis and Niklas Zennström – filed for bankruptcy and was purchased by Pandora.61 However, the existing competition was not the only thing to which Spotify had to pay attention. There were several new trends that could signal new disruptions of a market that was barely settling down. Spotify had been the standard bearer of the streaming revolution, but it risked being left behind if it rested on its laurels while the market changed again. New Trends Artists Artists generally complained about the reduced royalty rates that streaming music paid in comparison to other distribution methods, and they were seen as trying to reassert their position in the music business. For example, in November 2014, Taylor Swift – one of the top-selling artists of the 2010s – removed her entire catalog from Spotify and other streaming services, complaining that the free service undermined the royalty payments artists received.62 She similarly threatened to pull her catalog from Apple Music when the company announced that it would not pay royalties for users who were in Apple Music’s free three-month trial period. Apple ultimately relented.63 Swift was one of the highest-profile artists – but not the only one – who was trying to influence the changing landscape brought about by digital music and streaming. This document is authorized for use only by Salman Alhagbani in 2019-Summer-Strategic Management_1 taught by TSUHSIANG HSU, Niagara University from Jun 2019 to Aug 2019. IESE Business School-University of Navarra 14 For the exclusive use of S. Alhagbani, 2019. Spotify: Face the Music (update 2016) SM-1642-E In March 2015, the rapper Jay Z relaunched the streaming service Tidal as an artist-owned streaming service. Among its stakeholders were high-profile artists such as Rihanna, Madonna, Kanye West, Beyoncé, and Daft Punk. The service claimed to pay the highest percentage of its revenue as royalties of any existing streaming service, while offering the same basic price point as Spotify.64 Others were using the competition between several digital platforms to sign exclusive or promotional deals in exchange for financial advantages. For example, in April 2016 the charttopping rapper Drake released his new album Views exclusively through Apple Music,65 while Beyoncé’s new album Lemonade could be streamed only via Tidal.66 This sort of practice was not limited to high-profile musicians, as independent or regional artists were also entering exclusive deals. So far Spotify had refused to compete for these exclusive deals and had even spoken openly against them.67 Bundling of Services Companies such as Amazon and Google were trying to leverage their bargaining power and presence in other markets to bundle music streaming services with other services, in particular video streaming. For example, Amazon’s Prime service offered access to not only music but also movies and television shows, all for a monthly fee ($10.99) that was just $1 more than Spotify’s premium service cost. Not only that, but Amazon Prime also included several other services such as an extensive e-book library and cloud storage. Amazon Prime’s streaming music library, however, was much smaller than Spotify’s.68 In October 2015, Google launched YouTube Red, which was bundled with its existing Google Music All Access streaming service.69 YouTube Red allowed access to all YouTube videos – including music videos from several participating labels – without ads. It also featured exclusive content from popular YouTube video creators such as PewDiePie, who had millions of followers. Vertical Integration Lastly, another trend in streaming was vertical integration. Netflix, a video streaming service that offered films and television shows from major studios, had started a policy of investing a sizable part of its revenue in producing its own content, spending lavishly on shows with highprofile actors and directors. In the same way, it de-emphasized the catalog belonging to major film and television studios. In the first quarter of 2016, it attained 81 million subscribers globally,70 making it one of the most popular paid streaming services in the world. Other video streaming services were following this path, with Amazon Prime, Hulu, Crackle and Yahoo! Screen producing their own shows. Could this trend also be translated to music streaming, with companies such as Spotify producing their own music? Thus, as Ek left Spotify’s U.S. headquarters in New York, several questions might have crossed his mind. Could Spotify see off the new competitive threats? Could it become a profitable business? Moreover, could it really live up to its own hype and help the music industry grow again after more than a decade of continuous decline? Industry observers, and Ek himself, often pointed to how Sweden’s music industry grew by 27% between 2008 and 2013, far ahead of the industry in other developed countries, with Spotify leading the charge as streaming made up 70% of Sweden’s total music revenue.71 But could this be replicated elsewhere? This document is authorized for use only by Salman Alhagbani in 2019-Summer-Strategic Management_1 taught by TSUHSIANG HSU, Niagara University from Jun 2019 to Aug 2019. 15 IESE Business School-University of Navarra For the exclusive use of S. Alhagbani, 2019. SM-1642-E Spotify: Face the Music (update 2016) Sp Exhibit 1 Screenshots of Spotify’s User Interface in 2016 Free users: Subscribers: This document is authorized for use only by Salman Alhagbani in 2019-Summer-Strategic Management_1 taught by TSUHSIANG HSU, Niagara University from Jun 2019 to Aug 2019. IESE Business School-University of Navarra 16 For the exclusive use of S. Alhagbani, 2019. Spotify: Face the Music (update 2016) SM-1642-E Exhibit 2 Streaming Growth Total paid streaming subscriptions in the United States (in millions of dollars) 12 10.8 10 7.7 8 6.2 6 4 3.4 2 0 2012 2013 2014 2015 Proportion of total U.S. music industry: revenues from streaming 40% 34% 35% 30% 27% 25% 21% 20% 15% 15% 10% 9% 7% 5% 0% 2010 2011 2012 2013 2014 2015 Source: Joshua P. Friedlander, “News and Notes on 2015 Music Industry Shipment and Revenue Statistics,” RIAA, March 2016, https://www.riaa.com/wp-content/uploads/2016/03/RIAA-2015-Year-End-shipments-memo.pdf. This document is authorized for use only by Salman Alhagbani in 2019-Summer-Strategic Management_1 taught by TSUHSIANG HSU, Niagara University from Jun 2019 to Aug 2019. 17 IESE Business School-University of Navarra For the exclusive use of S. Alhagbani, 2019. SM-1642-E Spotify: Face the Music (update 2016) Sp Exhibit 3 2015 Year-End Recording Industry Revenue Statistics United States unit shipments and estimated retail dollar value (in millions, net after returns) Digital permanent download 2014 2015 % change 2014-15 1,199.1 $1,407.8 117.6 $1,150.9 1.6 $2.6 6.8 $13.6 26.6 $66.3 1,021.0 $1,226.9 109.4 $1,090.7 2.2 $3.7 3.2 $6.4 21.9 $54.6 −14.9 −12.8 −7.0 −5.2 38.4 43.2 −52.8 −52.8 −17.7 −17.7 SoundExchange distributions2 $773.4 $802.6 3.8 Paid subscription3 7.7 $800.1 10.8 $1,218.9 40.2 52.3 On-demand streaming (ad-supported)4 $294.8 $385.1 30.6 (Units shipped) (Dollar value) Download single Download album Kiosk1 Music video Ringtones and ringbacks Digital subscription and streaming TOTAL DIGITAL VALUE Physical (Units shipped) (Dollar value) $4,509.5 $4,789.0 6.2 Synchronization royalties5 $189.7 $202.9 7.0 CD 142.8 $1,832.6 122.9 $1,520.8 −13.9 −17.0 CD single 1.0 $3.8 0.4 $1.2 −59.5 −67.5 LP/EP Total physical units Total physical value 13.2 $314.9 0.5 $5.9 4.1 $91.2 0.1 $2.1 0.0 $0.8 161.7 $2,251.3 16.9 $416.2 0.5 $6.1 3.3 $73.2 0.2 $5.4 0.0 $1.1 144.2 $2,024.0 28.3 32.2 4.1 2.6 −20.4 −19.8 169.7 153.2 39.8 40.5 −10.8 −10.1 Total retail units Total retail value 141.3 $2,112.0 124.5 $1,898.0 −11.9 −10.1 Total units6 Total value 1,513.4 $6,950.5 1,302.0 $7,015.9 −14.0 0.9 % of shipments7 Physical Digital 2014 33% 67% Vinyl single Music video DVD audio SACD TOTAL DIGITAL AND PHYSICAL 2015 30% 70% Retail value is the value of shipments at the recommended or estimated list price. 1 Includes singles and albums. 2 Estimated payments in dollars to performers and copyright holders for digital radio services under statutory licenses. 3 Streaming, tethered, and other paid subscription services not operating under statutory licenses. Subscription volume is annual average number of subscriptions. 4 Ad-supported audio and music video services not operating under statutory licenses. 5 Includes fees and royalties from synchronization of sound recordings with other media. 6 Units total includes both albums and singles, and does not include subscriptions or royalties. 7 Synchronization royalties excluded from calculation. Source: Joshua P. Friedlander, “News and Notes on 2013 Music Industry Shipment and Revenue Statistics,” RIAA, March 2014. This document is authorized for use only by Salman Alhagbani in 2019-Summer-Strategic Management_1 taught by TSUHSIANG HSU, Niagara University from Jun 2019 to Aug 2019. IESE Business School-University of Navarra 18 19 SM-1642-E 2005 (U.S.) 2014 (U.S.) 2001 (U.S.) Pandora Amazon Prime Music Rhapsody 30 million 1 million 1 million 30 million 30 million 30 million 30 million 30 million Claimed library size Yes Yes Yes Yes Yes Yes Yes Yes Major label support Yes Yes No Yes Yes Premium only Yes Yes Play tracks on demand Not available Not available Ad-supported Six track skips per hour (24 per day maximum) Not available Not available Ad-supported Shuffle mode on mobile Not available Ad-supported Shuffle mode on mobile Free service Deezer was not available in the U.S. market as of January 2016. The price given is for the French market. Also included access to other Amazon Prime services such as Amazon Video, a free e-book library, free delivery of Amazon purchases, and cloud storage. 2014 (U.S.) Tidal IESE Business School-University of Navarra Source: Prepared by the authors. 2 1 2013 (U.S.) 2007 (France) 2015 (U.S.) 2008 (Sweden) Google Play Music All Access Deezer Apple Music Spotify Launch date Comparison of Selected Music Streaming Services Operating in 2016 Exhibit 4 Spotify in 2016: Facing Increased Competition Sp Yes Yes Yes Yes Yes Yes Yes Yes Mobile app $9.95 $10.992 $4.99 $9.99 $9.99 €9.991 $9.99 $9.99 Monthly premium fee (U.S. market) For the exclusive use of S. Alhagbani, 2019. This document is authorized for use only by Salman Alhagbani in 2019-Summer-Strategic Management_1 taught by TSUHSIANG HSU, Niagara University from Jun 2019 to Aug 2019. For the exclusive use of S. Alhagbani, 2019. 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This document is authorized for use only by Salman Alhagbani in 2019-Summer-Strategic Management_1 taught by TSUHSIANG HSU, Niagara University from Jun 2019 to Aug 2019. IESE Business School-University of Navarra 20 For the exclusive use of S. Alhagbani, 2019. Spotify: Face the Music (update 2016) SM-1642-E 23 “iTunes Music Downloads Top 25 Million Songs,” Apple Inc., December 15, 2003, http://www.apple.com/pr/library/2003/12/15iTunes-Music-Store-Downloads-Top-25-Million-Songs.html, accessed May 2, 2014. 24 “iTunes Store Sets New Record With 25 Billion Songs Sold,” Apple Inc., February 6, 2013, http://www.apple.com/pr/library/2013/02/06iTunes-Store-Sets-New-Record-with-25-Billion-Songs-Sold.html, accessed May 2, 2014. 25 “Apple Inc. F1Q10 (Qtr End 12/26/09) Earnings Call Transcript,” Seeking Alpha, January 25, 2010, http://seekingalpha.com/article/184328-apple-inc-f1q10-qtr-end-12-26-09-earnings-call-transcript?part=single, accessed May 9, 2014. 26 Prince McLean, “Apple’s New iPod Nano Sports Fattest Profit Margins Yet,” Appleinsider, September 19, 2007, http://appleinsider.com/articles/07/09/19/apples_new_ipod_nano_sports_fattest_profit_margins_yet, accessed July 14, 2014. 27 “Sony Connect Online Music Store Launches Today, Offering Music Fans More Than 500,000 Legal Downloads From Major and Independent Record Labels Around the Globe,” Sony Corporation of America, June 4, 2004, www.prnewswire.com/newsreleases/sony-connect-online-music-store-launches-today-offering-music-fans-more-than-500000-legal-downloads-frommajor-and-independent-record-labels-around-the-globe-73767437.html, accessed August 29, 2016. 28 “Microsoft’s New Zune Digital Media Player on Store Shelves Tomorrow,” Microsoft, November 13, 2006, http://www.microsoft.com/en-us/news/press/2006/nov06/11-13zunelaunchpr.aspx, accessed May 9, 2014. 29 Jack Schofield, “Sony Disconnects Connect and Adopts Microsoft’s DRM for Portable Players,” Guardian, September 1, 2007, http://www.theguardian.com/technology/blog/2007/sep/01/sonydisconnect, accessed May 10, 2014. 30 Nick Wingfield, “R.I.P. Zune,” New York Times, June 4, 2012, http://bits.blogs.nytimes.com/2012/06/04/r-i-pzune/?_php=true&_type=blogs&_r=0, accessed May 10, 2014. 31 “Apple Reports First Quarter Results,” Apple Inc., January 21, 2009, http://www.apple.com/pr/library/2009/01/21AppleReports-First-Quarter-Results.html, accessed May 8, 2014. 32 “Amazon MP3 Adds Music Audio Downloads From Warner Music Group,” Amazon.com, December 27, 2007, http://phx.corporate-ir.net/phoenix.zhtml?c=176060&p=irol-newsArticle&ID=1089999&highlight=, accessed May 8, 2014. 33 “The NPD Group: Amazon Ties Walmart as Second-Ranked U.S. Music Retailer, Behind Industry-Leader iTunes,” NPD Group, May 26, 2010, https://www.npd.com/wps/portal/npd/us/news/press-releases/pr_100526/, accessed June 8, 2014. 34 “Changes Coming to iTunes Store,” Apple Inc., January 6, 2009, http://www.apple.com/pr/library/2009/01/06Changes-Comingto-the-iTunes-Store.html, accessed May 8, 2014. 35 Josh Tyrangiel, “Radiohead Says: Pay What You Want,” Time, October 1, 2007, http://content.time.com/time/arts/article/0,8599,1666973,00.html, accessed May 11, 2014. 36 Kathy Shwiff, “RealNetworks, Viacom to Spin Off Rhapsody,” Wall Street Journal, February 10, 2010, http://online.wsj.com/news/articles/SB10001424052748704182004575055742931769102?mg=reno64wsj&url=http%3A%2F%2Fonline.wsj.com%2Farticle%2FSB10001424052748704182004575055742931769102.html, accessed October 23, 2014. 37 Julianne Pepitone, “Today Is Napster’s Last Day of Existence,” CNN, November 30 2011, http://money.cnn.com/2011/11/30/technology/napster_rhapsody/, accessed May 5, 2014. 38 “Pandora for Everyone,” Pandora Media, August 29, 2005, http://blog.pandora.com/2005/08/29/pandora_for_eve/, accessed May 10, 2014. 39 “Gartner Says Worldwide Mobile Device Sales to End Users Reached 1.6 Billion Units in 2010; Smartphone Sales Grew 72 Percent in 2010,” Gartner, February 9, 2011, http://www.gartner.com/newsroom/id/1543014, accessed May 10, 2014. 40 Tom Conrad, “Happy Birthday to the Pandora App,” Pandora Media, July 10, 2013, http://blog.pandora.com/2013/07/10/happybirthday-to-the-pandora-app/, accessed May 10, 2014. 41 Tim Westergren, “Pandora and Royalties,” Pandora Media, June 26, 2013, http://blog.pandora.com/2013/06/26/pandora-androyalties/#more-5604, accessed May 10, 2014. 42 “We’ve Only Just Begun!” Spotify, October 7, 2008, http://news.spotify.com/us/2008/10/07/weve-only-just-begun/, accessed May 11, 2014. 43 “Spotify Now Available to Everyone in the UK,” Spotify, http://news.spotify.com/us/2009/02/10/spotify-now-available-toeveryone-in-the-uk/, accessed May 11, 2014. 44 Paul Sloan, “Spotify: Growing Like Mad, Yet Still Far to Go,” CNET, March 12, 2013, http://www.cnet.com/news/spotifygrowing-like-mad-yet-so-far-to-go/, accessed May 11, 2014. This document is authorized for use only by Salman Alhagbani in 2019-Summer-Strategic Management_1 taught by TSUHSIANG HSU, Niagara University from Jun 2019 to Aug 2019. 21 IESE Business School-University of Navarra For the exclusive use of S. Alhagbani, 2019. SM-1642-E Spotify: Face the Music (update 2016) Sp 45 “Spotify monthly active user base reaches 100 million,” Reuters, June 20 2016, http://www.reuters.com/article/us-spotifyusers-idUSKCN0Z61FM, accessed August 2016. 46 Spotify Training November 2014. & Development, “Spotify Engineering Culture,” Vimeo, February 2014, http://vimeo.com/85490944, accessed 47 Marcus Jerräng, “Documents Reveal Major Labels Own Part of Spotify,” ComputerSweden, August 7, 2009, http://computersweden.idg.se/2.2683/1.240046/documents-reveal-major-labels-own-part-of-spotify, accessed August 29, 2016. 48 Data from Spotify’s entry in the CrunchBase start-up database, http://www.crunchbase.com/organization/spotify, accessed April 25, 2016. 49 Alex Pham, “Spotify Buttons Up Deals With Warner Music, Launches Music Service in the U.S.,” Los Angeles Times, July 13, 2014, http://latimesblogs.latimes.com/entertainmentnewsbuzz/2011/07/spotify-buttons-up-deals-with-warner-launches-musicservice-in-the-us-.html, accessed May 11, 2014. 50 “Spotify Explained,” Spotify, December 2013, http://www.spotifyartists.com/spotify-explained/, accessed June 8, 2014. 51 The full list of sources used in the preparation of Table 2 is as follows: Enders Analysis. Maija Palmer, “Licensing Costs Fuel Losses at Spotify,” Financial Times, October 10, 2011, https://next.ft.com/content/b89d97ea-f365-11e0-b98c-00144feab49a, accessed July 20, 2016. Ben Sisario, “Spotify Loss Widens despite Higher Revenue,” The New York Times, October 10, 2011, http://mediadecoder.blogs.nytimes.com/2011/10/10/spotify-loss-widens-despite-higherrevenue/?_php=true&_type=blogs&_r=1, accessed July 20, 2016. Glenn Peoples, “Spotify Grew Fast, Lost Money in 2011 -- No Surprises,” Billboard.com, August 23, 2012, http://www.billboard.com/biz/articles/news/1084054/spotify-grew-fast-lost-money-in-2011-no-surprises, accessed July 20, 2016. Robert Cookson, “Spotify Burns through Cash in Push for Paying Subscribers,” Financial Times, July 31 2013, http://www.ft.com/intl/cms/s/0/2575960c-f9da-11e2-98e0-00144feabdc0.html?siteedition=intl#axzz2adZpsYol, accessed July 20, 2016. “Music Streamer Spotify Doubles 2012 Revenues after Expansion,” Reuters, July 31, 2013, http://www.reuters.com/article/usspotify-results-idUSBRE96U0QZ20130731, accessed July 20, 2016. Robert Cookson, “Spotify Pays more than 80% of its Turnover to Rights Holders,” Financial Times, November 25 2014, https://next.ft.com/content/e913f2d8-74b9-11e4-b30b-00144feabdc0, accessed July 20, 2016. Stuart Dredge, “Spotify in 2013: Revenues of ¤746.9M and a ¤93.1M Operating Loss”, Musically, November 25, 2014, http://musically.com/2014/11/25/spotify-2013-revenues-operating-loss/, accessed July 20, 2016. David Gauthier-Villards, “Spotify Revenue Rises in 2014 but Still in Red on Heavy Investments,” The Wall Street Journal, May 8, 2015, http://www.wsj.com/articles/spotify-revenue-rises-in-2014-but-still-in-red-on-heavy-investments-1431102236, accessed July 20, 2016. Matthias Verbergt, “Spotify Revenue Rose in 2015 but Losses Grew on Expansion Investment,” The Wall Street Journal, May 23 2016, http://www.wsj.com/articles/spotify-revenue-rises-in-2015-but-losses-grow-on-expansion-investment1464024455, accessed July 20, 2016. Stuart Dredge, “Spotify Financials Raise Questions about Streaming Economics”, Musically, May 24 2016, http://musically.com/2016/05/24/spotify-financials-raise-questions-about-streaming-economics/, accessed July 20, 2016. Joon Ian Wong, “Spotify’s average salary keeps rising—even as its losses mount,” Quartz.com, May 24 2016, http://qz.com/691188/spotifys-average-salary-keeps-rising-even-as-its-losses-mount/, accessed July 20, 2016. 52 Mark Townsend, “Musicians’ Union Demands New Pay Deal From Spotify,” Observer, July 20, 2013, http://www.theguardian.com/technology/2013/jul/20/spotify-radiohead-musicians-union-rights, accessed June 8, 2014. 53 The Nielsen Company, 2015 Nielsen Music U.S. Report, January 6, 2016. 54 “Introducing Apple Music – All the Ways You Love Music. All in One Place,” Apple.com, June 8, 2015, http://www.apple.com/pr/library/2015/06/08Introducing-Apple-Music-All-The-Ways-You-Love-Music-All-in-One-Place.html?sr=hotnews.rss, accessed April 25, 2016. 55 “Apple to Acquire Beats Music & Beats Electronics,” Apple.com, May 28, 2014, https://www.apple.com/pr/library/2014/05/28Apple-to-Acquire-Beats-Music-Beats-Electronics.html, accessed June 8, 2014. 56 John Gruber, “The Talk Show,” episode 146, February 12, 2016, podcast, http://daringfireball.net/thetalkshow/2016/02/12/ep-146, accessed April 25, 2016. This document is authorized for use only by Salman Alhagbani in 2019-Summer-Strategic Management_1 taught by TSUHSIANG HSU, Niagara University from Jun 2019 to Aug 2019. IESE Business School-University of Navarra 22 For the exclusive use of S. Alhagbani, 2019. Spotify: Face the Music (update 2016) SM-1642-E 57 “Your Music Collection Just Got a Lot Bigger,” Amazon.com, June 12, 2014, http://www.amazon.com/gp/feature.html/ref=dmm_prm_st_bb_cp_lm?ie=UTF8&docId=1002557791&pf_rd_m=ATVPDKIKX0DER &pf_rd_s=merchandised-search-left2&pf_rd_r=0AAHSSGNXJ382NKFCRKS&pf_rd_t=101&pf_rd_p=1869061022&pf_rd_i=8335758011, accessed April 25, 2016. 58 “Rhapsody to Acquire Napster,” Rhapsody International Inc., October 3, 2011, http://news.rhapsody.com/2011/10/03/rhapsodyto-acquire-napster/, accessed May 11, 2014. 59 As listed on Deezer’s website on April 25, 2016, http://developers.deezer.com/guidelines/countries. 60 David Z. Morris, “Pandora to launch new streaming site”, Fortune.com, August 20 2016, http://fortune.com/2016/08/20/pandora-on-demand-streaming/, last accessed August 29 2016. 61 Nathan Ingraham, “As Rdio Files for Bankruptcy, Pandora Picks It Up for $75 Million,” Engadget.com, November 16, 2015, http://www.engadget.com/2015/11/16/pandora-buying-rdio/, accessed April 25, 2016. 62 Alex Hern and Stuart Dredge, “Taylor Swift v Spotify: Back Catalogue Removed From Streaming Services,” Guardian, November 3 2014, http://www.theguardian.com/technology/2014/nov/03/taylor-swift-spotify-artists-discography-streamingservices, accessed November 5, 2014. 63 Shirley Halperin, “Apple Changes Course After Taylor Swift Open Letter: Will Pay Labels During Free Trial,” Billboard.com, June 21, 2015, http://www.billboard.com/articles/news/6605568/apple-changes-course-after-taylor-swift-open-letter-will-paylabels-during, accessed May 3, 2016. 64 Andrew Flanagan and Andrew Hampp, “It’s Official: Jay Z’s Historic Tidal Launches With 16 Artist Stakeholders,” Billboard, March 30, 2015, http://www.billboard.com/articles/news/6509498/jay-z-tidal-launch-artist-stakeholders, accessed May 3, 2016. 65 Tim Ingham, “Drake’s Spotify Gamble Is Paying Off: Views Just Made 8m in a Day,” Music Business Worldwide, May 2, 2016, http://www.musicbusinessworldwide.com/drakes-spotify-gamble-is-paying-off-views-just-made-8m-in-a-day/, accessed May 3, 2016. 66 Dan Rys, “Beyonce's ‘Lemonade' Release: Tidal Has Streaming Exclusive ‘in Perpetuity,' Purchase Exclusive Ends at 10 P.M.,” Billboard, April 24, 2016, http://www.billboard.com/articles/news/7341800/how-long-beyonce-lemonade-tidal-streamingexclusive, accessed May 3, 2016. 67 Micah Singleton, “Does Spotify Need to Go After Exclusive Content?” The Verge, February 18, 2016, http://www.theverge.com/2016/2/18/11054460/spotify-exclusive-content-apple-tidal, accessed May 3, 2016. 68 “Amazon Prime,” Amazon.com, https://www.amazon.com/Amazon-Prime-One-Year-Membership/dp/B00DBYBNEE, accessed May 3, 2016. 69 “Meet YouTube Red, the Ultimate YouTube Experience,” YouTube Official Blog, October 21, 2015, https://youtube.googleblog.com/2015/10/red.html, accessed May 3, 2016. 70 Everett Rosenfeld, “Netflix Beats On Earnings, But Plunges After Weak Guidance,” CNBC, April 18, 2016, http://www.cnbc.com/2016/04/18/netflix-reports-first-quarter-2016-results.html, accessed May 3, 2016. 71 “Music in Sweden: I Have a Stream,” The Economist, March 22, 2014, http://www.economist.com/news/business/21599353land-abba-takes-streaming-i-have-stream, accessed June 8, 2014. This document is authorized for use only by Salman Alhagbani in 2019-Summer-Strategic Management_1 taught by TSUHSIANG HSU, Niagara University from Jun 2019 to Aug 2019. 23 IESE Business School-University of Navarra Case Preparation Questions Disney 1. Why has Disney been successful for so long? What is its competitive advantage (CA)? Where does it’s CA come from? Be careful about how you define competitive advantage 2. What did Michael Eisner do to rejuvenate Disney? Specifically, how did he increase net income in his first four years? 3. Has Disney diversified too far in the late 1990s? Cola War Continue: Coke and Pepsi 1. Why, historically, has the soft drink industry been so profitable? 2. Compare the economics of the concentrate business to that of the bottling business: Why is the profitability so different? 3. How has the competition between Coke and Pepsi affected the industry’s profits? 4. How can Coke and Pepsi sustain their profits in the wake of flattening demand and the growing popularity of non-CSDs Trader Joe’s 1. How do firms in the supermarket industry make money? 2. What are the key sources of Trader’s competitive advantage? 3. How would you modify Trader’s strategy moving forward? Tesla 1. What do you think of Tesla’s entry strategy? What barriers did it have to overcome? Will other firms follow in Tesla’s footsteps? 2. Do you think Tesla’s secret plan was really a plan or just an ex-post rationalization (hindsight)? Would it matter? 3. How do you expect the industry to evolve? Spotify 1. How is Spotify a platform? What participants are part of it? In what way Spotify grows and become successful through its platform and the participants? 2. How do you view the future of Spotify? Can it become profitable? How could it do to become profitable? 3. Will music streaming be a winner-take-all industry? Lululemon 1. What is Lululemon’s business model? What did Advent International and Highland Capital see in it? 2. As an incoming CEO, how should him/her assert strategic leadership at an organization in transition? 3. What is Lululemon’s (LLL) culture? Where does it come from? How important is LLL’s culture? 4. What should Day do? What to do first? What must change? What must not change? How fast can LLL grow a business while still maintaining its distinctive culture? WorldCom 1. What are the pressures that lead executives and managers to “cook the books”? 2. Why were the actions taken by WorldCom managers not detected earlier? What processes or system should be in place to prevent or detect quickly the types of actions that occurred in WorldCom? 3. Were the external auditors and board of directors blameworthy in this case? Why? 4. How should employees react when ordered by their employer to do something they do not believe in or feel uncomfortable doing? Analyzing Strategic Management Cases chapter 13 Copyright © 2014 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education . Learning Objectives 13-2 After reading this chapter, you should have a good understanding of: LO13.1 How strategic case analysis is used to simulate real-world experiences. LO13.2 How analyzing strategic management cases can help develop the ability to differentiate, speculate, and integrate when evaluating complex business problems. LO13.3 The steps involved in conducting a strategic management case analysis. Learning Objectives 13-3 LO13.4 How to get the most out of case analysis. LO13.5 How integrative thinking and conflict- inducing discussion techniques can lead to better decisions. LO13.6 How to use the strategic insights and material from each of the 12 previous chapters in the text to analyze issues posed by strategic management cases. Strategic Case Analysis 13-4 Consider… To remain competitive, established firms must continually refine their ability to solve business problems. This requires making good decisions. Making a good decision requires choosing among various alternatives, and research is required in order to identify alternatives. Good research requires asking and answering the right questions. Strategic Case Analysis 13-5  Case analysis helps us learn how to ask good questions & make good decisions  Why do some firms succeed and others fail?  Why are some companies higher performers than others?  What information is needed in the strategic planning process?  How do competing values and beliefs affect strategic decision-making?  What skills and capabilities are needed to implement a strategy effectively? Question? 13-6  The strategic management process entails three ongoing processes: A. B. C. D. analysis, analysis, analysis, analysis, actions, and synthesis. decisions, and actions. evaluation, and critique. synthesis, and antithesis. Strategic Case Analysis 13-7  Strategic management cases include A detailed description of the challenging situation faced by an organization  Usually includes a chronology of events  Can include financial statements, product lists, interviews with employees  Strategic  An case analysis requires ability to evaluate business situations  Go beyond the textbook & root out essential issues and causes of a company’s problems Strategic Case Analysis: Skills 13-8  Strategic skills needed include the ability to differentiate:  Evaluate many different elements of the situation at once  Differentiate between the factors that are influencing the situation  Understand that problems are often complex & multilayered ◼ Need to dig deep ◼ Don’t be too quick to accept an easy solution Strategic Case Analysis: Skills 13-9  Strategic skills also include the ability to speculate:  Envision an explanation that might not readily be apparent  Imagine different scenarios  Contemplate the outcome of the decision  Deal with uncertainty & incomplete knowledge ◼ Data may be missing ◼ Information may be contradictory ◼ Details & consequences may be unknown Strategic Case Analysis: Skills 13-10  Strategic skills also include the ability to integrate:  Consider the impact of various decisions & environmental influences on all parts of the organization  Create one set of recommendations that affect the whole company ◼ Realize that changes made in one part of the company will affect other parts ◼ Need to adopt a holistic perspective Conducting a Case Analysis 13-11  Preparation:  Investigate the situation  Analyze and research possible solutions  Gather the advice of others  Put yourself in the shoes of an actual participant ◼ Are ❑ you a strategic decision-maker? Are you the business founder or owner? ◼ Are you a member of the board of directors? ◼ Are you an outside consultant? Example: Preparing a Business Plan 13-12  Preparing a case analysis is like crafting a business plan. Here are some questions you should be able to answer:  What is the competitive advantage?  Is it in a growth market?  What will customers pay for it? (How will the business make money?)  How will the business be staffed?  Is the product innovative?  Are the plans and goals realistic? Conducting a Case Analysis 13-13  Step 1: Become familiar with the material  Read quickly through the case one time  Assess possible links to strategic concepts  Read the case again, making notes  Evaluate application of strategic concepts  Formulate an initial recommendation  Go through the case again to assess the consequences of actions you propose Conducting a Case Analysis 13-14  Step 2: Identify problems  Some cases have more than one problem to solve  Avoid getting hung up on the case symptoms  Try to articulate the case problems ◼ Sometimes writing down a problem statement gives you a reference point  Some problems will not be apparent until after you do the case analysis Conducting a Case Analysis 13-15  Step 3: Conduct strategic analyses  Determine which strategic issues are involved  Use strategic tools to conduct the analysis ◼ Five Forces analysis ◼ Value chain analysis ◼ Contingency frameworks ◼ Financial analysis – Financial Ratio Analysis  Test your own assumptions about the case Strategic Case Analysis Tools 13-16 Exhibit 13.1 Summary of Financial Ratio Analysis Techniques Conducting a Case Analysis 13-17  Step 4: Propose alternative solutions  Develop a list of options  Evaluate the alternatives ◼ Can the company afford it? ◼ How will competitors respond? ◼ Will employees accept the change? ◼ How will it affect other stakeholders? ◼ How does it fit with the vision, mission & objectives? ◼ Will the culture or values of the company change? Conducting a Case Analysis 13-18  Step 4: Make recommendations  Make a set of recommendations supported by your analysis  Describe exactly what needs to be done  Explain why this course of action will solve the problem  Indicate how best to implement the proposed solution  Note: the solution you propose must solve the problem you identified Conducting a Case Analysis 13-19  Preparing an oral presentation  Organize your thoughts  Emphasize strategic analysis ◼ Background/problem statement = 10-20% ◼ Strategic analysis/options = 60-75% ◼ Recommendations/action plan = 10-20%  Be logical and consistent  Defend your position  Share presentation responsibilities Conducting a Case Analysis 13-20  Preparing  Be a written presentation thorough ◼ Provide support for your arguments ◼ Reference specific case materials or other facts  Coordinate team efforts  Avoid restating the obvious  Present information graphically  Exercise quality control, be professional ◼ Good grammar, spelling, consistent style throughout Getting the Most from Case Analysis 13-21 Keep an open mind  Take a stand for what you believe  Draw on your personal experience  Participate and persuade  Be concise and to the point  Think out-of-the-box  Learn from the insights of others  Apply insights from other case analyses  Critically analyze your own performance  Conduct outside research  Case Analysis Decision-Making Techniques 13-22  Integrative thinking involves making choices by reconciling opposing thoughts  Proposing more options & new alternatives  Identifying creative solutions  Integrative  What thinking is done in four stages features of the decision are salient?  What are the causal relationships between the features?  What might a sequence of decisions look like?  What might be the most creative resolution? Case Analysis Decision-Making Techniques 13-23 Exhibit 13.4 Integrative Thinking: The Process of Thinking and Deciding Source: Reprinted by permission of Harvard Business School Press from R. L. Martin. The Opposable Mind, 2007. Copyright 2007 by the Harvard Business School Publishing Corporation; all rights reserved. Case Analysis Decision-Making Techniques 13-24  Conflict inducing techniques can be very helpful in arriving at better solutions  Conflict ◼ Failure can help avoid groupthink to critically evaluate alternatives  The devil’s advocacy approach assigns someone the role of official critic ◼ Ensures the group will take a hard look at its original proposal  Dialectical inquiry approaches a problem from two alternative points of view ◼ Formal debate using a thesis & an antithesis Case Analysis Decision-Making Techniques 13-25 Exhibit 13.5 Two Conflict-Inducing Decision-Making Processes Strategic Case Analysis Process 13-26  Analyzing  Has organizational goals & objectives the company developed short-term objectives that are inconsistent with its longterm mission?  Has the company considered all of its stakeholders equally in making critical decisions?  Is the company being faced with an issue that conflicts with one of its long-standing policies? Strategic Case Analysis Process 13-27  Analyzing  Does the external environment the company follow trends and events in the general environment?  Is the company effectively scanning and monitoring the competitive environment?  Has the company correctly analyzed the impact of the competitive forces in its industry on profitability? Strategic Case Analysis Process 13-28  Analyzing  Does the internal environment the company know how the various components of its value chain are adding value to the firm?  Has the company accurately analyzed the source and vitality of its resources?  Is the company’s financial performance as good as or better than that of its close competitors? Strategic Case Analysis Process 13-29  Assessing  Does a firm’s intellectual assets the company have underutilized human capital?  Is the company missing opportunities to forge strategic alliances?  Has the company developed knowledgemanagement systems to capture what it learns? Strategic Case Analysis Process 13-30  Formulating  Has business-level strategies the company chosen the correct competitive strategy given its industry environment and competitive situation?  Does the company use combination strategies effectively?  Is the company using a strategy that is appropriate for the industry life cycle in which it is competing? Strategic Case Analysis Process 13-31  Formulating  Is corporate-level strategies the company competing in the right businesses given the opportunities and threats that are present in the environment?  Is the corporation managing its portfolio of businesses in a way that creates synergies among the businesses?  Are the motives of the top corporate executives who are pushing diversification strategies appropriate? Strategic Case Analysis Process 13-32  Formulating  Is international-level strategies the company’s entry into an international marketplace threatened by the actions of local competitors?  Has the company made the appropriate choices between cost reduction and local adaption to foreign markets?  Can the company improve its effectiveness by embracing one international strategy over another? Strategic Case Analysis Process 13-33  Formulating  Is entrepreneurial strategies the company engaged in an ongoing process of opportunity recognition?  Do the entrepreneurs who are launching new ventures have vision, dedication & drive, and a commitment to excellence?  Have strategic principles and tools such as five-forces analysis & value-chain analysis been used in the process of developing strategies to pursue the entrepreneurial opportunity? Strategic Case Analysis Process 13-34  Achieving  Is effective strategic control the company employing the appropriate informational control systems?  Does the company have a strong and effective culture that aligns its values & rewards system with its goals & objectives?  Has the company implemented control systems that match its strategies? Strategic Case Analysis Process 13-35  Creating  Has effective organizational designs the company implemented organizational structures that are suited to the type of business it is in?  Has the company employed boundaryless organizational designs where appropriate, & do senior managers maintain appropriate control of lower-level employees?  Does the company use outsourcing to achieve the best possible results? Strategic Case Analysis Process 13-36  Creating a learning organization and an ethical organization  Do company leaders promote excellence as part of the overall culture?  Is the company committed to being a learning organization and does it capitalize on the individual & collective talents of organizational members?  Have company leaders exhibited an ethical attitude in their own behavior? Strategic Case Analysis Process 13-37  Fostering  Has corporate entrepreneurship the company resolved the dilemmas associated with managing innovation, and is it effectively defining and pacing its innovation efforts?  Has the company developed autonomous work units that have the freedom to bring forth new product ideas & has it used product champions to implement new venture initiatives?  Does the company have an entrepreneurial orientation? Example: Why Learn to do a Case Analysis? 13-38       Learning to do case analysis will help: Increase your understanding of what managers should and should not do in guiding a business to success. Build your skills in sizing up company resource strengths & weaknesses and in conducting strategic analysis in a variety of industries & competitive situations. Get valuable practice in identifying strategic issues that need to be addressed, evaluating strategic alternatives, & formulating workable plans of action. Enhance your sense of business judgment, as opposed to uncritically accepting the authoritative crutch of the professor or “back-of-the-book” answers. Gain in-depth exposure to different industries & companies, so help you acquire something close to actual business experience. Case Study Guide Purpose: Some tips of how to analyze cases to prepare for class discussions. Here are two common failings in case preparation that often go hand in hand.1 First, students often do no apply conceptual frameworks, or apply frameworks but in a non-rigorous and non-systematic manner. Some students simply examine cases based on their own past experience without incorporating theories. Second, many students do not devote sufficient time to reading, analyzing, and discussing a case before class. This is because many students succumb to the temptation to quickly read a case and latch on to the most visible issues that present themselves. Thus, they come to class prepared to make only a few superficial observations about a case. Applying the frameworks systematically may take more time and effort in the beginning but it will generally lead to deeper insights about the cases and a more profound understanding of the concepts in lecture materials. As you gain experience in this systematic approach to analyzing cases, you will find that your preparation time will decrease. Below are some tips that will assist you in analyzing cases. But keep in mind that no tips can substitute for hard work. 1. Skim through the case very quickly. Pay particular attention to the exhibits. The objective is to gain familiarity with the broad facts of the case. You may find it especially useful to focus on the first and last few paragraphs of the case in this step 2. Read the case more carefully and make notes, underline, etc. Identify what appear to be important facts. The assigned case questions that I posted online are also helpful. 3. Define the basic issues. This is perhaps the most important step and the stage that requires the most wisdom and critical thinking. Cases are rarely tidy problem sets where the issues or problems are explicitly stated and the tools needed to address those issues are prescribed. You need to ask: What are fundamental issues in the case? Many students tend to do what decision-making scholars label “plunging-in” which is drawing conclusions without first thinking about the crux of the issues involved in a decision. They typically seize the first issues that are prominently mentioned in a case. You should avoid this trap. 4. Develop and elaborate your analysis of the key issues. This is the step for elaborating Step 2. Look for quantitative evidence that can support the fact you identify. Opinion unsupported by factual evidence and analysis are generally not persuasive. Find the real rootcauses, not superficial symptoms. For example, having a low blood pressure only tells you that you are sick but does not let you the causes of a sickness. This stage also involves organizing the acts in the case. Often you will find it very helpful to draw diagrams to enhance your thinking clarity. 5. Draw conclusions and formulate a set of recommendations. You may be uncomfortable drawing conclusions and making recommendations because you do not have complete information. This is an external dilemma for managers. For those who want to wait for complete information to do something may act too late. You should strive to do the most complete analysis under reasonable time constraints. In formulating recommendations, you should be clear about priorities and the sequence of actions you recommend. 6. Prepare for class discussion. We have observed that many of students who are low contributors to class discussions bring few or no notes to class. Preparing organized notes will help you to absorb, learn, and contribute to the insights that emerge from class discussion. 1 The guidelines are adapted from Barney and Hesterly’s (2009) recommendation.
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Running head: SPOTIFY

Spotify
Name
Professor’s Name
Course
Date

SPOTIFY

2

Question 1
Spotify is an online digital platform that enables different users to gain access to
songs, videos as well as podcasts of all artists around the globe through streaming. The
service come in two packages: Spotify Free and Spotify Premium. Spotify Free is the adsupported version which enables limited access of contents for free by signing up using an
email or Facebook account. Spotify Premium version allows full access to content at a
monthly subscription fee. The materials can get accessed through both a computer or mobile
phones. It works like any other digital platform where the user visits the Spotify website and
sign up. During sign up, it is usually recommended to sign up with a Facebook account for
easy personalization. The second step is to choose the subscription level. However, Spotify
Premium is recommended as it has full access to the contents. Then the last step is to
download the application available on the computer or phone. After downloading the Spotify
application, the user then logs into his account and starts listening (Germain & Chakareski,
2013). Like YouTube, Spotify allows the user to save the music offline to listen to it later.
One cannot download the contents per se but instead can use the offline mode to listen to
music when the internet is unavailable. The amount of data the user can use when listening to
content depends on the quality the user is streaming. The variety of videos come in three
categories; normal (96kbps), high (160kbps) and extreme (320kbps) qualities. To premium
subscribers, the video content is available in utmost quality only. The participants of Spotify
are the young people who love to socialize with friends and indoor activities. In the US,
Radio and Televisions are the leading platforms for Spotify to operate. Since it has its
presence in smartphones and PCs, Spotify can venture into radios and televisions to gain a
competitive edge from the other players in the market. People mostly listen to radios when
they are not at home and when they are at home they watch a TV. However, the company is
digging deeper into its participants such that its presence is felt in cars, taxis, social networks
and airlines (Muñoz et al., 2018).
Question 2
Spotify is becoming successful through its platform and participants through
continuous upgrade and addition of new features as well as conducting effective market
campaigns. The application allows the user...


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