Spotify Competition

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Main article(to be updated): Spotify Competition

It looks like the news was not liked that much. In the opinions I saw, Spotify ability to compete for new users with higher prices some of the most questioned.

Personally, I don’t know why a new user would pay Spotify instead of YT premium. In Costa Rica, YT premium is almost the same price, I did the change some months ago, and for a non- hardcore music listener like me it feels pretty much the same. And on top of that you get all the other premium benefits in watching YT videos.

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Fair arguments. YT music is probably the most serious competitor at the moment and one of the largest risks in the bear case.

I think we tracked it‘s growth somewhere correct?
Do you think the recommendation engine of Spotify or YouTube is better?
Can you link the opinions that you saw here?

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I am not sure, I did not cover Spotify before, and dont know how much work was done for the competitors.
I am just a normal music listener, so both platforms feel the same for me to be honest, and I don’t rely that much on recommended music. But the visuals and how YT presents the recommended music I like it better, and I also like you can watch the video if you want inside the app. There are no many podcasts yet in YT music, but I use the main YT app for podcasts and free audiobooks in the background.
And Spotify free app can also be used for podcasts because ads are less of a problem for longer content.

I will search for the opinions, is not that there is a whole bearish argument based on that, It is just that it was mentioned as one of the main risks, and that’s probably the reaction today. If you see seeking alpha, most have bullish opinions actually.

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Here is an overview of the competition, market shares, growth rates.

If you can, try to find some newer sources about current growth. Also, link the opinions that you already saw e.g. people questioning Spotify’s ability to compete with higher prices, even in case those opinions are not the most professional ones.

I started to disregard the competition risk a bit at some point after I saw Spotify’s ability to keep growing in light of this competition, but this is a mindset that can be dangerous, as things might switch at some point.

In my opinion, a lot depends on the question of how price-sensitive people are vs. how convenient and how many people have established Spotify family accounts and watch YT regularly (because convincing everyone on a family account to move to YT music might increase the barrier of making the switch)

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These are the last numbers YT reported, 30 million growth in 2022. I think is still below that of Spotify, but the growth rate obv larger.

I also think this risk is more for new user growth because I think most current Spotify premium users will probably not switch.
I also think at this point there are a lot of people that don’t even know YT music exists, which could benefit spotify.

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An opinion centered around competition but it is kinda old: Spotify: A Long-Run Loser (NYSE:SPOT) | Seeking Alpha

These have DCF analysis

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In order to make up our mind on the danger of Youtube Music we started to create a mindmap.

We appreciate any additional arguments that you come up with either in the advantage of Spotify or Youtube Music being posted here on this topic.

The main worries are the value advantage of youtube without ads + youtube music for the same price as Spotify and the risk that Youtube starts to push Youtube Music more at one point.

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I am a pretty heavy music listener and tried switching my music habits to Youtube music in the last two days. At first, it was kinda hard as I wanted to keep going back to Spotify but now it already feels way more natural.

I also looked for comparison videos between Youtube Music and Spotify.

Here are some of the main points:

  • Youtube Music has a larger and better music library of covers
  • Youtube Music has videos integrated
  • Spotify has a good standalone app
  • On Spotify’s free version it is possible to listen to songs in the background. This is not possible on Youtube Music which makes the app unusable
  • Spotify is very well integrated into a lot of devices
  • AI DJ function got good feedback

I also discovered that it is possible to synch libraries from one service to another using a service like https://freeyourmusic.com/ which decreases moats a bit more.

Overall I think that Spotify’s dependence on music is an advantage as Youtube Music is simply not a relevant business for Alphabet and they will not prioritize it if other more important business objectives get in the way.

The overall music streaming market is expected to grow and there could be multiple winners in it which shifts any potential heavy fighting about market shares into the future.

I do not expect much competition on prices even in more mature markets, as I do not think that price is going to be the decisive factor for most people to make the switch.
On the contrary, I believe that there will be large groups on both sides that would not consider changing, simply given that they are used to the apps, have their libraries on them, etc.

If this thesis is true the question is not going to be which app is better, but how many loyal users that would hardly switch Spotify can accumulate and maintain over time.

Depending on our assumptions of constant loyal premium user numbers, ad revenue, pricing, etc. the value of Spotify fluctuates heavily.

As an example, if Spotify could add 100 million more premium subs at an average ARPU of €4 it would add almost 5 billion euro to its annual revenue. Given a 25% margin, that’s 1.25 billion additional profit and starts to justify Spotfys current value. If they add 200 or 300 million more premium subs and can keep these numbers over time, Spotify looks cheap.

In any case I will keep testing Youtube Music in the weeks to come to get a better feeling of it and see if I would ever consider the switch.

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The fact that you can sync libraries I think is pretty significant, since I think is the main pain point to not switching for most people. I still think all the other advantages from one app to the other are not significant for a user like me since you don’t really feel the difference.
But this is probably not know by most people too, so at the moment is not something that is important either. But that could change with promotion as we have already talked about.

I actually don’t feel comfortable with the fact that some of Spotify’s success could be dependent on the competitors’ decisions to be more aggressive or not. Something out completely of the company’s control.

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I just opened youtube from an incognito tab and got a youtube music promotion instantly.

It would be pretty cool if we could find out somehow how heavily they are promoting it already and what their success rate is.

Additionally, i would be very curious about their current stance with labels, after a rocky start.

One of my key assumptions is that a large number of users (maybe 70-80% but especially those on family plans in North America and Europe) would not switch simply due to convenience reasons even if there are more Youtube Music promotions. If this thesis is correct and there are large user groups that are content with the offering and are not looking to optimize it, Spotify would have some level of control irrespective of what the competition is doing. Any data that could back up or disprove this thesis would be interesting but could be quite hard to find.

Youtube Music promotion
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I do agree with your assumption. However I think we established that the risk is not for current users switching, but for new users/subscribers growth

If new user premium growth decline at some point, I think their growth will be dependant on price increases mostly.

What is your assumption about new subscribers if YT becomes more popular? Or the importance of it?

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Good question.

I don’t think it will ever become popular like e.g. a new social app, because music streaming does not have network effects and YT music has no large inherent advantage over Spotify, so I don’t think there will ever be hype around it, or a sudden switch of a lot of people at once, but I see the risk that more esp. younger people are recommending it to their friends simply because it offers good music streaming and is included to Youtube Premium.
Therefore I believe there is still a risk that some part of Spotify users might be considering switching in the future.

Here are some arguments for why I think Spotify will be able to continue growing and attract more users

  • Spotify is a well-known market leader and as far as I know people are content with it. This means there will be ongoing recommendations in friends and family circles to use Spotify.
  • Spotify has a good brand and it is currently the “normal” option to use Spotify, while Youtube Music still sounds exotic.
  • Spotify does offer functionality Youtube Music is not offering. E.g. if someone wants to have a standalone app on PC or AI DJ function there is currently no other way than to use Spotify.
  • Podcasts and Audiobooks are currently attracting people to Spotify and will continue to do so in the future. (This fact was highlighted by Daniel Ek in the Q2 2023 call)

Even more important than the question of how market shares are going to be divided is the question of how the overall music industry is going to grow and develop in my opinion, as it is still a growing market. I will create a separate topic with my thoughts and assumptions about it.

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A post was merged into an existing topic: Music Industry

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It seems Spotify Connect is one of the features that prevents listeners from switching to YouTube Music.

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Evercore research note dated June 13 concluded that Spotify users have the least price sensitivity compared to its peers.

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  • Lisa Yang, MD of Media & Internet at Goldman Sachs’ Global Investment Research, said in August 30 Business Worldwide Podcast that Spotify’s market share has been stable since 2017.

    “Spotify is probably the most important independent music streaming ‘pure play’, and competes against services that are part of larger tech conglomerates, that obviously have deep pockets and don’t necessarily think about music [as] the center of their profit pool. Despite that, and despite the proliferation of new services… what you find is that, outside of China, if you look at the [global market] share of Spotify, it has been actually broadly stable since 2017, at around 41% or 42%," she said.

  • She expects Spotify’s market share outside China to decline only to about 39% over time.

  • Yang expects YouTube Music to become the second-largest DSP by 2030.

    “Outside of Spotify, what’s interesting is [that] YouTube Music has been taking the most share amongst the major DSPs. We do think YouTube Music will probably become the second-largest DSP by 2030, overtaking Apple Music," she said.

  • In their latest Music In The Air report, Yang and her team estimate that Spotiy had a 34.8% global market share in 2022( 2021: 35.4%) but said that its share loss decellerated in 2022.

  • On the other hand, YouTube Music had a market share of 12.7% in 2022(2021:12.0%).

    “YouTube Music has now gained almost 3ppt of market share over the last 3 years. YouTube reported >80mn YouTube Music/Premium accounts in September 2022 (including those in trials), a 30mn increase from Sept 2021," they said

  • They expect Spotify to maintain a market share achieved in 2023 of 34.7% and are forecasting its market share to be 32.9% in 2030.

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Two analysts have recently warned about increasing competition. What are they referring to?

Our Spotify Competition article could organize details on the state of competition.

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Interesting insight from FeeYourMusic showing a spike in migrations from Spotify to other platforms after the price increase announcement. Unfortunately have not found a recent update to see if it continues that way, or normalized again. But at least shows that for some users were significant to decide or think at least about a change.
Also interesting to see that only 500-600 per day are using this service to migrate from Spotify.

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I’m not sure if we should take this as he is starting to be more worried about competition, or just something normal.

Today, Apple and Google are not just players, they are the rule-makers and gatekeepers of the mobile internet, controlling how more than 5 billion global consumers interact online.

The present mobile environment is a far cry from the more open and level playing-field that existed when I started building companies. It also makes me wonder whether launching a venture like Spotify would even be feasible today. My guess is no.

This is what he is asking:

  1. Eliminate the tax and play fair. Spotify has to pay 30 per cent for every new subscriber who wants to sign up via the App Store, which Apple’s music service doesn’t have to pay, making it impossible for us to be price-competitive against it. And at every turn, Apple biases its own service.

  2. Alternatively, allow other app stores or alternative download methods, which already exist on Apple computers where we’re not held hostage to that 30 per cent fee. Offering other payment methods would make the marketplace genuinely competitive.

  3. Allow Spotify to communicate to our customers about cheaper alternatives, key updates or new deals they could benefit from inside of our app.
    DANIEL EK: I launched Spotify in the UK 15 years ago. But I fear I couldn't do that today because Apple is a barrier to innovation | Daily Mail Online

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Youtube Music Podcast Developments:

  • YT added podcasts in the US, and other regions by year-end, the update allows users watching podcasts on the main app to continue listening to them on YouTube Music… Podcasts in YouTube Music will be available regardless of whether you have a YouTube Premium subscription.
  • Google announced it will be shutting down its Google Podcasts app later in 2024 as part of its broader transition to move its streaming listeners over to YouTube Music. To help users with the transition to YouTube Music, the company will offer Google Podcast users a migration tool and the ability to add podcast RSS feeds to their YouTube Music library, including shows that aren’t currently hosted by YouTube
  • Company announced that it would support the ability for users to add RSS feeds to their library within YouTube Music, including private feeds. Spotify remains the only major podcast app that doesn’t support that functionality, preferring to direct users to its own podcast subscriptions.
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