I recently read Scott Galloway’s book, The Four: The Hidden DNA of Amazon, Apple, Facebook and Google. The book breaks down what it takes to become one of the largest and most influential companies in the world. It’s both fascinating and terrifying. We’ll skip the terrifying aspects for now.
According to Professor Galloway’s research, several traits combine to make a company a possible candidate for a trillion-dollar valuation. The T Algorithm:
— Global — a product that leaps geographic boundaries
— AI — behavioral data that senses your tastes and tailors the product to you
— Benjamin Button — aging in reverse, an algorithm that improves with use
— Likable — seen as friendly
— Citizenship — perceived as doing good in the world
— Accelerant — being able to attract top talent
Scott Galloway argues that Spotify has the fundamental attributes to become the next Mega-Cap technology company.
I agree with Professor Galloway’s assessment, in fact, I think it’s only half of the story. I believe Spotify can profoundly reshape the music industry. With so many young people sharing music with each other through Spotify, if an artist is making worthy music, they have a network to reach the masses quickly. This allows many small artists to remain independent, or without a label.
Spotify is acting as a low cost alternative for bootstrapping artists trying to avoid music industry nonsense. However, instead of charging artist for distribution, Spotify is able to pay artists a lower per-stream payout ($0.006 per stream) than their competitors – Apple Music, Amazon music, YouTube and pandora.
Of course, there are many obstacles in the way, including non-competitive behavior from the incumbents. If their growth stalls, that could mean trouble as Spotify plans to lose $400 million dollars this year. Finally, getting in the content game, against the likes of Netflix, Amazon and HBO will be no easy task.
The reason Spotify will likely persist as a platform is because they were early into social. That’s important because the more people on the platform sharing things, the better the experience becomes for everyone. There’s a nostalgic element as well. For example, I find myself listening to and sharing playlists that friends and I made in 2012. The service is sticky.
Given Spotify’s superior music distribution network and user experience, I believe they can charge users more and pay artists less. I’m highly confident in their ability to win the global music streaming game.
I think Spotify is uniquely positioned to eventually challenge the leaders in premium content streaming.