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Is Apple Blocking Spotify In US To Protect iTunes?

CNET ran an article on Spotify and its troubles of setting up business in the US. Many believe it's the stubbornness of the record companies that have slowed them down to a halt almost. However, the CNET article states that Apple maybe protecting its iTunes Store from Spotify and talking with record labels to think twice about the ad-supported model. According to the CNet article, Apple executives are worried about the effects of a free music service might have on the rest of the market.

Apple and Amazon's businesses were given as examples of companies that would suffer if someone would come to the market place with a free alternative. I agree they might suffer, but Apple and Amazon are beginning to sound like the cable channel directors when VCR came out. This essentially means that Apple, Amazon and others alike must innovate to keep up the top spot - that's just how things go.

Spotify has proven to be hugely successful in the countries where it currently operates in. In 2009, Spotify's revenues surpassed 90 million Swedish kronor (9.7 million euros) and ended up with a profit of about 14 million kronor (1.5 million euros). This turns out to about a 15,5% profit margin. Now while these numbers aren't in the tens of millions euros they could be, they tell a very clear story to me - the business is scalable and very clearly working.

Some sources also tell that Apple is working on a Spofity-kind of service to defend their position in the music business. Music is one of the most universal things out there and if Spotify would show high adoption rates (and we know it would) in the US market, it could overtake Apple in the blink of an eye. That's definitely something to be scared of.

Spotify, to my belief is only beginning its crusade in the the music industry. Their service is by far the best in the user experience, but it still comes short in many ways what it could be. Definitely a lot of room for improvement, but with its current offering - it's already showing how things should be done.

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Kaimaan October 12, 2010

Thanks for a good story. This was also pretty interesting news about Spotify.

" Updated: Spotify Tries Live Concert Broadcasts; New U.S Murmurs "

http://paidcontent.org/article/419-spotify-tries-live-concert-broadcasts-for-premium-payers/

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Juho Tunkelo October 12, 2010

Never underestimate American protectionism. Esp. when there are companies already in a position to defend, well, their position.

Spotify may have the best UI and the best user experience around, but is there ANY indication their business model holds? Anywhere in the world? Even Sweden?

I'd love to see Spotify conquer the world, but the road to mass adoption seems rocky indeed. Just solidifies my belief that nobody should go to business without a proven way to enter the market (http://bit.ly/cALPJN) and a business model proven at least on some micro kind of level.

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Antti Vilpponen October 12, 2010

Juho Tunkelo: Spotify may have the best UI and the best user experience around, but is there ANY indication their business model holds? Anywhere in the world? Even Sweden?

I very much believe so. If you look at their financials, this clearly states that it's a working business. If you're able to create 15% profit margins on 10 million euro revenues in the music business - you're onto something.

I think it's a known fact that Apple doesn't make money off the iTunes Store when they sell music and that's really annoying them when it comes to Spotify.

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Juho Tunkelo October 13, 2010

Antti: if that's the case, then I stand corrected. I guess just getting thus far in the race indicates they must have their numbers straight, at least on paper. If that 15% profit margin comes from ad sales, I'm well impressed.

As for Apple not making money off the iTunes store, well, I don't know. I don't buy that it's a loss leader for them. I've seen revenue numbers quoted in the hundreds of millions. Which still is a pittance in Apple's revenues, but still.

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Antti Vilpponen October 13, 2010

Juho: I believe the 15% profit margins come both from ad sales, as well as subscriptions. They have said that 5% of their users are subscribers to the premium package. I don't have a figure on their users, but I suspect that's still bringing in the majority of the revenues.