iTunes has been leading the charge in legal online music sales since 2003 (selling over six billion tracks in that time) by selling individual songs and albums (DRM-free since January) through its iTunes Store software. Some interesting (ostensibly) legal alternatives have popped up over the years (Rhapsody, Pandora, imeem, Lala, MySpace Music), but none pose as great a threat as 2006 start-up Spotify. Spotify takes an entirely legal, service-based, streaming model to a new level, and the results overseas have been astounding.
Spotify has reached deals with major music labels for use of their collections. Users can stream the music with no buffer delay using a free version (with advertisements every half hour) or an ad-free premium version (for the equivalent of $16US per month). Users can also buy a one-day pass to go ad-free for 24 hours (for the equivalent of $1.62US).
Sharing: One of the most popular features of Spotify is sharing. Since the entire streaming library is available to all users at all times, users can share songs and elaborate playlists with users instantaneously. One user could make a 100-song playlist for a party, send it to a friend, and the recipient could play it instantaneously without downloading any files or buying any songs.
Offline: Users can cache up to 3,333 songs for offline use. This, clearly, would be larger than most people’s iTunes library and makes Spotify a direct (and potent) iTunes competitor. It’s also a huge competitive advantage over several of its streaming counterparts.
Geolocation: Spotify is the inverse Hulu, in a way, as it is currently only available overseas in Norway, Sweden, Finland, the U.K., France, and Spain. They are working hard to bring the service to the U.S. The Stockholm-based company is opening a U.S. office this year. The U.S. launch is imminent (as they reach deals with U.S. record labels), but apparently will rely on a mysteriously “slightly different” business model.
Portability/Mobile: The basic Spotify experience works through downloadable software (synced across multiple machines), but Apple recently shocked the tech community by approving the Spotify iPhone/iPod Touch app for the App Store. The app lets premium users stream the entire Spotify library over 3G or Wi-Fi AND sync offline. Given the offline sync, the Spotify app would instantaneously eradicate the need to buy music through the iTunes Store for your iPod. An Android app is available, as well. Playlists and settings are wirelessly synced between your phone and computers.
MP3: Spotify (for obvious reasons) does not allow users to download files of songs, but does link to legal music partners (Amazon, etc.) so users could buy MP3s on their own.
The Future: Spotify clearly takes the service-based music model to a new level. Valleywag calls it “everything iTunes should be.” As Spotify adds more and more music to its library and even Mark Zuckerberg sings its praises, how will Apple respond? Spotify is now reportedly making more money for Universal in Sweden than iTunes is. Many believe a service-based model is the future of music now that mobile platforms have caught up, but do people really want to rent music?
Spotify is currently valued around $250 million and with the U.S. launch imminent, that should only grow. Expectations and buzz are certainly high. The service has six million users presently, but is setting its sights high, aiming to take the service-based model to the next level:
“If we can transcend it so that, maybe you don’t actually have to pay for the music, it’s included in your data plan with your carrier or ISP or cable operator; it might be when you buy a new product, a TV screen, that you get one year of music included … devices like new Samsung TV screens, where they’ve got Linux built in, which allows you to do software on it – they’ve got YouTube built in, they might have Spotify built in.”
Spotify Website: http://www.spotify.com/en/
Spotify on Twitter: http://twitter.com/spotify
Spotify on Wikipedia: http://en.wikipedia.org/wiki/Spotify
Yale Law Tech 
I feel like the success (or lack thereof) of Spotify will be very telling. I get the sense that unlike DVDs or books, people want to *own* their music. I want my music in my car, on the treadmill, whenever, wherever. I guess the iPhone app makes this possible, but I have a feeling that Apple won’t keep this around should the site *really* take off.
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This is pretty cool. I’m not a big music guy, so I really like how there are lots of new models on how I can consume music more casually, as opposed to having to build collections. It’s interesting though, as it seems like you’d be ceding a lot of control and also…there’s no real way to remix music from Spotify, is there?
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I think it’s wonderful that this service is being made available. It seems like a small opportunity to celebrate for those who believe music should be free. I don’t really see Spotify as a threat to iTunes unless you could convert the cached files into mp3’s or something. Then again, I’m not a computer science person. As far as the music being stuck on your computer…I don’t mind it so much. As a college student, I always have my laptop with me. And if, for example, I want to use my music library for a party, I just hook the computer up to large speakers… I’m just ready for this access to hit the U.S.
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I wish I could use Spotify on my iPod though. I guess having a tethered appliance kind of sucks.
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This sounds pretty cool and reminds me of Ruckus (http://en.wikipedia.org/wiki/Ruckus_Network), except that was free to all students with a valid .edu address. That model was probably not sustainable though, as they shut down recently.
I can see the free, ad-supported plan doing well. For the free version, $16 a month isn’t bad for unlimited music, yet I think it will take some time before people get used to this model, in comparison to buying permanent copies of the songs. I, for one, would at least want to have permanent copies of my favorite music, but there’s other music in my iTunes library that I don’t listen to as often that would be good to get through Spotify. I can see people using both services – iTunes to get permanent copies of some of their songs, and a Spotify subscription for the rest.
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