As Spotify takes off, is a service-based model the future of music? – by “Samuel D”

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.

spotifyiphone

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