Just read this article on huffington post on how hard spotify is trying to get new customers before the big boys (Apple, Google) enter:
While $400,000 is a significant amount of money to give to a potential competitor, Spotify is going where the eyeballs are, aggressively trying to court as many new users as possible before the already competitive streaming space — Pandora, iHeartRadio and Last.fm are just a few of the established players — becomes even more competitive. And that requires exposure, even if that means writing a check to a competitor.
The aggressive move seems inspired by a combination of fear and opportunity. For the moment, Spotify appears in an enviable position to capture a fatter slice of the emerging market for streaming music, but that moment may already be ending as enormous new competitors loom — not the least Apple and Google.
It made me wonder what else can Spotify do other than spending a lot of money? Any feature they introduce can possibly be copied by the big boys. If it has a patent a work around could be found. The other way to succeed is to use the Network Effect. Spotify already is doing good things on the social front. We have seen how ebay and craigslist are successful because of the Network Effect. By releasing more features that will be advantageous for a user because of his/her network on spotify, spotify can stop users from jumping ship when the big boys come in.
I could think of 3 things that they can do now to gain a Network Effect
- The more people one brings/introduces/refers to spotify the more Karma ( a point system on spotify that can be but need not be public) points one gets. These points could be used for rewards.
- The more songs one shares with a friend (and the friends listens) the more good Karma So if everyone brings their friends and keep sharing and listening to songs, more people are likely to be on spotify.
- Introduce spotify games that one can play with friends on spotify. Ex: A game where a user sends a snippet of a song he or she is hearing to a friend, and asks to name the song.
For a free user that reward could be some ad-free listening time. For paid customers it could be some credit/discount to their service, or say a free month. Depending on the Karma points level one gets more benefits if they get to higher levels (similar to pyramid marketing) . That could also add a gamification angle and we can compare friends scores (similar to foursquare). It can also do others things such as users can get more karma points the more he or she listens. In a sense spotify has to do price discrimination based on a user’s network and create a path dependency so that user’s will not switch out easily.
In one line, using the Network Effect to its benefit is the best defense ( in long term) against competition.