Spotify 101: The ‘freemium’ music model, why it works, and the vision that drives the social music startup

By Editor August 18, 2011
Editor’s Note: The following article is part of a new series of guest articles on StartUp Beat by experts on startups/entrepreneurship who have something to say about any and all things related to the technology startup world. The series is intended to serve as a point of discussion and consideration of issues that affect the technology startup sector.

Jim_AndersonBy Jim Anderson

Jim co-founded and is an adviser and inventor of innovative technologies, specializing in artificial intelligence and neuro-linguistic programming. He is currently a part of Spotify’s U.S. technology team.

Spotify finally said “hello” to the United States on July 14, 2011. After years of staring enviously across the Atlantic, our American friends could now enjoy Spotify.

It was also a defining moment for everyone who works at Spotify. Another huge step towards realizing our ultimate goal—to give everyone instant access to all the music in the world.

Before Spotify

The basic idea of listening to music for free isn’t new. The ability to discover new music from the comfort of your own home has existed for a long time. Early implementations of this concept, like Napster, Kazaa, DC++, The Pirate Bay, generated a large amount of negativity amongst the artist community, and for a good reason—they weren’t getting paid for all of their hard work!

Of course, this presented challenges for us when we tried to sell a free model. Why would artists and rights holders willingly give away music for free? Interestingly enough, the answer is quite simple: they don’t have to.

Piracy is so old fashioned

The free model isn’t just about giving music away, but rather a way to introduce the service to users and prove its value. By doing so, we can show them the wonders of having instant access to a large chunk of the world’s recorded music, and convince them to sign up for a subscription.

As it turns out, this view isn’t a mere assumption anymore. Since launching in Sweden in late 2008, all our business data points to one thing—people sign up for the free plan, try it out for a while, and then upgrade to one of the paid plans.

There’s free, then there’s Spotify Free

It’s true that not all of our users have signed up for a paid plan, nor will they ever. But since the free model generates revenue through advertising, listeners are actually contributing just by listening for free. That alone is a huge step in revolutionizing the music industry.

Sharing music is one of life’s real pleasures

Of course, a sound business plan is needed to ensure success, but financial number crunching will only take you so far. Another aspect of our game-changing efforts concerns the social side of music. What could be more sociable than listening to music with friends?

We believe that people want to explore new music, but they also want to share their favorite tracks and playlists with their friends.

Extensive support for social

With Spotify, users can collaborate on playlists, instantly share tracks and playlists to Facebook, Twitter and Messenger directly from the client. In fact, our Facebook integration makes it possible to see and listen to friends’ playlists.

At the same time, this is an area with very high potential. It‘s one of the areas of the music experience that hasn’t been developed before, mainly because there hasn’t been a way for us all to explore music together from the comfort of our own homes (unless you live next door to a music arena!). We really hope to develop this further.

Our goal

What we want to do is inspire millions of people to find, enjoy and share music in the same way that Wikipedia has inspired millions to share their knowledge. Sure we might be talking about utopia, but why not aim for the stars?

However, with millions of Spotify users worldwide, and social media literally expanding by the hour, we believe our goal is at least theoretically feasible. To us, sharing everything, including music, with our friends and loved ones is a trend that will continue to grow. It makes for a very interesting future.

Just imagine waking up in your hotel room on the last day of a dreary business trip to find this present in your Spotify inbox: The Coral – Dreaming Of You.

About Jim…

Throughout his career, Jim Anderson has created a variety of innovative and disruptive technologies. Starting early at age fifteen, Jim spent much of his youth working on the early versions of speech recognition for IBM. Among the first pioneers of the online industry, Jim was a key developer at Prodigy, one of the initial consumer online services, and later went on to become a founder of, playing a key role in the growth and development of the company.

Jim has developed and filed many patents that are held by IP holding companies in the security, mobile, social science and technology industries. He has helped a number of Fortune 500 companies develop and create innovative solutions to various technological issues. Jim has also designed and built numerous leading technologies and patented solutions in computing, security and telephony through his privately held IP companies, most notably, Standard ID and Augment Communications. Jim’s area of expertise further extends to providing technological solutions in the areas of security, artificial intelligence, telecommunications, social networking, search, software and systems architecture. Specifically, Jim has worked on intelligence and design systems relating to the U.S. Patriot Act, KYC (“Know Your Customer”), and anti-money laundering solutions. Over the course of his career, Jim has become a respected authority on homeland security, terrorism and counter-terrorism solutions and has given a variety of lectures and keynote addresses on such topics. Most recently, Jim has presented lectures on innovation, entrepreneurship, telecommunications, networking, artificial intelligence/machine learning, Internet security and safety, security, mobile technologies (including, banking, commerce and next-generation solutions) and social networking.

Jim’s expertise and passion for his profession has led him to donating his time and research to a wide range of non-profit organizations and educational institutions, including, University of Syracuse, Tufts University, Massachusetts Institute of Technology, Kids for World Health and The Alliance of Guardian Angels. Jim serves as an advisor and board member for several different companies, including the Board of Directors for The Alliance of the Guardian Angels.

Additionally, Jim has authored and co-authored several books on Java and JavaScript computing technology. He holds a number of patents both issued and currently pending.