Spotify may soon seize the music crown, signaling tech’s increasing dominance
By Paul X. McCarthy, Adjunct Professor, UNSW
WHILE competition online starts the same way as that in offline markets, my research shows it often settles very differently online.
Both have seen lots of competitors emerge in a new area underpinned by new technologies. But online, consolidation ends in a high-stakes winner-takes-most “title fight” between the two strongest players.
In search, this was AltaVista vs Google, in social media – it was MySpace vs Facebook, and in business networking Spoke vs LinkedIn. The result is that the victor at this critical juncture goes on to dominate their corner of the market and becomes almost unassailable in that space.
Spotify has created many features that have made it popular with users like the ability to create and swap playlists.
In the US, Pandora has more monthly active users than Spotify, Shazam, Soundcloud and Amazon Music, according to App Annie. While Pandora has dominated in the US, its success in other markets has not been so strong. In Australia and New Zealand, for example, it recently closed its service and Jane Huxley, former managing director of Pandora Australia and New Zealand who resigned in March was just announced in the same role at Spotify.
- Explosive new user growth
- Growing investor valuations
- Attraction of technology talent
Explosive new user growth
While the category of streaming music still is in its infancy, new users are critical to success. And this is where Spotify is killing it. In the context of apps, new users are all about downloads and for the best part of 2017, Spotify has taken the crown of No 1 most downloaded music app in the US on iOS. So while Pandora is still currently ahead in monthly active users, at this rate it won’t be long before Spotify takes the lead overall.
Investors always have a forward-looking view. Companies are valued not on what they are doing today, but what investors expect from them in terms of future growth and performance. While still private, and with rumours of a stock market listing later this year, Spotify is now valued by investors at more than US$13 billion – over five times the current value of publicly- listed Pandora, which is currently US$2.3 billion.
Attraction of technology talent
The success of all online ventures is fuelled by technology talent. And many of the people in the tech sector have their antennae tuned to who is hot and who is not.
You can now use data to examine which companies are the most desirable destinations for software developers and tech talent by looking not at what people say, but where they go. When people leave one company to go work for another that creates a data point, and when you have lots of these, that’s a trend.
Using the technology talent movement metrics, we can see also Spotify took the lead from Pandora in the US last September.
How competition evolves
Initially, new segments of the digital economy emerge in the same way as new segments of the traditional economy — with a vibrant explosion of new life and competition. Consider the car industry where there have been more than 3,000 car companies formed in the US alone over the last century.
Under the influence of competition, these thousands of companies have now winnowed down to 10 major global companies, each with sales of more than US$100 billion.
The way competition evolves online is akin to how the force of gravity has formed our solar system from lots of smaller rocks over time into clear planets with moons or satellites but, notably with no dual or triple planets. I refer to this phenomena as “Online Gravity”.
Where are today’s title fights?
We can see competition impacts clearly with the benefit of hindsight, but what about “title fights” currently underway?
Has Uber gone to point of market dominance beyond competition, or is it a MySpace awaiting Facebook, perhaps Lyft or another yet to enter entrant to steal its crown? Who will win the title belt for outsourced online labour? Will it be Freelancer.com or UpWork?
The prize for understanding who is going to win is large, and explains the premiums venture capitalists and public market investors alike put on companies that are favoured title fight winners.
Could Tesla become the Google of electric vehicles? Many people think so or that its battery technology advances could lead it to dominate in broader distributed energy industries of the future.
Much has been made in the media of the market value of Tesla now overtaking both GM and Ford, making it the most valuable US car maker. This is despite the fact Tesla sold less than 100,000 cars vs 10 million by GM and that its revenue is less that five percent of GM and Ford’s. And it’s still losing money.
Here we can see that Tesla overtook GM in terms of desirability as a destination for tech talent some four years ago and has remained ahead ever since. This coincides with Tesla’s subsequent rapid rise in enterprise value as reflected by the stockmarket.
This article was originally published on The Conversation. Read the original article.
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