Business Matters: A $3 Billion Valuation Brings Spotify Expectations Back to Earth
Business Matters: A $3 Billion Valuation Brings Spotify Expectations Back to Earth

Spotify today introduced free radio streaming for iPhone and iPad users, making the site more directly competitive with online radio leader Pandora. Using internal data from Spotify's database of 16 million tracks in the U.S., Spotify will create custom radio playlists based on track, artists, albums, genres or playlists themselves. As an example of the latter, a playlist based on the current Billboard Hot 100 playlist might suggest a track like Foster the People's "Warrant," a song that hasn't charted but is similar to the songs on the playlist and also to users' own meta-data.

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In another Pandora-like move, Spotify's radio service comes equipped with the ability to "thumbs up" or "thumbs down" a song, which will in turn update the next track on the playlist in real time to more accurately reflect the user's listening preferences. Such additions could be useful in helping Spotify narrow the gap between its competitors -- Pandora reported 50 million active users in May (compared to Spotify's 10 million active users and 3 million paying subscribers), with 70% of usage coming from mobile devices. Prior to today's announcement, only premium users could access Spotify on a mobile device (premium users will also be able to use the new radio service on iPhone and iPad).

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"One of the things users kept asking us was for better discovery of new music," says Donovan Sung, product manager for Spotify. The free mobile features could also have a halo effect on other usages of the product. "There's a high correlation between time spent streaming and being a paying customer. We're just trying to improve the experience," Sung says.

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"Liking" a song on the new Spotify playlists will automatically save the track to a special playlist so users can revisit any song they've given a "thumbs up," similar to the starred playlists users can currently create to remember their favorite tracks. A radio icon also features prominently in the middle of today's update for Apple devices -- making it "the central feature of the mobile app," Sung notes.

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With an Android version of the new mobile app in the works (an updated, radio-free Android app debuted Monday), could a click-to-buy feature for songs be far behind? "We have to see what the users will say," Sung says. "We're constantly updating to include anything users really like."