Five Takeaways From Spotify CEO Daniel Ek's Interview With Fast Company
“Success for us will be determined by our ability to move faster than everyone else in the space. And just keep on innovating.”
Those are the words of Spotify CEO Daniel Ek in a lengthy interview published Tuesday (Aug. 8) in Fast Company, conducted both before and after Spotify went public. The interview gives valuable insight not just into Ek’s introverted personality and decentralized, frank leadership style, but also into Spotify’s long-term product roadmap and the challenges the company must overcome in the face of both Wall Street and the wider music and tech industries.
Below are the five biggest takeaways from the interview, and what they might mean for Spotify’s future as it tries to “move faster” than its rivals in an increasingly competitive streaming landscape.
1) Spotify’s target market isn’t just music -- it’s all of audio.
In 2017, annual U.S. recorded-music revenues increased by 16.5 percent to $8.7 billion, marking the sector’s third consecutive year of growth, according to the RIAA. Yet that figure still trails behind the U.S. commercial radio sector, which brought in $13.9 billion in sales over the same time period -- outpacing recorded music by nearly 60 percent.
Hence, with its ballooning size and mounting financial pressures, Spotify and its leadership have their eyes set on bigger opportunities beyond music alone.
“I don’t think the market [for Spotify] necessarily is purchased music. I think the market is much larger than that. I think it’s audio,” Ek said in his interview. “Two billion people listen to radio. Most of that today isn’t monetized very efficiently. It doesn’t get back to the artists in any real form. And it’s kind of unclear who gets what.”
These comments are reminiscent of a press conference that Spotify held in Apr. 2018, during which chief R&D officer Gustav Söderström claimed that Spotify serves as “both the radio station and the record store,” simultaneously creating and monetizing demand for music in an allegedly fairer way than traditional radio payouts. Troy Carter, the company's global head of creator services who is leaving in early September, has previously discussed with investors how Spotify’s free tier is a better deal than terrestrial radio for artists and labels because Spotify gives recording artists a cut of ad revenue.
Ek claimed to Fast Company that the average Spotify user spends over an hour every day on the service -- which, while suggesting high user engagement, still falls behind the four hours that the average U.S. consumers spends listening to audio daily, the majority of which is dedicated to radio.
The sweet spot for Spotify lies not just in expanding its share of overall audio listening in the U.S., but also in combining that wider share with better targeting tools for artists and other content creators and rights holders. “If you have two hours of someone’s time per day and on our platform artists can communicate directly to fans, what are the opportunities? It’s a very different market,” said Ek.
Of course, the “audio market” extends far beyond music into podcasts and audiobooks as well -- and Spotify has already invested millions of dollars in these verticals in an attempt to strengthen its competitive stance further against incumbent radio players.
2) Even though Spotify isn’t “just” a music company, it still relies heavily on the music industry for its success -- and wants to be seen as a partner, not as a competitor.
Over the past year, many artists and music-industry execs have expressed their concern about Spotify possibly weaning off its label relationships through means such as direct artist deals, in an attempt to cut content costs.
But according to his Fast Company interview, Ek not only wants to be on the music industry’s good side, but also recognizes that his company cannot keep growing with the industry’s support. “We’re super dependent on having the labels, the artists, and the songwriters like what we do -- ‘like’ is not the right word -- but accept what we do, agree with the direction that we’re heading, and license us their content,” he said.
While Spotify execs have explicitly stated in the past that the service is consumer- rather than industry-first, Ek stated in his interview that he also has a long-term interest in engaging with structural innovation on the industry side as well. “If the first 10 years for us was about fixing the consumer experience, the next 10 years is about an equal amount of focus on making sure that the music industry sees the same transformation that the consumer side has seen,” he said.
Part of that vision, as previously mentioned, involves combining automated curation with more accessible marketing tools for artists that extend beyond recorded music into live shows and other offerings. “The problem with concerts today is not super big acts, it’s the 1,000-to-2,000 seaters, because there is no efficiency in marketing those shows,” said Ek. “But if you had your audience and you could segment, here’s my super fans, and I’m not even going to book that show until I get 900 people who have said they’re interested in it, all of a sudden you’ve taken that risk out of it.”
Interestingly, Ek also contrasted Spotify’s mission and business model with those of ride-share companies like Uber and Lyft that are currently unprofitable but are nonetheless investing heavily in R&D around self-driving cars, betting on human labor costs plummeting in the long term.
“The end vision of Spotify is to get a million artists to make a living off of their art,” whereas “the end vision of Uber is to have zero drivers: Be my partner until I don’t need you anymore. That’s a very challenging business proposition,” said Ek. (Ek later clarified on Twitter that these comments were referring to Uber’s previous PR disasters, prior to new CEO Dara Khosrowshahi taking the reins.)
Such a comparison was likely alluding to allegations from Jul. 2017 that Spotify was putting “fake artists” on certain mood playlists in order to drive down royalty payments to other, “real” rights holders.
3) Going public is a lot less glamour, and a lot more plumbing.
In his interview, Ek detailed how he embraced a highly decentralized decision-making process in Spotify's early years, allowing hundreds of separate projects and objectives to run at any given time. But as a fledgling startup, the company didn’t have enough resources to complete so many projects simultaneously, leaving a lot of said projects unfinished.
Now, Ek makes sure that 40 to 50 percent of his company’s resources are allotted to “10 bets going on at any time, never any more.”
Unfortunately, two of those bets in the past year had less to do with product or tech innovation, and more about putting technical and regulatory safeguards in place before going public: migrating the company’s enterprise resource planning (ERP) system to Google Cloud, and building new user-facing privacy and data-download tools in compliance with the E.U.’s GDPR data protection law.
“I don’t think I fully appreciated how much of your product roadmap gets impacted by going public: There’s so much plumbing you have to fix,” admitted Ek. “Now it feels like we’re finally now getting back to focusing all of our resources and all of our attention on building things for our customers.”
4) If it weren’t for Ek’s hands-off leadership approach, some popular features like Discover Weekly wouldn’t exist.
As CEO of a public company, Ek is making concerted efforts to move from unstructured and decentralized to structured and focused in his organizational decision-making, as demonstrated above. Yet his early hands-off leadership bent also allowed certain features to flourish that would have otherwise been doubted or removed by senior management.
One example of such a feature is Spotify’s algorithmic, personalized playlist brand Discover Weekly, which has grown into one of the service’s most beloved features, helping connect over 150,000 artists every week with lean-in listeners.
In his Fast Company interview, Ek revealed that if the decision were left to him, he would have killed Discover Weekly from the start. “I never really saw the beauty of it,” he said. “I questioned [the team] two, three times: Are you sure you really want to do this? Why are we spending all this time and energy?”
According to the interview, Ek refused to dedicate any more staff to the project, but it shipped anyway thanks to the CEO’s more decentralized approach at the time -- and has gone on to exceed Ek’s wildest expectations in popularity and growth.
Ek also resisted certain discounted pricing strategies early on, worrying that such updates would erode long-term user retention. “One price promotion for the holidays, three months for 99¢ -- I’m like, this is so fucking dumb. People are just going to cancel after three months,” said Ek. “[But] that thing has been so successful.”
Surprises such as these have impacted Ek’s understanding of his own role at Spotify, and informed the hiring process for senior management. “I usually judge a leader on the basis of, if I’m able to come up with a better suggestion or solution to a problem. If not, it’s the right leader,” said Ek. “If I am, then there’s a problem and we have to replace the leader.”
5) Yes, Spotify wants to be like Netflix -- but not in the ways you might think.
Over the past few years, many Wall Street analysts and outside commentators have suggested that Spotify should try to become “more like Netflix” -- i.e. invest in more original content and pursue vertical integration of music creation, marketing and distribution -- in order to dig itself out of the red.
That direct comparison is arguably flawed, however, as Spotify and Netflix each satisfy vastly different financial and psychological needs for consumers -- and Ek argued in his interview that the companies are also quite different on the B2B side.
“Both [Spotify and Netflix] are consumer subscription businesses, in media, but that’s where the similarities end,” said Ek. “Our company mission is to have more than a million artists to be able to live off of their art. In that model, it’s almost like you’re managing an economy, not just 10, 15, 100 deals that you’re doing. We’re trying to provide the tools to enable all these different constituents to do better business on our platform. That’s very different from what Netflix is.”
Ek also disagreed with widespread claims that Netflix’s success with original content could and should be replicated across Spotify and other comparable services.
“People think that because Netflix now owns more of their own content, it’s like a defensible moat. The premise is just very, very faulty,” said Ek. “I think that Netflix is winning for a different reason than what everyone else thinks. They’re winning because they’re simply moving faster than everyone else.”
Spotify has tried and failed numerous times to launch a sustainable original content strategy, particularly in video. Nowadays, the streaming service seems to be turning instead to bundles with video services like Hulu, telcos like U.K.'s Vodafone and even possibly digital publishing companies like Scribd.
“There’s nothing sustainable or unique about what Netflix is doing, and in fact, I would argue that if they kept doing what they’re already doing, they will start failing,” said Ek. “Amazon, Apple, Google -- you have a bunch of these people now entering the same arena. The pace of innovation is greater at Netflix than their competitors and therefore they’re winning.”
Interestingly, the likes of Amazon, Apple and Google are also gaining more influence alongside Spotify in the streaming and music-tech sector, particularly with the rise of smart speakers and other connected devices. As for whether Spotify can continue to innovate more quickly than its big-tech competitors without denting its bottom line too deeply, the path forward is still unclear.