SXSWi keynote 2010, an interview with Daniel Ek, CEO of Spotify

Daniel Ek, SpotifyThe big name keynotes were a mixed bag. The conference organisers understandably like to get headliners on the roster, but once given the platform there is a tendency for them to be treated like gods and given a soft interview, and often without the chance for any questions from the audience. While I found the interview of Evan Williams, CEO of Twitter interesting, it did fall into this category.

The day after it was the turn of Daniel Ek, the Swedish CEO of London-based Spotify, a free music streaming service funded by advertising. At least in this appearance the big-name was brave enough to field some questions from the audience. It was a good thing he did as that is the only thing that separated this from being nothing more than an advert.

To convey what they are trying to do Ek stated simply that Spotify’s goal is “to make music [pervasive] like water”. It’s massively popular in Europe, with 1 in 5 Swedish people using it. Ek was given a tremendous platform to educate the American audience on this service, as yet officially not available in the US due to the minefield of negotiating with over 5000 publishing houses. Even though it’s not officially available a large amount of the Americans attending were using it. Although Spotify is free the premium service, at £9.99 a month dispenses with ads and also gives you the ability to install Spotify on your mobile phone. (One of the audience commented that £10/month was expensive, but for unlimited music access it seems pretty cheap to me.)

The service is popular because it gives people what they really want: free music (legally). Although you never own the music it’s their goal to “let you take your collection anywhere”, a mobile service is available and tracks can be downloaded to your computer for playback even when a network connection is not present. Ek stated more than once that he would still buy his favourite music to keep forever, but I can’t help feeling that’s more about him saying the right things in public and does not reflect user behaviour.

Despite Ek’s youth (he’s just 27), he’s had a number of successful internet companies before and the inspiration for Spotify came from his early use of Napster, which he combined with his past experience founding an internet advertising business and also building the most popular BitTorrent client. As a keen user of Napster, he liked two things: free music and the serendipity of discovering music from other users. Both aspects are replicated in Spotify, but unlike Napster this is legal. He described music as “the most social object there is”, but they are not trying to create a social network around this, just provide the content, and would rather work with other social networks collaboratively.

The potential bandwidth demands of a service like Spotify could be huge, in fact they are already using more bandwidth than the whole of Sweden. They are mitigating this bandwidth challenge due to the peer-to-peer architecture which means that you can be listening to music from another user on the same local area network, or the same ISP, as well as from further afield. In the first two scenarios it’s a big win for ISPs who are feeling the pressure from ever-expanding bandwidth costs outside of their networks.

Spotify has drawn criticism from the music industry, perhaps why Ek’s appearance was only open to holders of the Interactive ticket at SXSW and not those people with the music-only ticket. The uniqueness of their revenue model seems to be that rather than paying a fixed price to the record company each time a track is played Spotify have an agreement to split whatever revenue they get. Spotify has great ad conversion rates of between 3% and 5%, but other than this stat Ek refused to be drawn further on their revenue or payments to artists.

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