Spotify, a company that recently went public, hit the market with a bang. Just weeks after going public, the company made headlines once again after announcing that it had launched a new free version of its mobile streaming music application. Of course, the features offered are great for those interested in streaming music, is this a good move for investors?
Spotify Launches A New Free Mobile App
The new free Spotify App gives users the ability to create up to 15 unique and personalized playlists. On top of that, users can skip as much music as they’d like with no limits. When using other services like Amazon Prime Music and Pandora, these types of features are only available for users that sign up for premium subscriptions and pay the fees associated with these subscriptions.
This Could Launch Spotify To The Top
There’s no doubt that from a user growth perspective, this was a very good move. Ultimately, there are several Pandora users that are now becoming Spotify users. The reason is simple. One of the things that bugged users about Pandora’s free version was that users couldn’t skip songs as much as they wanted. So, if these users want to listen to only the music they want to hear, they have to pay the fee.
Many people don’t mind seeing ads, as long as they can do what they’d like to do within the platform. So, when these users are now cancelling Pandora and going to Spotify, saving a few bucks a month.
At the end of the day, the company just opened the floodgates, and SPOT stock could see big gains in value as a result. At the end of the day, what investors want to see right now is user growth, and a lot of it. That’s exactly what this new free app is likely to do.
There Is One Small Concern
While the upgrade is likely going to prove to be accretive to the value of Spotify shares, some are slightly concerned with what this could mean for revenue in the long run. While free users are great, Spotify’s bread and butter is paying subscribers. However, the new free version of the Spotify app takes away most of the reasons that free users would want to upgrade. Considering the recent earnings report, showing that Spotify is having issues with profitability, making a change that could cut into paying subscriber growth may not be a very good move.
Where Spotify Might Go From Here
While Spotify needs to earn more money, eventually making it into profit, the company, at first glance, may have shot itself in the foot. Ultimately, the core revenue generator for the company is paid subscriptions. However, this may be a potential sign of change in the core business model at Spotify.
Subscriber revenue is indeed the primary source of revenue for Spotify, but it is not the only source of revenue for the company. With the new free app, undermining the validity of the paid subscription, it looks like Spotify may be pivoting to an advertising-heavy based model.
The bottom line here is that no matter how big it grows, the company will need to monetize the system. It cannot operate at losses forever. Nonetheless, it’s impossible to discount the abilities of the company’s co-founder and current CEO, Daniel Ek. Ek is a genius and I believe he has the ability to not only turn Spotify into the largest music streaming service in the world, but given enough time, the most profitable.
