Work on Spotify began in 2006 in Stockholm and was spearheaded by Daniel Ek (former CTO of startup Stardoll) and Martin Lorenzon (former co-founder of TradeDoubler). As you might have guessed, the biggest problem with music listening apps was getting the copyright for songs that were shared with users. The startup also had to deal with another problem that no other company has managed to overcome: prejudice. Spotify was founded in Sweden where Pirate Bay was created, accused of hosting pirated content. It should also be remembered that in those days, music labels were suing services such as Kazaa, through which we could download the music of famous artists in MP3 format.
So it’s safe to say that the founders of Spotify had a hard time. However, all this did not stop the company, which not only became convinced of its open principles, but also took advantage of the then crisis in the music industry.
Bloomberg Business Week wrote that the music industry was worth $27 billion in 1999, but nine years later it was half that, at $14 billion. With these results, Daniel Ek, the co-founder of Spotify, convinced the leaders of the music industry to take a chance and give him all their copyrighted songs. Thanks to this contract, the company was able to conquer new markets faster, because it did not have to worry about copyright for most of the works. Thus, the main problem was solved. However, commentators note another factor that made the company successful: the price.
In 2008, there was no service like Spotify on the market. iTunes grew in popularity, allowing you to legally buy any song for about $2. That’s a lot considering we usually like more than ten, thirty or fifty songs. If we wanted to listen to each of them without Internet access, we would have to pay a lot for them. And on Spotify they were available for free.
In 2008, this free music app premiered and only users who received invitations from others could register (each could only send five invitations). Thus, Spotify not only aroused the curiosity of users, but also suffered huge financial losses – caused by work on the product. Spotify ended 2008 with a $4.4 million loss. The private money for the creation of the company was provided by Spotify co-founder Martin Lorenzon, who sold shares of Tradedoubler.
Only a year later, the company made available in the UK free registration without invitations and closed another funding round – this time for $50 million, and a few months later for $16.1 million. That’s when the Spotify application was launched in the App Store. By 2011, the company had raised $100 million in investment to expand in the United States. Sean Parker, known as the creator of Napster, joined the company’s supervisory board. The number of songs available on Spotify has grown to 10 million and the number of users to 6.67 million. In 2012, Android users could also use Spotify.
One year was enough for Spotify to significantly increase the number of users – in December 2012 there were already 20 million of them, of which 5 million paid for a subscription. In the first three months of 2020, Spotify received massive rounds of funding, with the total pool of funds raised exceeding the $537 million threshold. Even then, he was preparing to enter the stock exchange, experts calculated that one share could cost up to $150, which would raise the company’s value to $26.5 billion.