The purported $400,000 ad purchase, part of a $10 million marketing campaign, garnered much attention because, as The Atlantic Wire points out, YouTube is not only a leading destination for music fans, but the Google-owned video giant is also rumored to be building its own subscription streaming service.
While $400,000 is a significant amount of money to give to a potential competitor, Spotify is going where the eyeballs are, aggressively trying to court as many new users as possible before the already competitive streaming space -- Pandora, iHeartRadio and Last.fm are just a few of the established players -- becomes even more competitive. And that requires exposure, even if that means writing a check to a competitor.
The aggressive move seems inspired by a combination of fear and opportunity. For the moment, Spotify appears in an enviable position to capture a fatter slice of the emerging market for streaming music, but that moment may already be ending as enormous new competitors loom -- not the least Apple and Google.
"We are running an integrated marketing campaign, and when you think about where you get the most reach … YouTube is certainly right up there with television," Erin Clift, Spotify's vice president of global marketing and partnerships, told All Things D's Peter Kafka.
Reuters reported last month that Apple, Google and Amazon all plan to enter the streaming music business. While it's too early to know what products the tech giants will offer, it's most certainly on the minds of Spotify executives.
"They obviously would be crazy not to have it on their radar or list it as a potential competitive threat," said Dan Rayburn, executive vice president for StreamingMedia.com. "But I don't think calling them scared would be the right phrase because the product doesn't exist today."
A look at Spotify's customer base suggests that the company has ample reason for concern -- along with tempered optimism that it will be able to hang on to many of its customers even when, inevitably, major competitors emerge.
Spotify offers three tiers of service. Users can stream music to their desktops for free, but they have to put up with an ad every few songs. "Unlimited" service costs $4.99 per month and allows users to listen ad-free, while the "premium" option is $9.99 and allows users to stream and download unlimited music on multiple devices.
Of the 24 million "active users," which the company defines as someone who has logged into the service at least once in the last month, more than 6 million are paying subscribers, according to Spotify. The company did not not disclose how many of those 6 million paying users are premium or unlimited subscribers.
Although Spotify has been able to build -- and grow -- a base of paying subscribers, industry experts offered mixed views about how strong a claim Spotify has on its limited share of the market.
One advantage the company may have is that some of the premium subscribers have invested time curating their music collections and choosing which celebrities' and musicians' playlists to follow, which could prevent them from switching to a competing service, even if it is similar.
"If all the services are basically the same, I don't really have a big motivation to switch," Russ Crupnick, senior vice president of industry analysis at NPD Group, a consumer market research firm, said. "But if I've built a couple of sloppy playlists, then I really don't have a big barrier there."
While Spotify isn't by any means huge -- 1 million paying subscribers in the U.S. represents less than a half-percent of Americans with access to the Internet -- it's a leader in the on-demand subscription space.
And just because Apple, Google and Amazon are huge players and dominate other categories doesn't mean they'll be successful in the streaming music space.
"Obviously whenever you've got large brands with a tremendous amount of reach and equity in this space, they have the potential to be formidable competitors," said Crupnick. "It doesn't necessarily mean that they can pull it off."
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