How Spotify Can Win in India

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This post is a departure from my usual posts on product management.

I have been quite excited about the launch of Spotify in India. I love the product and I would love to see Spotify win in India. This post covers a potential strategy that Spotify could adopt to establish itself as the leader in the crowded music streaming services market in India.

Spotify launched in India in February 2019. This was closely followed by the launch of YouTube Music in March 2019. The launch of these two services has only added to the growing competition in the music streaming services market in India. There are a number of similar services jostling for space in this market. Gaana and Saavn have been around for many years now. Then there’s Apple Music, Amazon Music, Wynk, Hungama and a gamut of other smaller services.

The Indian market is huge with almost half a billion people now connected to the internet. If the winner is able to monetize its user base well, there are substantial revenues to be made from India. The cheap rates of 4G data in the country have almost brought about a digital revolution in how people consume information and media. Gaana recently announced an active monthly user base of 100 million users. Most of these users are likely to be Indians based on Gaana’s India-centric music catalog. That’s a massive active user base especially when you compare it to Spotify that has a monthly active user base of 200 million users globally. Of course, it’s a different question altogether on how much of the Indian market is actually monetizable when you consider the comparatively low per capita incomes in India.

Given this scenario, how can Spotify become successful in India? It won’t be enough to just acquire new users. Spotify also needs to figure out how to monetize these users, retain them and drive referrals through them.

Before I discuss Spotify’s potential growth strategy in India, I think it’s imperative to discuss what makes Spotify different compared to its competitors? Why should I use Spotify when I have equally good services in the form of Gaana, Saavn and Apple Music around? Once I’ve discussed what makes Spotify different and perhaps even superior compared to others, I will then come back to the growth strategy and discuss the various steps that Spotify can take to acquire, monetize and retain users.

What’s Different About Spotify? What Makes Spotify Special?

Personalization: As a user of Spotify for many years now, its ability to recommend songs based on my listening patterns stands out for me. Spotify truly gets me. Previously, I would only listen to songs of artists that I was familiar with. Now I often do not even know the artist or the song being played. If I like a song I’m listening to, I just add it to my Spotify library. If I discover a new artist on Spotify, I visit that artist’s page on Spotify to discover even more songs from the artist. This loop feeds on itself thereby making Spotify the default choice as my gateway to great music.

Playlists: Spotify has a number of curated playlists that have been put together by their editors. The curated playlists are another great way to discover music that you might enjoy listening to. There seem to be playlists for almost all occasions — working out, winding down, trying to concentrate etc. If you’re feeling down and out, you could listen to one of their Happy playlists and get music to change your mood quickly. If you want to feel energized, listen to one of their Workout playlists. Spotify seems to have playlists for almost everything! In fact, based on the number of billboards I see around Bombay, it seems like Playlists is one of the first ways in which marketers at Spotify have chosen to differentiate their product in India.

What Are My Friends Listening To: In a different era, my friends and I would share audio cassettes with each other to discover artists and songs that we were not familiar with. Over the years my musical inclination has been deeply influenced by what some of my friends with similar music tastes listened to. Spotify makes the music-sharing process so much easier. You can share your playlists with everyone! I often find myself listening to my friends’ playlists only to add a number of songs they were listening to to my Spotify library. What a cool way to discover truly great music!

Vast Music Catalog: One of the major reasons I use Spotify is because their library is vast and has almost every song and artist that I can think of. My experience with some of the other competing services especially Gaana and Saavn has not been great. Whenever I have searched for an artist I want to listen to on Gaana and Saavn, more often than not the artist is not available on the platform. This could be a factor of the regions that these services operate in. Gaana and Saavn tend to focus more on Indian music whereas Spotify’s focus is more global given the number of countries it operates in.

It is worthwhile to note that 70% of Spotify’s revenues tends to go to the labels as part of royalty fees. This then means that Spotify needs to be highly focused on whatever growth initiatives it undertakes. It will likely have to invest its efforts in scaling digitally by investing more in cheap disruptive marketing than expensive traditional media.

Keeping that in mind, let’s now get back to discussing the growth strategy that Spotify can adopt to win in India.

If you were a marketer at Spotify, as a first step, you’ll likely draw a growth funnel to help you structure the problem better.

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Spotify Growth Funnel in India

As you can see in the funnel above, the first step that Spotify needs to take is to acquire new users. Once it has acquired them, it then needs to figure out how to monetize them. Given the comparatively low per capita income in India, the revenue from paid subscriptions will likely not offset the costs associated with free users who use the ad-supported version of the product. Spotify then needs to figure out how it could make money from these free users. Lastly, Spotify also needs to understand how it could build virality into the product and drive more sign-ups and paid subscriptions through referrals.

The one thing that funnel above doesn’t cover is the types of users Spotify should target. Almost everyone listens to music. Therefore, it would seem that almost all Indians are potential users of Spotify. However, it is not feasible to target everyone immediately. Ideally, Spotify should be able to use a few beachhead segments before expanding to other segments. Given that Spotify’s music catalog at the moment is likely to contain many English songs and popular Hindi songs, perhaps Spotify should target the 18 to 35 year old demographic in Tier 1 and Tier 2 cities first who likely listen to English and Hindi songs and are willing to try Spotify given its strengths and differentiators from Gaana, Saavn etc. Once Spotify has made inroads into this segment, it could then target users from those regions in India where it is establishing partnerships with local labels and artists.

Regardless of the segments that Spotify targets, its process of acquiring, monetizing and retaining customers is likely to be similar. That said, let’s now look at the growth funnel in more detail. I’ve deliberately kept the growth funnel generic such that it can apply to almost any segment that Spotify chooses to target.

Step 1: Acquire New Users

The objective here is to get people to install the app, sign up and listen to their first song on Spotify. In order for this to happen, Spotify has to make people aware of its music streaming services and more importantly help them understand what makes Spotify different and special.

A few things come to mind on how Spotify could acquire new users quickly.

Partnerships with Mobile Phone Manufacturers: Spotify could establish partnerships with mobile phone manufacturers such as Samsung, Xiaomi, Vivo, Oppo, OnePlus etc., so that its app comes pre-bundled with their new phones. This could be a great way for millions of people in India to quickly discover and use Spotify to listen to music.

Partnerships with Telecom Companies: Another form of partnership could be with that of cellular network operators such as Vodafone, Airtel etc. Telecom companies in India are on a warpath against Reliance Jio as Jio has catapulted itself into a leader in their space within just two years of launching its cellular services. To retain their customers, one of the partnerships that Vodafone and Airtel have established is with Netflix and Amazon Prime Video. Spotify could emulate something similar to Netflix’s partnership with these telecom companies. Even though some of these telecom companies have their own offerings such as Airtel Wynk etc. to power music streaming, I believe they would want to do anything they can at the moment to stop the Reliance Jio juggernaut. Jio’s strategy seems to be focused on providing the network as well as the content that could be streamed over this network. In fact, Jio acquired Saavn for $1 billion in 2018 to power its music streaming services. Therefore, to counter Jio, telecom companies in India might be open to partnering with Spotify.

Other Partnerships: There are a number of other types of partnerships that Spotify can possibly establish in India. It could power the music in Cafe Coffee Day, Starbucks etc. outlets in India or even in gyms, Ola cabs, shuttle buses etc.

Ads: Spotify needs to make its presence felt online as well as offline. It needs to invest efforts in digital advertising as well as traditional avenues of advertising such as television, radio, billboards etc.

Sponsorships: People in India need to associate Spotify with music. This means getting as much visibility as it can with events that have to do with music in India. Spotify could sponsor events such as NH7 Weekender, college fests etc. or even create its own events in India to promote and nurture artists. These initiatives will help move the needle massively on Spotify’s overarching goal of making people aware of its music streaming service and getting them to download the app and sign up.

Step 2: Make Money From Users

A more complex problem for Spotify could be that it has acquired a lot of users but it’s not able to make as much money from them as it could. Therefore, the immediate next step for Spotify would be to figure out how it can make money from its users. Interestingly, Netflix and Amazon Prime do not face this issue as they provide you with a 14 day or a 30 day free trial after which you have to necessarily upgrade to a paid subscription in order to use their services. Unfortunately, music has been commoditized to such a great degree that many services just offer music streaming for free.

India is a market of deal-seekers. While Spotify seems to have almost half their global user base on a paid subscription, I suspect that it would find it hard to acquire so many paying users in India. In fact, Gaana and Saavn have never publicly announced the ratio of their paying users to their total registered users. This makes me think that the numbers are not much to speak about. Therefore, even if Spotify was to invest efforts in publicizing their premium features such as higher quality music, ability to skip multiple songs etc. or even build new premium features such as unlocking more playlists, I believe it would still find it extremely challenging to acquire paid users in a market that comprises mostly of deal-seekers.

That said, there are a few things Spotify can do to monetize its user base.

Spotify Club: Spotify could create some sort of a club membership where you get various services such as Zomato Gold membership, Netflix subscription etc. bundled under one membership. This might motivate deal-seekers to sign up for the club membership as they get access to more than one service for a reasonable price.

Innovative Pricing Packs: Spotify could launch daily packs or weekly packs to let users experience a premium subscription without committing to spending a large sum of money upfront. While Netflix has experimented with a cheaper mobile-only pricing, I doubt a similar strategy would help Spotify as music consumption is much more ubiquitous than video consumption and tends to happen on the phone as well as on the computer. Based on the pricing plans I see on Spotify’s India pricing page, I can see that it has already launched such pricing packs in India.

Unique Music-Based Ad Platform for Brands: To monetize its free users, Spotify needs to advertise to them aggressively. But if it were to use the traditional ways of advertising that disrupt the listening experience of the user, it will likely lead to user churn. In order to tackle this, Spotify could build a music platform that makes the ad delivery of various brands more musical in nature. This would help enhance the music listening experience than stifle it. Of course, it would have to invest considerable time and efforts in figuring out the modalities of building such a platform where music creators could offer their services to brands of making ads musical.

Produce Original Content: Similar to Netflix’s and Amazon Prime Video’s strategy of creating original content for the Indian market, Spotify could invest efforts in creating iconic Coke Studio type of music that people love listening to. And if they want to listen to it unlimited numbers of times or listen to more of such music, they would be required to upgrade to a paid subscription.

Step 3: Retain Users

Spotify’s annual churn numbers of ~20% do not seem as bad as that of some of the other subscription services. This is likely because the engagement rate for any music streaming app is bound to be high as most people listen to music very frequently.

Music Catalog: One way in which Spotify can keep its retention numbers high in India is by investing efforts in building a vast music catalog. There are many different languages spoken in India. Musicians in different regions in India tend to compose music in their own languages. This means that Spotify needs to invest efforts in building a vast music catalog in India. I suspect that it will not be enough to establish partnerships with only the larger labels. It needs to establish partnerships with smaller labels as well as nurture artists across different regions in India. In addition to acquiring new users in different regions of India, expanding its music catalog would also lead to higher user retention and higher numbers of users upgrading to a paid subscription.

Step 4: Drive Referrals

In order to drive referrals, Spotify could work on some of the following things.

Free Subscription on Referrals: As I previously mentioned, India is a market of deal-seekers. Maybe Spotify can offer free subscriptions to users based on a minimum number of people they invite who end up signing up on Spotify.

Student Ambassadors: It could also create a program of Spotify student ambassadors in colleges in India. The idea here is to get these student ambassadors to promote Spotify to their classmates.

Original Content: As mentioned under Step 2 above, Spotify could invest efforts in creating original content in India. Even if a few of such songs were to go viral, it would result in great publicity for Spotify where users would end up downloading Spotify’s app in order to listen to more such music.

Make Artists Promote Spotify: Spotify could incentivize music artists to promote its platform to their followers or maybe do Spotify-only releases of some of their albums or songs. The incentives could be tangible or even intangible in the form of cross-promotional activities etc. If it could get enough artists across India to promote its platform, it would certainly lead to an exponential growth in its user base in India.

So, those were some of my ideas on how Spotify could win in India. I have been a user of Spotify for many years now. I use it so extensively that I do not listen any more to any of the songs in my music catalog of 5000+ songs that I had curated over many years. I love discovering new music and new genres on Spotify. Spotify understands my preferences and helps me discover new music that I genuinely like. As you might have observed by now, I love Spotify and I would love to see it win in India!

Principal Product Manager @ ThoughtSpot

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