The assessment of Spotify’s success in value creation, value proposition, and value
capture
Section I: Introduction
The music industry has undergone a radical transformation from the traditional ways of listening
to music, from CDs and MP3 players to digital streaming platforms such as Spotify. Therefore, suppliers,
artists, and songwriters now have easier access to the market (Richardson, 2014). Digital automation, the
internet, and robotisation can be found in all realms of society. These contributors form the building
blocks of the Industrial Revolution 4.0, where there is a much broader, deeper, and more complex
application of inventions (Rymarczyk, J. 2020). One of the key drivers of Spotify’s successful distribution
is the use of artificial intelligence, which analyses the user’s listening history to create a personalized user
experience (Jacobson et al., 2016). However, artificial intelligence does have potential consequences,
such as biased algorithms that can create unfair or biased outcomes. At the current speed, it is estimated
that by 2025, over 31 billion machines will be connected to the Internet (Statista, 2022). This statistic
follows Moore’s law, which indicates that computer processing power will approximately double every
two years (Iansiti & Lakhani, 2017). This means that computing power will become smaller, faster, and
cheaper over time, making it more efficient.
Within the Industrial Revolution 4.0, many processes are controlled by machine learning. As
mentioned above, the Spotify experience is individually tailored to a user, which helps Spotify entice and
retain users by providing each user with an enjoyable and personalised listening experience. However,
this experience does not come without consequences. Digitalisation within the music industry has raised
many issues around privacy and illegal downloads, which has led to many major record companies
recording losses (Voigt et al., 2018).
Consequently, Spotify suffered an annual loss. Streaming service providers such as Spotify earn
revenue by charging a monthly fee to consumers; this is known as paid streaming services (PSS)
(Wlömert & Papies, 2016). Artists are paid per stream, with Spotify reporting to pay $0.0033 to $0.0054
to artists (through their rights holders) per stream in 2021 (Spotify Pay per Stream, 2022). Despite this
payout, Spotify has received major criticism from many artists about unfair compensation. In recent years,
Taylor Swift, one of the top-performing artists, questioned the sustainability of the current streaming
model and made her entire catalogue unavailable for some streaming services, including Spotify (Sisario,
2014). While Spotify paid out over $7 billion to artists, the company lost $197 million in the second
quarter of 2022 (Spotify Homepage, n.d. 2023). Thus, the question to be discussed is: to what extent can
, Spotify maintain and/or increase its value through the development of a strategy to increase the number of
satisfied stakeholders?
This paper has been divided into four distinct sections: the introduction (section I) and the
theoretical framework (section II), which contains definitions of key concepts and ideas of a digital
platform, such as network effects and the impact thereof. These concepts will assist in the understanding
of the following sections. Additionally, this section contains the criteria that will be used to assess the
effectiveness of value creation and capture by Spotify, as well as discuss the validity of the criteria. The
analysis (section III) will discuss the value proposition of Spotify. It will analyze how the firm creates
value for its users while also discussing the value capture and the effectiveness of the value capture for
the firm. The final section, the conclusion (section IV), will sum up the firm’s value proposition, how
value is created by the firm, how it is captured by the firm, and recommendations for future research, as
well as the limitations of the paper. It will also restate the main finding and pose new research questions.
To enhance the credibility of the analysis, a literature review, including academic articles and journals, is
partnered with quantitative data such as profit and loss statements to analyze the value of the business.
Section II: Theoretical Background
Spotify is a well-known streaming platform that follows a two-sided market model that allows
users to listen to over 80 million songs. Spotify currently has 456 million users, including 195 million
subscribers, across over 180 markets, which makes it the most popular streaming subscription (Spotify
Homepage, n.d.) inluding 195 million subscribers, across over 180 markets, which makes it the most
popular streaming subscription (Spotify Homepage, n.d.). Spotify is a peer-to-peer business as well as a
service-dominant firm. A service-dominant firm will focus on value networks and value propositions.
Spotify operates within the music streaming industry, thus, the key competitors within this industry are
Pandora, Apple Music, and Amazon Music. Moreover, music is an experience good that consumers
typically want to sample before they purchase to reduce the uncertainty that is associated with
unobservable product quality (Wlömert & Papies, 2016)
To successfully assess Spotify's capabilities in creating and capturing value, a theoretical
foundation must be conceptualized. The following terms will be conceptualized: Value creation, value
proposition, and value capture. Value creation can be defined as the actions that enable the firm to
increase the value of goods, services, or a business (Gerrisen, 2016). Network effects are an example of
value creation. Network effects can be defined as when the value of the good increases proportionally to
the increase in consumer users (Birke, 2009). In this case, Spotify brings both the "cross-side network
effect" and the "same-side network effect." A same-side network effect is when an increase in the number
of users on one side of the network increases or decreases the value of users on the same side (Eisenmann
et al., 2006). For example, as the number of artists on Spotify increases, more artists will want to join so
capture
Section I: Introduction
The music industry has undergone a radical transformation from the traditional ways of listening
to music, from CDs and MP3 players to digital streaming platforms such as Spotify. Therefore, suppliers,
artists, and songwriters now have easier access to the market (Richardson, 2014). Digital automation, the
internet, and robotisation can be found in all realms of society. These contributors form the building
blocks of the Industrial Revolution 4.0, where there is a much broader, deeper, and more complex
application of inventions (Rymarczyk, J. 2020). One of the key drivers of Spotify’s successful distribution
is the use of artificial intelligence, which analyses the user’s listening history to create a personalized user
experience (Jacobson et al., 2016). However, artificial intelligence does have potential consequences,
such as biased algorithms that can create unfair or biased outcomes. At the current speed, it is estimated
that by 2025, over 31 billion machines will be connected to the Internet (Statista, 2022). This statistic
follows Moore’s law, which indicates that computer processing power will approximately double every
two years (Iansiti & Lakhani, 2017). This means that computing power will become smaller, faster, and
cheaper over time, making it more efficient.
Within the Industrial Revolution 4.0, many processes are controlled by machine learning. As
mentioned above, the Spotify experience is individually tailored to a user, which helps Spotify entice and
retain users by providing each user with an enjoyable and personalised listening experience. However,
this experience does not come without consequences. Digitalisation within the music industry has raised
many issues around privacy and illegal downloads, which has led to many major record companies
recording losses (Voigt et al., 2018).
Consequently, Spotify suffered an annual loss. Streaming service providers such as Spotify earn
revenue by charging a monthly fee to consumers; this is known as paid streaming services (PSS)
(Wlömert & Papies, 2016). Artists are paid per stream, with Spotify reporting to pay $0.0033 to $0.0054
to artists (through their rights holders) per stream in 2021 (Spotify Pay per Stream, 2022). Despite this
payout, Spotify has received major criticism from many artists about unfair compensation. In recent years,
Taylor Swift, one of the top-performing artists, questioned the sustainability of the current streaming
model and made her entire catalogue unavailable for some streaming services, including Spotify (Sisario,
2014). While Spotify paid out over $7 billion to artists, the company lost $197 million in the second
quarter of 2022 (Spotify Homepage, n.d. 2023). Thus, the question to be discussed is: to what extent can
, Spotify maintain and/or increase its value through the development of a strategy to increase the number of
satisfied stakeholders?
This paper has been divided into four distinct sections: the introduction (section I) and the
theoretical framework (section II), which contains definitions of key concepts and ideas of a digital
platform, such as network effects and the impact thereof. These concepts will assist in the understanding
of the following sections. Additionally, this section contains the criteria that will be used to assess the
effectiveness of value creation and capture by Spotify, as well as discuss the validity of the criteria. The
analysis (section III) will discuss the value proposition of Spotify. It will analyze how the firm creates
value for its users while also discussing the value capture and the effectiveness of the value capture for
the firm. The final section, the conclusion (section IV), will sum up the firm’s value proposition, how
value is created by the firm, how it is captured by the firm, and recommendations for future research, as
well as the limitations of the paper. It will also restate the main finding and pose new research questions.
To enhance the credibility of the analysis, a literature review, including academic articles and journals, is
partnered with quantitative data such as profit and loss statements to analyze the value of the business.
Section II: Theoretical Background
Spotify is a well-known streaming platform that follows a two-sided market model that allows
users to listen to over 80 million songs. Spotify currently has 456 million users, including 195 million
subscribers, across over 180 markets, which makes it the most popular streaming subscription (Spotify
Homepage, n.d.) inluding 195 million subscribers, across over 180 markets, which makes it the most
popular streaming subscription (Spotify Homepage, n.d.). Spotify is a peer-to-peer business as well as a
service-dominant firm. A service-dominant firm will focus on value networks and value propositions.
Spotify operates within the music streaming industry, thus, the key competitors within this industry are
Pandora, Apple Music, and Amazon Music. Moreover, music is an experience good that consumers
typically want to sample before they purchase to reduce the uncertainty that is associated with
unobservable product quality (Wlömert & Papies, 2016)
To successfully assess Spotify's capabilities in creating and capturing value, a theoretical
foundation must be conceptualized. The following terms will be conceptualized: Value creation, value
proposition, and value capture. Value creation can be defined as the actions that enable the firm to
increase the value of goods, services, or a business (Gerrisen, 2016). Network effects are an example of
value creation. Network effects can be defined as when the value of the good increases proportionally to
the increase in consumer users (Birke, 2009). In this case, Spotify brings both the "cross-side network
effect" and the "same-side network effect." A same-side network effect is when an increase in the number
of users on one side of the network increases or decreases the value of users on the same side (Eisenmann
et al., 2006). For example, as the number of artists on Spotify increases, more artists will want to join so
