Even with the rise in popularity of standalone music services, it appears that tech behemoths Apple, Amazon and Alphabet have a competitive edge over smaller companies like Spotify and Pandora, despite their relatively recent entry into the market.
For larger companies, their music services are a great way to push additional products or services, where music-only services have nowhere else to go if a potential customer doesn’t want to subscribe.
Tight Margins Make Streaming a Competitive Game
Despite building revenue streams on both advertising revenue and subscriber fees, Spotify and Pandora are falling behind Apple Music, Google Play Music and Amazon Prime Music in user numbers. For example, it has taken Spotify eight years to build a 100 million person user base split between about 30 million paid subscribers and 70 million ad-based users. Despite an 80 percent jump in revenue to about $2 billion, Spotify’s operating losses continue to widen.
According to the Wall Street Journal, even Spotify (which is owned in part by the major record labels), is burdened by heavy licensing fees. Typically, they pay about 70 percent of their revenue on music licensing and another substantial percentage on marketing to bring in new customers.
“The only solution is to create more value with additional offerings – aka more than just music – and perhaps an increase in pricing, or both,” Les Borsai, a music-technology consultant explained in the Wall Street Journal.
For Apple, Google and Amazon, the model’s reversed, and it’s all about using music as an additional service where they can continue to promote products with considerably wider profit margins. Apple can sell iPads and iPhones, Google Chrome devices and Android-based products and Amazon just about anything on Earth, but Kindle products are probably a better guess for its upcoming monthly fee-based streaming music service.
With over a billion active monthly users of Google and Apple and 300 million Prime Music accounts, it won’t be difficult for the tech giants to pull ahead of relatively tiny Spotify and Pandora in streaming music. The only thing that will stop them is if their young services are poorly executed or poorly supported on the multitude of devices that the little guys have had years to manage to develop apps for, from smartphones to digital video boxes and even “smart home” tools like Amazon Echo.