Spotify’s secret to adding 8,000 paying subscribers a day

Ever since its U.S. debut last year, the popular music listening service Spotify has been adding 8,000 subscribers a day. And I’m not just talking about free subscribers. That’s paid subscribers.

What’s their secret? It’s all in the marketing. I’ll show you what those strategies are and how to use them to promote your own product, blog or brand.

Let’s get started.

Create the value that is missing in the market

What exactly is it about Spotify that makes it more attractive than online radios like Rhapsody, Pandora and Last.fm?

It boils down to this: Legal access to over 12 million songs you can take anywhere.

That value proposition is powerful. Let’s break it down to see how it works:

  • Legal – Not everyone is comfortable downloading illegal music even though it’s relatively a safe bet you won’t get caught if you did. As Netflix demonstrated, most people don’t mind enjoying something that they could get free illegally…as long as it’s worth the money.
  • Access – When you become a paid subscriber to Spotify, you get to search their 12 million song library from your laptop or your phone. It’s like owning all of those songs.
  •  12 million songs – You won’t find any songs from The Beatles or some other notable absences, but you will find just about everything else.  And as long as Spotify keeps that huge selection, they’ll always have an audience.
  • Take anywhere – As a paid subscriber you get to use Spotify on two phones. Whether in the car, out running or waiting at the dentist’s office, you can pull up the music. This is convenience at its best.

It is that unique selling proposition (USP) that makes Spotify irresistible and beats out their competitors.

How can you go about discovering your own USP? Here are three resources to help you create a USP that people can’t resist:

Co-brand with a leading brand

If you’ve ever wondered what a media partnership with a huge brand can do for your business, you need look no further than Spotify’s connection with Facebook.

One week after the f8 conference where Mark Zuckerberg announced the partnership and integration between  the two companies, users on Spotify jumped by one million active users.

That trend has continued.

Besides reaching a wider audience, co-branding your work will also propel your brand faster, double your strength, give you someone to lean on and adds credibility.

While most of us will never land a Facebook media partnership, you can still seek out meaningful partnerships.

Here are the seven steps to follow:

  1. Understand who you are and what you want to accomplish – Never approach someone with a half-baked idea. It doesn’t have to be comprehensive or exhaustive, but it should explain the who, what, why, where, when and how of your idea.
  2. Create a small list of potential targets – You may have to ask for recommendations or search the web, but once you have this list…start to dig into their lives and brand.
  3. Select one person to approach – After you’ve whittled your list down to three or four potential partners, ask that person out for dinner. Interview them, thank them and then repeat the process with the other targets. Never mass email them with your idea.
  4. Create an agreement – Before the project goes anywhere, boil down the essence of expectations in an agreement and have everyone sign it.
  5. Announce your partnership and strategy – To gain the most momentum from your partnership, plan on introducing it during the highest-profile venue you can. This means if one of you in the partnership has a higher profile in your industry than the other…then you should use their platform.
  6. Track and organize the project – Using a project management tool like Liquid Planner, collaborate with your partner to work on the project, documenting all of the communication and creative shared during the run up to the launch.
  7. 7.     Invite a third-party to audit before launch – To make sure that all the pieces are in place and the product/project launch goes off without a hitch, higher a consultancy team to evaluate your work to make sure you are not missing anything. Or you could have some beta users test things out for you and give you feedback.

Withhold the premium experience

As I mentioned above, Spotify’s USP is so powerful that the freemium version has no problem signing up new subscribers.

You accept a free account and start listening to music:

You start building playlists, sharing music and following your friends’ playlists:

…then you download the app to your phone.

Here’s the thing: that app is useless if you are not a paying subscriber.

However, the thing about your music on your phone is that you can listen to your playlists and search music…without an internet connection. That means in your car…on the subway…at a friend’s party. In essence, you are carrying 12 million songs around.

So there comes a point when you realize that it seems ridiculous not to pay $10 a month to have access to all that music.

Free subscribers are chained to their laptops. Paying subscribers get to go anywhere with all of their music.

That’s how Spotify has crossed the free gap to premium.

Author Neil Patel

How could this work for you? Try these strategies with your product:

  • Start with the full product – Before you decide what is premium and what is free, create the minimum viable product (MVP) in its entirety. Do not think about free or paid. Just develop the product.
  • Test the product with consumers – Float your MVP before some trusted test users. Get them to play with it for some time.
  • Pull back on features – Start to separate different features from the MVP by positioning the product like this: “Would you pay to have access to this part of the product? Or this?”
  • Retest on fresh group – With a fresh test group, present a limited version of your product. Let the test users play with it…then present more features and ask, “Would you pay for this?”
  • Repeat until you’ve landed on a working model – Keep in mind this process is more art than science…but repeat often enough and you will start to identify what part of the product you should withhold because people will pay for it.

Make the premium experience value dwarf cost

So how do you create a brand that makes people believe there is real value in your product? Because the more value you pour into the product…the less price sensitive people will be. Here’s how:

  • Can you create a distinction between your brand/product and your competitors? Spotify Premium distances its self from competitors by offering you legal access to 12 million songs anywhere.
  • Can you communicate that quality is for that product alone? In other words, the differentiation should not extend to other products or categories. This is one of the reasons many people believe that if you have a laptop and iPhone you do not need an iPad.
  • Can you use price as a quality signal? For example, the ads are the difference between an online radio and Spotify. If you don’t want the ads, you pay Spotify $10 a month.
  • Can you create a condition in your product that makes switching brands a pain? This condition could be time, risk or money. For example, Gmail adoption was slow due to the pain of moving all your contacts to another account.
  • Do you know the acceptable price the market will bear? People will be less price sensitive if you can price within that range. Spotify priced its product in an acceptable range. People were familiar with Netflix and the cost to rent movies, so Spotify seemed reasonable.
  • Are you entering a new market? People are less sensitive to price when there are few, if any, competitors to compare prices. In that situation you can basically set the price at the high range of acceptability until competitors enter the market.
  • Can you enter a market where price isn’t an issue? Take the luxury car market, for example. The wealthy don’t deem price to be a barrier. In fact, the higher the price the more pride goes into owning the car. It’s the classic example of scarcity driving demand.
  • Can you add value in the customer service experience? How you treat your customers after purchase is equally important when it comes to selling them on the price of your product. Just ask Zappo’s.

Conclusion

It’s not easy getting people to go from using a service for free to then paying for that service. But, as Spotify has proved, it can be done when you apply the right strategies.

And it doesn’t matter if you are a large international brand or a small business in Idaho, developing a new product or re-energizing an established one, you can increase growth by using these strategies.

What other strategies do you think are behind Spotify’s success?

Neil Patel is the co-founder of KISSmetrics, an analytics provider that helps companies make better business decisions.

More from Neil Patel on GeekWireSeven signs that you might just be an entrepreneur Eleven things every entrepreneur should know about innovation… 17 things I wish I’d known when starting my first business

  • http://www.intrinsicstrategy.com/ FrankCatalano

    Another key to Spotify’s success? Shifting some costs of providing the service to individual customers, by using a subscriber’s device as a peer-to-peer server for other Spotify subscribers – and not necessarily doing so with very clear disclosure, at least in the past. It’s not a part of the model I’d suggest replicating if you want happy customers, assuming they value full knowledge of how their computing resources are being used:

    http://www.geekwire.com/2011/practical-nerd-hidden-price-free 

    • Guest

       This is a brilliant idea, Frank. Rather than spending billions of dollars to build a data centre “in the cloud,” Spotify have assembled a huge and growing number of people who pay Spotify to build Spotify’s storage solution. Offering a few tunes is just a bonus to get Spotificators to continue running the Spotify app — an app which, like so many annoying Windows programs, keeps running after you’ve closed all its windows.

  • Joe M.

    I find Spotify to be the less polished version of Zune Pass, but love the subscription model and take advantage of my Zune pass daily.

  • http://www.caseycamilleri.com/ Casey Camilleri

    I love Spotify.  Best bill I pay every month.

  • http://twitter.com/DANPESKIN Daniel Peskin

    I think something else to consider is the length of time they allowed US users to use the free version without a monthly cap on hours of listening and playbacks of songs. Right about now people are reaching the end of their 6 month period without those caps and they will convert to premium if they haven’t already. 

    These subscribers are given so much time to use the product that they are attached to the features they have now, taking some of those features away will in turn cause them to fork up the 10 a month since they can’t live without it.

  • Clieb

    Too bad Spotify’s selection is not as good as MOG’s. Also too bad that MOG’s exposure is dwarfed by Spotify’s. 

  • http://www.branddigital.net scottfasser

    I don’t understand how Spotify is different than Rhapsody. I’ve been a Rhapsody subscriber for years and love the service, but not crazy about Spotify. The Facebook integration is interesting, but not particularly compelling and can be annoying.

  • http://twitter.com/rameshnair Ramesh Nair

    It’s not ‘higher a consultancy team’, but ‘hire a consultancy team’. #typo

  • Guest

    Agreed with Franks’ peer to peer comment.  Also, Spotify’s 12MM songs are not a competitive differentiator nor is the portability.  All the services largely have the same music.  All let you take it with you on the go.  Spotify gave their product away in Europe, with the labels’ blessing, which btw the labels wouldn’t do on equal terms for any of the established services.  That gave Spotify a short term competitive advantage, but cost their investors lots of money.  The “Spotify is coming, will it be free?” story generated a tremendous amount of media buzz in the US.  They did a Facebook deal, which again will cost them lots of money.  If you have investors willing to fund that bet, you can do those things.  Rhapsody’s investors (RealNetworks and MTV) and MOG’s investors clearly aren’t willing to take that economic risk.  Pandora and Last.fm are just internet radios and only offer a fraction of the value proposition of the on-demand music streaming services.  They are limited, but free, which is nice.