THE NETWORK ECONOMY -SPOTIFY
Spotify is a classic example of a modern day e-commerce success story. This is not only because it is what is known today as a Freemium business model (Peoples, 2009), or because it’s owners and founders are typical of so many successful internet entrepreneurs of modern times having started their first business in their teens, but Spotify is a business that was made for the Internet.
The products it deals with are purely digital, differentiating this music streaming service with other e-commerce businesses such as retail. Downloading songs in MP3 has caught on more rapidly that downloading books or even movies, as people continue to prefer the experience of reading a real book or going out to the movies. Where companies such a Spotify do run into challenges are with record companies and music artists, who have lost and continue to lose significant revenue as a result of the loss of control over distribution because of music streaming services.
COPYRIGHT
The biggest impact on the music industry has been with illegal file sharing sites and peer to peer (p2p) networks, which Spotify does not belong to. Services such as Spotify and iTunes have been created as a response to illegal p2p networks and are in the fortunate position of being needed by the music industry. Pfanner (2009) even talks of the growing trend of luring ‘casual’ pirates to legal streaming sites. In the article, Pfanner explains that although the majority of music streaming audiences still download songs illegally, it is only because legal sites have been less convenient and not fulfilling their needs as music consumers. Companies like Spotify are changing this, making things easier for the listener and offering the choice of free or paid for music. The fact that it is an on demand streaming service gives Spotify an even bigger advantage over other companies such as Pandora (Pfanner, 2009). It is clear that moving forward, record companies and internet streaming businesses will have to come to more of a compromise as it seems inevitable that streaming music will become much the norm. Although Spotify has come some way to addressing record companies concerns, largely operating at a loss in order pay rights holders, the model still isn’t a perfect one for all involved and disputes with artists are still regularly occur (Arthur, 2013).
THE FREEMIUM BUSINESS MODEL
Although one of the company’s largest competitors has to be iTunes, the main difference is that Spotify has a large selection of songs also available for free, a service it depends on to lure fee paying customers in. This process is enhanced by the use of social media and what Stan Liebowitz calls ‘Network Effects’- the more popular something is, the more likely people are to pay for it.
Spotify is a classic example of a modern day e-commerce success story. This is not only because it is what is known today as a Freemium business model (Peoples, 2009), or because it’s owners and founders are typical of so many successful internet entrepreneurs of modern times having started their first business in their teens, but Spotify is a business that was made for the Internet.
The products it deals with are purely digital, differentiating this music streaming service with other e-commerce businesses such as retail. Downloading songs in MP3 has caught on more rapidly that downloading books or even movies, as people continue to prefer the experience of reading a real book or going out to the movies. Where companies such a Spotify do run into challenges are with record companies and music artists, who have lost and continue to lose significant revenue as a result of the loss of control over distribution because of music streaming services.
COPYRIGHT
The biggest impact on the music industry has been with illegal file sharing sites and peer to peer (p2p) networks, which Spotify does not belong to. Services such as Spotify and iTunes have been created as a response to illegal p2p networks and are in the fortunate position of being needed by the music industry. Pfanner (2009) even talks of the growing trend of luring ‘casual’ pirates to legal streaming sites. In the article, Pfanner explains that although the majority of music streaming audiences still download songs illegally, it is only because legal sites have been less convenient and not fulfilling their needs as music consumers. Companies like Spotify are changing this, making things easier for the listener and offering the choice of free or paid for music. The fact that it is an on demand streaming service gives Spotify an even bigger advantage over other companies such as Pandora (Pfanner, 2009). It is clear that moving forward, record companies and internet streaming businesses will have to come to more of a compromise as it seems inevitable that streaming music will become much the norm. Although Spotify has come some way to addressing record companies concerns, largely operating at a loss in order pay rights holders, the model still isn’t a perfect one for all involved and disputes with artists are still regularly occur (Arthur, 2013).
THE FREEMIUM BUSINESS MODEL
Although one of the company’s largest competitors has to be iTunes, the main difference is that Spotify has a large selection of songs also available for free, a service it depends on to lure fee paying customers in. This process is enhanced by the use of social media and what Stan Liebowitz calls ‘Network Effects’- the more popular something is, the more likely people are to pay for it.
Source: http://au.businessinsider.com/how-spotifys-business-works-2011-10
Howard (2012) also has some very pertinent things to say about the freemium business model and why it is so important when considering the basis of internet commerce – ‘These products are then able to lever revenue from advertising due to their great influence, popularity and utility. They are also able to charge for extended and professional use of certain programs’. In particular he discusses Spotify’s advantage over iTunes. By giving songs away for free, he argues, they also ‘destroy their competition and transform Industries’. This certainly is the case when we see the way the music industry has changed with technological advancements. This can be seen not least with the way record companies and artists get paid for their work in the network economy (Knopper, 2011).
THE NETWORK ECONOMY
Spotify is an example of how the new so-called Network Economy has altered business practices and models. Some thinkers on this issue such as Leibowitz (2002) correctly warn against over estimating the effects of the network, while pointing out where network effects are most prevalent, in businesses such as Spotify. Further, Rifkin (2001) also explains why studying the network economy is necessary in understanding the fundamental economic basis of Internet commerce.
In his book Age of access: new politics of hyper capitalism where all of life is a paid for experience Rifkin discusses todays changed networked economy and speaks of a ‘new type of capitalism that trades in cultural experiences’ and his writing in fact proves to be quite visionary when looking at a company such as Spotify and how it works. If we look in particular at three major shifts that have occurred according to Rifkin (2001, p14) we start to see why studying a business such as Spotify helps us understand how Internet Commerce works.
The first of these is the shift from geography to cyberspace. As mentioned, such a shift in itself will not guarantee a business be successful, and businesses will do this to varying degrees. What is certain however is that Internet Commerce has allowed for businesses to depend less on physical property and means of production and diversify and outsource in areas such as distribution and sales. When looking at a company such as Spotify, the shift from geographic to cyberspace seems even more inevitable.
The second is a shift from an industrial economy to a cultural one. Indeed it does seem that the rapid rise and growth of e-commerce businesses has facilitated culture as an even more important part in capitalism and commercial life. This surely has to do with the rise of technology and the rate at which young people have always taken up this technology. Internet businesses are now some of the world’s largest and most successful businesses. Much of these are organisations that are aimed at the younger generation, with Spotify being a good example.
The third shift Rifkin identifies is that of ownership to access. This can also be seen in the recent popularity and success of all kinds of downloadable or streaming services, and also in cloud storage applications. There does definitely seem to be trend toward owning a digital copy of something rather than a physical copy. One could also look at the photographic industry as another example of this tendency to liberate oneself of any physical inconveniences. There will of course always be the people who will prefer CDs to MP3s or ‘real’ books to e-books, but the new networked internet economy has a way of naturally forcing change on to a population.
REFERENCES
Hausmann (2013). The Spotify business Model: No guts no Glory. Accessed 28 June from http://capitalistcreations.com/the-spotify-business-model-no-guts-no-glory/
Pfanner (2009). Music industry lures ‘casual’ pirates to legal sites. Accessed 28 June from http://www.nytimes.com/2009/07/20/technology/internet/20stream.html?pagewanted=all&_r=0
Peoples (2009). Business Matters: Spotify UK Shows That the Freemium Model Is Not 'Unsustainable'. Accessed 20 June from http://www.billboard.com/biz/articles/news/1083467/business-matters-spotify-uk-shows-that-the-freemium-model-is-not
Gobry (2011). What is the Freemium business model? Accessed 20 June from http://au.businessinsider.com/what-is-the-freemium-business-model-2011-4#evernote-is-a-big-freemium-success-1
Gobry (2011). How Spotifys Business Works. Accessed 20 June from http://au.businessinsider.com/how-spotifys-business-works-2011-10
Arthur (2013). Thom Yorke blasts Spotify on Twitter as he pulls his music. Accessed July 15 from http://www.guardian.co.uk/technology/2013/jul/15/thom-yorke-spotify-twitter
Knopper (2011). The New Economics of the Music Industry. Accessed 20 June from http://www.rollingstone.com/music/news/the-new-economics-of-the-music-industry-20111025
Rifkin, J (2001). Entering the age of access in: Age of access: new politics of hypercapitalism where all of life is a paid for experience ch. 1 pp 3-15, 267: Tarcher Penguin Putnam
Rifkin, J(2001). When markets give way to networks in: Age of access : new politics of hypercapitalism where all of life is a paid for experience. ch. 2 pp 16-29, 267-269 Tarcher Penguin Putnam
Liebowitz (2002). Basic Economics of the Internet in: Re-Thinking the Network Economy, The True Forces That Drive the Digital Marketplace. Ch2 pp9-24: Amacom New York.
Howard, T (2012). OPEN DESIGN AND CROWDSOURCING: MATURITY, METHODOLOGY AND BUSINESS MODELS. From The International Design Conference, Dubrovnik.
Howard (2012) also has some very pertinent things to say about the freemium business model and why it is so important when considering the basis of internet commerce – ‘These products are then able to lever revenue from advertising due to their great influence, popularity and utility. They are also able to charge for extended and professional use of certain programs’. In particular he discusses Spotify’s advantage over iTunes. By giving songs away for free, he argues, they also ‘destroy their competition and transform Industries’. This certainly is the case when we see the way the music industry has changed with technological advancements. This can be seen not least with the way record companies and artists get paid for their work in the network economy (Knopper, 2011).
THE NETWORK ECONOMY
Spotify is an example of how the new so-called Network Economy has altered business practices and models. Some thinkers on this issue such as Leibowitz (2002) correctly warn against over estimating the effects of the network, while pointing out where network effects are most prevalent, in businesses such as Spotify. Further, Rifkin (2001) also explains why studying the network economy is necessary in understanding the fundamental economic basis of Internet commerce.
In his book Age of access: new politics of hyper capitalism where all of life is a paid for experience Rifkin discusses todays changed networked economy and speaks of a ‘new type of capitalism that trades in cultural experiences’ and his writing in fact proves to be quite visionary when looking at a company such as Spotify and how it works. If we look in particular at three major shifts that have occurred according to Rifkin (2001, p14) we start to see why studying a business such as Spotify helps us understand how Internet Commerce works.
The first of these is the shift from geography to cyberspace. As mentioned, such a shift in itself will not guarantee a business be successful, and businesses will do this to varying degrees. What is certain however is that Internet Commerce has allowed for businesses to depend less on physical property and means of production and diversify and outsource in areas such as distribution and sales. When looking at a company such as Spotify, the shift from geographic to cyberspace seems even more inevitable.
The second is a shift from an industrial economy to a cultural one. Indeed it does seem that the rapid rise and growth of e-commerce businesses has facilitated culture as an even more important part in capitalism and commercial life. This surely has to do with the rise of technology and the rate at which young people have always taken up this technology. Internet businesses are now some of the world’s largest and most successful businesses. Much of these are organisations that are aimed at the younger generation, with Spotify being a good example.
The third shift Rifkin identifies is that of ownership to access. This can also be seen in the recent popularity and success of all kinds of downloadable or streaming services, and also in cloud storage applications. There does definitely seem to be trend toward owning a digital copy of something rather than a physical copy. One could also look at the photographic industry as another example of this tendency to liberate oneself of any physical inconveniences. There will of course always be the people who will prefer CDs to MP3s or ‘real’ books to e-books, but the new networked internet economy has a way of naturally forcing change on to a population.
REFERENCES
Hausmann (2013). The Spotify business Model: No guts no Glory. Accessed 28 June from http://capitalistcreations.com/the-spotify-business-model-no-guts-no-glory/
Pfanner (2009). Music industry lures ‘casual’ pirates to legal sites. Accessed 28 June from http://www.nytimes.com/2009/07/20/technology/internet/20stream.html?pagewanted=all&_r=0
Peoples (2009). Business Matters: Spotify UK Shows That the Freemium Model Is Not 'Unsustainable'. Accessed 20 June from http://www.billboard.com/biz/articles/news/1083467/business-matters-spotify-uk-shows-that-the-freemium-model-is-not
Gobry (2011). What is the Freemium business model? Accessed 20 June from http://au.businessinsider.com/what-is-the-freemium-business-model-2011-4#evernote-is-a-big-freemium-success-1
Gobry (2011). How Spotifys Business Works. Accessed 20 June from http://au.businessinsider.com/how-spotifys-business-works-2011-10
Arthur (2013). Thom Yorke blasts Spotify on Twitter as he pulls his music. Accessed July 15 from http://www.guardian.co.uk/technology/2013/jul/15/thom-yorke-spotify-twitter
Knopper (2011). The New Economics of the Music Industry. Accessed 20 June from http://www.rollingstone.com/music/news/the-new-economics-of-the-music-industry-20111025
Rifkin, J (2001). Entering the age of access in: Age of access: new politics of hypercapitalism where all of life is a paid for experience ch. 1 pp 3-15, 267: Tarcher Penguin Putnam
Rifkin, J(2001). When markets give way to networks in: Age of access : new politics of hypercapitalism where all of life is a paid for experience. ch. 2 pp 16-29, 267-269 Tarcher Penguin Putnam
Liebowitz (2002). Basic Economics of the Internet in: Re-Thinking the Network Economy, The True Forces That Drive the Digital Marketplace. Ch2 pp9-24: Amacom New York.
Howard, T (2012). OPEN DESIGN AND CROWDSOURCING: MATURITY, METHODOLOGY AND BUSINESS MODELS. From The International Design Conference, Dubrovnik.