Launched at a time when many people associated the internet with “free,” streaming service Spotify has grown to 200 million listeners in 13 years, according to WG’17 Khartoon Weiss, the company’s global head of verticals. In this episode of Mastering Innovation on SiriusXM Channel 132, Business Radio Powered by The Wharton School, Weiss discusses Spotify’s business model, which taps paid subscribers and users of a free service.
By carefully analyzing usage data from both, Weiss says, Spotify personalizes the experience for listeners and serves brand partners seeking to reach those customers — in an environment where “savvy consumers” are often reluctant to engage with traditional marketing methods.
An excerpt of the interview is transcribed below. Listen to more episodes here.
Transcript
Nikolaj Siggelkow: Spotify evolved a bit over time, right? Maybe you can tell us a little bit about what the key changes are that have happened over the last 13 years at Spotify and the way that the company has evolved beyond just getting larger and more global. Some of the change might be interesting to hear.
Khartoon Weiss: We started with a singular mission that is not something that we talk about all that often, but it is absolutely core, back to the values and the beliefs of what we do every day. That guides how we go forward and evolve as an organization. Our mission is very clear to all of us. It is to unlock the potential of human creativity. We do that by giving a million creative artists the opportunity to live off of their art and billions of fans the opportunity to enjoy and be inspired by that creator’s work. That sets the tone of where and how we evolve as an organization. When we think about building for creators as well as people that are able to enjoy the art form that they produce, it’s a two-sided marketplace. Unlike, let’s say, other audio streaming businesses, we are not just building for the artists and we are not just building for the distribution. We are legitimately building for the end user experience as well. So as we think about how we are a platform, we exist to provide meaningful experiences for both sides, both the creators and our end users. That concept is absolutely vital to how we bring products, services, and content offerings to life every single day.
“Our mission is very clear to all of us. It is to unlock the potential of human creativity.” – Khartoon Weiss
Siggelkow: Yes. I think that nicely ties into my next question around what the business model is here. You’ve already pointed to two new key elements. We have the listeners, we have artists, and at some point we’ll segue into your job at Spotify, which has a third constituency that we haven’t quite yet talked about. That would be the advertisers. But what I find fascinating about Spotify is the number. You have two different business models in terms of when it comes to the end consumers. There’s a free service and then there’s a paid subscription service, and you have actually a fairly large fraction of your members being paid subscribers to your product, which is a testament to the value that people get out of that service.
That’s an interesting part of the evolution of this entire internet space where, early on, everything was free. There was this expectation that customers had, that everything has to be free. It’s interesting to see how a number of firms have been now trying to convince people that you should actually be paying, not a lot, but a certain amount for the services. But that of course then requires the company to show value to the customer. Spotify has been quite successful in doing so. That’s a very fascinating way of how these business models evolved. Tell us a bit about the business model or the revenue streams at Spotify. Obviously, you’re playing a role in that.
Weiss: Sure. We, like a lot of the other streaming business services in the marketplace, as you mentioned, are free and subscription-based. Spotify originally started out as a subscription-based business and has recently evolved into what we call the freemium business, the free tier. We understand the behaviors that people have in the marketplace. There are a lot of subscription businesses, so we pay attention to what people associate with value and subscriptions. There are people in the world who don’t feel like there’s a need to be paying for music and that it should be democratically accessible. What we want to make sure of is that we are offering access regardless to our platform, through our free business model, which is also an extremely personalized one. It leads to the funnel of our subscription business, which most people are familiar with. It’s the ad-free business.
What’s really interesting about the free business that exists at Spotify is it drives global scale for the audiences. It allows us to launch into these other markets and also for our strategy of better personalization to then better serve our audiences. As I mentioned ubiquity as one of our pillars, when we open up our platform to users from the free side, our strategy is to think about how we can learn more about these moods and moments of the audiences so that we can build much more personalized experiences, keep them happy, engaged, and appreciative of what they’re getting back, so they feel customized and tailored to. It drives greater usage and greater time spent. Eventually, it hopefully drives the subscription too, because it’s gotten to a point where they can’t live without it.
Siggelkow: As you were saying, you can presumably also learn from the population level data, that you get both from the freemium and from the subscribers, to even personalize the experience of the subscribers, right?
Weiss: Absolutely. It is our smartest way to learn more about our audiences and our most effective way to better serve them. That data, usage, and behavior gives us all of the richness that helps us literally build product and follow the behavior to serve in a way that offers value and works in service of people, their time, their behaviors, and their moods, instead of just trying to build an ad-revenue-oriented business. We are focused on the user experience, and the free business allows us to do that at scale. The premium business allows us to do that unlimited.
Siggelkow: Khartoon, let’s talk about your job. What’s your role at Spotify?
Weiss: My role at Spotify is the global head of verticals, which is another way to say I oversee some of the larger business sectors that are partners to the platform. What that means is we work with the world’s largest marketers to use our platform well to invest in their audiences. It is a very interesting marketing landscape today where we have incredibly savvy consumers, incredibly reluctant to be connected with from a traditional marketing methodology. However, when there are stories to be told with marketers and brands, we try to make sure that our users are getting them in the most unique, authentic, and contextually relevant way. What we do here and my role specifically is to help marketers better connect with their audiences through our platform.
Siggelkow: In what ways can you help them achieve that?
Weiss: It comes down to our first-party data. We absolutely leverage all of the data and the time spent with the platform from every skip, to every replay, playlist, and share. The data is our truth and our source of insights. The way that we can cultivate and consult some of the biggest marketers on a global scale, on global and local level insights, allows them to connect in a meaningful way with their audiences. That’s when we go from transacting with customers to developing long and lifetime level relationships with brands.
Siggelkow: Yes. Yes, okay.
“The data is our truth and our source of insights.” – Khartoon Weiss
Weiss: It all revolves around our data via the richness that we pull back. We look at music and a lot of the audio content on our platform as a mirror. What we see happen in culture is reflected on the platform. When certain teams are performing in the World Cup, you start to see anthems and music of those local countries spike on the platform. When you start to see an eclipse happen in a certain part of the country or the world, you’ll start to see streaming that is impacting or mirroring that behavior. Song like “Total Eclipse of the Heart” spike in the culture. These types of cultural connections and insights are what we use to consult marketers on how to create better, more meaningful relationships with the brands.
About Our Guest
Khartoon Weiss is a marketing executive with expertise in building and scaling established and emerging organizations. At Spotify, Weiss is the global head of verticals, charged with establishing a vision and creating strategic partnerships with the world’s most recognizable brands. She has led creative and media agencies as well as media platforms for 18-plus years. She has been on Ad Age’s “40 Under 40” and was on Adweek’s “Top 50” list in 2015.
Weiss served as chief marketing and chief client officer at Media Assembly, MDC Partners’ media agency, where she was instrumental in growing the agency by $1 billion-plus in billings. Prior to MDC Partners, Weiss was managing director and chief growth officer at MediaCom North America, where she led the company’s exponential $1.2 billion growth in less than 24 months. She credits that success to inspiring transformative go-to-market strategies for clients like Anheuser-Busch InBev, eBay, Mars Inc., and more. She helped the agency secure “Agency of the Year” honors from both Ad Age and Adweek in 2015.
Mastering Innovation is live on Thursdays at 4:00 p.m. ET. Listen to more episodes here.
Spotify evolved a bit over time, right? Maybe you can tell us a little bit about what the key changes are that have happened over the last 13 years at Spotify and the way that the company has evolved beyond just getting larger and more global. Some of the change might be interesting to hear.