Can Apple Music Overtake Spotify?

Prior to Apple's WWDC conference on June 8th, many sources predicted the event would cover more than just software refreshes. Apple did not disappoint, releasing Apple Music. Apple Music combines music streaming, live radio, and a social network for musicians into one bundle. It will directly challenge Spotify, today's leading music streaming service provider. Here is my opinion on why Apple Music will overtake Spotify.

Price:

Apple decided to match Spotify's subscription price of 9.99/month. Apple, however, will not offer a free version. According to Time, "Only about about 15% of Spotify's 60 million users pay for the service, but their subscription fees make up around 90% of the company's revenue." Over 3/4 of Spotify's customer base accounts for just 10% of revenue. Apple's decision not to offer a free version is the right one. In the case of Spotify, there is too much of a focus on gaining more users. They are popular enough to have a loyal customer base that if they decided to cut the free service, many would gladly pay the 9.99/month. Apple, as well, has many users who will have no problem with the price point. And since a paid version is the only option to users, many will happily subscribe.

App Location:

The biggest hit to Spotify will be from new iPhone users who have not heard of Spotify. Apple Music will be preinstalled on the device, meaning users will discover it immediately. Apple offers a 3-month free trial for the service, and if there is a high convert rate to the full service, Spotify will be plummeting to second place. The convenience of Apple Music's integration within the iPhone creates the potential of paid Spotify users switching over. Spotify heavily relies on their paid users, as shown above. Adoption of Apple Music could decimate Spotify's business, user by user.

Track Record:

Apple became the most valuable company in the world (by market cap) by constantly innovating. It changed the music industry with iTunes, and is hoping to do the same with Apple Music. However, the release came with much scrutiny. A sloppy presentation from Drake, among other things, contributed to a mediocre introduction to the service. This brings back flashbacks of when the iPad was released. Many thought it was a gigantic flop -- no camera, bulky, no USB port. But sales went through the roof, increasing competition in the market and ultimately benefiting consumers. Spotify's losses are growing ever year and to much criticism, has not changed its business model. Spotify offers a great service, but failure to innovate or consider change may sink the company. Apple is run by outstanding management with the resources to make Apple Music a success.

An argument can be made for either side. I'd like to hear other opinions!

Comments (14)

Jun 10, 2015

This is an anecdote and not an argument, but as a millennial who pays $5 a month for the student version of spotify - Apple won't get me until without a lower price point or extremely differentiated quality.

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Jun 10, 2015

Isn't apple music going to offer loss less audio quality unlike spotify?

Jun 10, 2015

I love my Spotify...while the outline above is interesting, I don't think it will be so easy for apple to gain the # of users Spotify has.

It also comes down to the music library...how big will that be with Apple? Larger than Spotify? Will Apple try to get a lot of exclusives?

would be curious to hear about that...

Jun 10, 2015

It certainly won't be easy, and it won't happen fast. Over the long term though I just think that Spotify's business model won't last. Paid users may flock to Apple Music, or even new services down the road. And its pretty clear in the numbers how important these paid users are to Spotify. Spotify has a lot of users, but 85% of them are free users, which only contributes to 10% of revenue...

A good point was brought up about the music library. Apple has solid relationships already with iTunes, and the social media aspect of the service allows upcoming artists to get themselves some publicity. With Spotify, Taylor Swift removed her music because she was not comfortable that free users could access it. Don't get me wrong, Spotify is a great service. I just think that Apple, given the resources it has and its name in the music industry (iTunes), has a larger capacity to innovate.

Jun 10, 2015

Apple will get its chunk of market share, as it always does, but no, it will not overtake Spotify. It is especially ridiculous to think that Apple's only strategy would be to woo iPhone users who have never heard of Spotify.

Jun 11, 2015
Gangster Putin:

Apple will get its chunk of market share, as it always does, but no, it will not overtake Spotify. It is especially ridiculous to think that Apple's only strategy would be to woo iPhone users who have never heard of Spotify.

This. Plus I think the switching cost of having to rebuild your playlist, attract new followers (this matters to some people), etc...

Another thing. While everyone loves having apple branded electronics I don't think the same brand loyalty transfers over to apps. Spotify isn't broken so why move to Apple Music? Especially since the iTunes app blows.

Jun 11, 2015

Apple Music does sync both your local files (mixtapes, indie/underground music) and promoted artist products which is different from the Spotify phone app.

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Jun 10, 2015

Until they can offer me something better than $5/month as a student, Spotify all the way.

Jun 10, 2015

Did Apple just cannibalize Itunes? Why would anyone want to buy music when you can get it unlimited for $10/month?

Jun 10, 2015

That's actually a really good point. But there is still going to be some users who don't see the need of Apple Music and will continue to purchase music though iTunes at their own discretion.

Jun 10, 2015

Apple software is an ecosystem. The iTunes account is linked to the music library, Apple store, iPhone, Mac, iWatch, and so on. As an Android user, I have no incentive whatsoever to switch from Spotify/Soundcloud to the Apple ecosystem, when I can already play my (unlimited) music on multiple devices with great quality.

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Jun 11, 2015

If you don't know what spotify is, chances you don't listen to a ton of music and wouldn't need/want either. Also counting out people just switching to Tidal, if people are actually doing that.

Jun 11, 2015

I think Spotify vs Apple is going to end up like the cold war.

Apple keeps offering deals, getting exclusives and innovating until Spotify folds due to their lack or resources. Once Spotify and the like are gone they start making real money off of the service.

Apple can cannibalize some of iTunes because music is headed towards streaming as a whole.

I use Spotify right now, but I am curious to try Apple Music if they have a larger library at the start it will be very bad for Spotify.

I also have a strong dislike for Spotify radio, so if Apple has a better one and a good library they have won me over.

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Jun 11, 2015
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