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.
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.
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.
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!