This is a post related to “Digital business models”, one of the topics for week 3 of the “Digital Marketing” course that I’m currently undertaking at RMIT.
I created this Spotify Playlist while writing this article, feel free to give it a go while you read the following lines:)
When Apple Music, the streaming platform of the tech giant, was launched in 2015, the reactions it generated were pretty polarised: from people thinking that they were too late in a market ruled by Spotify, to others defending that their business model –based on a compulsory subscription fee after a 3-month trial period– would “rescue artists from Spotify in the same way that iTunes rescued them from Napster”.
There’s no doubt that the freemium model had been performing notably well for Spotify by the time Apple Music popped up, as 20 million out of their 75 million monthly users were paying customers, according to this article, which meant a 26.6% conversion rate. This amount on its own might not provide us with significant insight, but if we compare it with the conversion rates of other relevant freemium products at that time, as they did in this post, we find out that, for instance, Spotify’s conversion rate was way higher than Evernote’s (4.1%) or Dropbox’s (4%).
If the freemium concept was working for Spotify, why would Apple dare to try a –perhaps– riskier paid model?
“We worry about the humanity being drained out of music, about it becoming a bits-and-bytes kind of world instead of the art and craft”Tim Cook, Apple’s CEO
When CEO Tim Cook was asked about the reasons why they created Apple Music, he replied that “they were not in it for the money”, confessing as well that they were worried about other music services not focusing on human curation –reason why they created a radio station called Beats One–. They also wanted to show that they do care about the artists and defend that they should be rewarded fairly for their music.
Despite “not being in it for the money”, their business model combined with a strategy based on partnerships with big-name artists, the human-touch that Beats One radio station provides as well as their great –undoubtedly– integration with iOS and OSX has been proven to be pretty effective: for instance, they have managed to become the most popular streaming service in the United States, as we can read here.
“If Apple Music had a free tier, we would have 400 million people on it. That would make my job real easy. But we believe artists should get paid. That’s why I went to Apple.”James Iovine, co-founder of Beats Electronics
Nevertheless, according to this data from December 2018, despite having achieved more than 50 million users in just over three years, they are still not at the same level as Spotify, who in the same month reached 96 million paid-subscribers.
Taking into account all the information previously exposed, I personally believe that avoiding Spotify’s freemium model was a smart decision on Apple’s behalf.
That model had worked for the Swedish company because, when they launched it ten years ago, most of us weren’t still used to the music streaming model. Therefore, having a free tier encouraged a lot of people to try it –and many of them eventually became hooked on it–.
However, in 2015 the popularity of music streaming services was way higher. By only offering a paid subscription Apple positioned themselves differently than their main competitor, and the fact they justified their decision on not offering a free version by saying that “we want artists to be fairly rewarded for their music” sounds to me as an strategy to attract music lovers that after reading that statement might not feel very comfortable being on Spotify. And, come on, 50 million subscribers in just over 3 years are a lot –it took twice that amount of time for Spotify to reach the same amount of paid users–
What do you think about the topic? Do you think Apple Music should have gone freemium? Or perhaps you think that it was not a good idea on their behalf to enter the music streaming market? I’d really like to hear your opinion on this and please, do not hesitate to comment below, it’s free!
~ by Elies Delgado Tamarit