Is Apple Taking Advantage Of Spotify?

Business March 6, 2018

According to a note written by Amit Daryanani to clients, our favorite tech company, Apple, could very much see Spotify’s increasing reach in the music-streaming industry as an opportunity and use it to their advantage.

In the note, Daryanani articulates how the tech company, famous for their logo of an apple that looks like someone took a bite off, could seek to start using Spotify’s model which supports ad. This ad-supported model is actually one of the main factors that helped Spotify get so many of their paid subscribers.

If Daryanani’s note is anything to go by, the end game will come as good news to shareholders in the Apple Company as he suggests they could, in fact, use the model in a better way. Once this is actualized, it is bound to make Apple’s share be on the rise.

Judging by revenue, Apple is the largest IT Company in the world

If You Can’t Beat Them, Take Advantage of Them

With the number of waves Spotify has been making, it’s quite obvious that it has come to stay, and as such, it is highly improbable that any of their competitors can knock them off their horse.

When Spotify made the bold move to take their company public, aficionados of the music streaming industry ultimately agreed that this spelled doom for Apple’s music-streaming service – Apple Music. However, Daryanani was able to see a cloud with a silver lining for Apple if they could only take lessons from Spotify and use those lessons as an opportunity by taking advantage of the scheme responsible for most of Spotify’s revenue – advertising. Learn, join and CONQUER!

In the note, Daryanani wrote how Spotify has their paid subscribers to thank for about 90% of their total revenue. He wondered if a model similar to that of Spotify’s would symbolize an unexploited opening for Apple.

Since 2014, Spotify’s ad-supported model which houses about 159 million users, is actually responsible for drawing more than 60% of their users

How Would They Maximise this Opening?

Making use of the idea of Spotify’s ad-supported model, Apple could begin by implementing an ad-supported model of Apple Music albeit free to attract users (who doesn’t like free things?). Once Apple has raked in enough users, they would then transform them into paid subscribers.

Seems pretty easy? THAT’S NOT ALL! In the note, Daryanani explains how the ad-supported model could also disclose more about user-behavior and content-consumption as it can serve a second purpose of producing data that could also be used to the company’s advantage. Daryanani came to this conclusion after noting that the data garnered from Spotify’s user base is considerably greater when compared to that of Netflix.

He argued that considering the spending power of most people who use Apple products, if an amount of data similar to that of Spotify is made available to Apple, it is bound to have a higher prospective of bringing in more revenue for the company.

About 68% of the overall users of Spotify’s model don’t actually reside in the US. With this fact in mind, if Apple Music were to own an ad-supported model, it would further increase their outreach in the international markets.

Following the facts entailed in the filing, as of 31/12/2017, Spotify had about seventy-one million premium users and one hundred and fifty-nine monthly subscribers, figures which amount to almost two times the 36million global subscribers the Wall Street Journal claimed Apple had.

Spotify is said not to currently run the risk of losing their premium subscribers to their competitors as it reports that the number of subscribers that decide not to use their services anymore reduces by the year. They stated that the rate at which their Premium Subscription subscribers cancel their subscriptions decreases yearly.

According to Daryanani’s note, although Spotify’s encroachment on the US music-streaming industry is getting bigger by the day, all hope is not lost for Apple Music as they are still very much in play and could even end up attracting more paid subscribers who reside in the US than Spotify.

Last year, Apple’s stock was quoted at $175.40 per share, before rising by an estimated 1.91% to put it at the price it is being traded for now ($178.85). However, if Apple were to implement an ad-supported model, RBC predicts the price of their share to increase by 15% to make it rise to $205.