🎧 Takeoff #46: Lessons from Spotify

Welcome to Takeoff, your weekly dose of product deep-dives and new learning opportunities. Today, we're diving into the product success story of Spotify. Lessgo!

Jun 24, 2023

Quick Trivia question: Take a guess on which country ranks 3rd in terms of music exports.

If you guessed Sweden, then here is a virtual 🍪 for you!

The Swedes have given the world a bunch of important inventions such as the three-point seat belt, zips, and GPS. In today’s edition of our newsletter, we are going to dive into another great invention from Sweden…Spotify.

Spotify was started with a vision to revolutionise the way people access and listen to music. The founders, Daniel Ek and Martin Lorentzon recognised the changing landscape of the music industry, where digital piracy and illegal downloads were prevalent. They saw an opportunity to create a legal and convenient platform that would provide users with access to a vast music library while ensuring fair compensation for artists and rights holders. Let's delve into some of the intriguing and innovative initiatives that Spotify has embarked on thus far.

1. Data-driven approach to experimentation 🧪

In 2013, Spotify established a dedicated team to develop a robust A/B testing system known as ABBA(a reference to the Swedish music band). This system streamlined experimentation by providing a clear overview of active A/B tests and real-time results. ABBA was seamlessly integrated into various aspects of Spotify, including desktop and mobile clients, backend services, data pipelines, in-app messaging, and email campaigns. Each experiment in ABBA was associated with a feature flag, simplifying tracking and monitoring. The introduction of ABBA marked a significant leap in productivity, enabling data-driven decision-making and fostering a culture of rapid iteration and innovation.

2. Personalised experience 💫

Spotify's personalisation strategy offers key insights for product managers. By analysing user data, Spotify tailors music recommendations to individual listening habits and moods. This has transformed it from a music library to a platform for music discovery. The balance between familiar and novel content is crucial, as it keeps the user experience fresh and encourages the exploration of diverse genres. This strategy also increases the likelihood of converting free users to premium. In essence, personalisation, driven by a deep understanding of user behaviour, is a powerful tool for enhancing user experience and driving engagement

Spotify's annual 'Wrapped' feature is a clever example of using data and personalisation, which has been a significant catalyst for virality and growth loops on the platform. This feature delivers users a personalised summary of their listening habits throughout the year, fostering a sense of individuality. These summaries are often shared on social media, igniting a viral effect. By tailoring the 'Wrapped' experience to each user's taste, Spotify not only captivates its existing user base but also entices new users, fuelling a cycle of growth. The feature's triumph lies in its ability to create anticipation and excitement, as users eagerly await their unique data-driven insights. Additionally, 'Wrapped' cleverly incorporates trends and popular slang, establishing relatability and enhancing engagement.

3. Bold strategic bets for long-term goals 🛣️

Spotify's strategic investment in podcasts has led to significant growth in listenership. In 2021, the company's podcast business generated nearly €200 million in revenue, marking a 300% increase from the previous year. More than 125 million users, representing about 30% of Spotify's user base, listened to podcasts in the first quarter of 2022. This accounted for 7% of total listening hours on the platform during that period. Despite the podcast business having a negative gross margin of -57% in 2021, Spotify expects this to improve, with potential gross margins of 40%-50% within the next five years. This is higher than its 30%-35% gross margin target for music.

Check this article on how Spotify stole the podcast market from Apple music!

With such strategies, Spotify has risen above all other platforms to become the most loved music streaming platform in the world. With a culture of constant innovation at the very heart of the company, there’s a lot to look forward to from them in the years to come!

If you haven't yet delved into the captivating docu-series about Spotify on Netflix, we strongly urge you to explore it; it's a riveting journey into the world of digital music.

🎙️Everybody HATES Edtech

In this episode of 🎙️The Airtribe Podcast, Dhaval and Navneet sit down to discuss why edtech startups are getting so much hate nowadays. They talk about the fake promises that edtech companies make, some popular edtech startups that are doing well, the Indian education system at large, and a lot more.

Watch the full episode here

💁‍♂️ Product Jargon of the Week

NPS - Net Promoter Score

NPS, or Net Promoter Score, is a simple metric used to measure customer loyalty and satisfaction. It's based on one question: "On a scale of 0-10, how likely are you to recommend our company/product/service to a friend or colleague?"

Those who respond with a score of 9-10 are called Promoters (loyal enthusiasts), 7-8 are Passives (satisfied but unenthusiastic), and 0-6 are Detractors (unhappy customers). The NPS is calculated by subtracting the percentage of Detractors from the percentage of Promoters.

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😁 Popular Opinion

That’s all for today, folks! We hope you enjoyed this week’s newsletter. 🤗

Until next week, keep learning and growing! 👋