Classroom Companion: Business

 
Chapter 19 · Digital Business Models

---

293
19
 Case Study 19.2 Spotify
Spotify is an example of a digital service 
that uses the freemium business model. 
Here, the digital service is offered to two 
different consumer segments: One seg-
ment gets the service for free, while the 
other segment pays for the service. The 
consumer segment that gets the service 
for free is offered a simple—or “stripped 
down”—version of the service. The con-
sumer segment paying for the service is 
offered access to all features of the ser-
vice. Both consumer segments are impor-
tant in the business model since there are 
positive network effects between them 
(Anderson, 
2009
). Spotify offers a music 
streaming service either for free or for 
a monthly subscription fee. The users 
receiving the service for free must listen 
to or view advertisements, while those 
paying a subscription fee can listen to 
music without interruptions.
Spotify’s business operation is mod-
eled using the BMC and the SRM as 
shown in 
.
Figs. 
19.6
 and 
19.7
, respec-
tively. Spotify has two value propositions 
(1): one for music streaming services and 
one for advertisements. The subset of lis-
teners paying for the service contributes 
to the revenue of Spotify (2). This cor-
responds to about 90% of the revenue 
(2017) (Spotify’s revenues from 2012 to 
2019, by segment. Statista.). The other 
source of revenue—advertisements—
constituted about 10% of the income 
(2017). Key activities include software 
development and content management. 
Software development includes expand-
ing, maintaining, and upgrading soft-
ware and infrastructure of servers and 
databases. Content management is per-
formed in close collaboration with the 
copyright owners (the music industry). 
A key activity is to acquire the rights to 
offer licensed music to the consumers (3). 
For these rights, Spotify must pay royal-
ties to copyright owners.
The two segments of paying and 
non-paying listeners induce positive 
Key partners
Key activities
Key resources
Value proposition
Cost structure
Customer segments
Revenue streams
Customer relationships
Channels
Music
streaming
Music listeners
(free) 
Subscriptions
Spotify.com
Advertising
Software
development
Copyright
owners
Music licensing
contracts
Royalties
Infrastructure
Spotify app
Infrastructure
2
3
1
Music listeners
(paid)
Advertisers
Personell
Content
management 
Advertising
. Fig. 19.6 Spotify modeled using the BMC. (Authors’ own figure)