announced it has 1 million subscribers
. This means it’s the biggest music subscription service in the world — and it hasn’t even entered the US yet. About 15% of its active users are ponying up for a subscription.
These are figures that freemium businesses dream about. One of the secrets to Spotify’s success is making adjustments in its freemium strategy as its popularity grew and its business priorities changed. If you’re interested in making money with freemium you should copy them. Phase 1: Unlimited free for all
In phase 1, anybody could download Spotify for free and listen to as much music as they wanted. The only downside was that you had ads. You could get rid of ads if you paid. But honestly the ads aren’t too annoying — the free offer was brilliant.
This meant Spotify downloads grew fast. Who wouldn’t recommend Spotify? It was like having the world’s largest iTunes library, for free. All in one place. If you discovered Spotify this early you’d recommend it to just about anyone. It was an offer you couldn’t refuse
. Phase 2: Unlimited free, invitation only
Spotify quickly amassed a large subscriber base. In phase two they imposed a constraint on growth in free users: to get free access you needed an invitation. Only paying customers received invitations. This meant that for generous minded souls there was a social incentive to pay. Pay £10 per month, lose the ads and
buy friendships with your invitations.
Quickly all the sort of behavior you see with limited invitations started to emerge: instead of users recommending Spotify, non-users went around begging for invitations. Posting on Twitter, on forums, setting up invitation trading sites. A new wave of publicity unleashed; the ratio of subscribers:freeloaders increased
. Win-win for Spotify. Phase 3: Limited free, for all
Phase 3 — the current phase — was to remove the need for invitations but severely limit what you could get for free. Only 24 hours of music per month (that’s only an hour every working day), with ads. By now Spotify had the user base and the mindshare that they could dictate terms. Other services offer more for free but Spotify’s canny marketing has got them to the point where they can dictate the terms and prices. Don’t take anything away
Throughout all the changing phases Spotify has never reduced the services that existing freeloaders get. I joined on phase 1 and I still enjoy unlimited music for free. This is important: your early adopting freeloaders are web literate, disloyal, and venal. I know I am. If Spotify stops giving me loads of free stuff it won’t be long before I find some other service that offers it all for free, sign up there, and start telling all my friends how great it is.
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