Spotify One Year Later: Music Distribution Gropes Toward the Digital Future

From ReadWriteWeb:

It seems like just yesterday that American music fans were desperately awaiting Spotify’s arrival. As of this week, the European all-you-can-stream subscription service has been available in the U.S. for one year. So how did it fare in its first 12 months? Is this really the future of music distribution?

Spotify, which joins Rdio, MOG and Rhapsody in offering streaming music on demand, employs a business model whose long-term viability is by no means guaranteed. It will be some time before we can judge the company’s prospects, but on the whole, it had a good first year.

The Swedish upstart’s freshman year was marked by growth, innovation and controversy. Within the first month of its U.S. existence, the service gained 1.4 million users, about 175,000 of which paid for a subscription. By October, the paying user base had expanded by another 42%.

Social-Fueled Growth Nudged the Competition

Spotify’s deep integration with Facebook, announced at f8, the Facebook developers’ conference, last September, spurred rapid growth. The partnership was somewhat controversial because it required people to sign up via Facebook, and its all-or-nothing model “frictionless” sharing mechanism annoyed some users. Still, the integration was good for Spotify, which immediately saw an uptick in usage.

The service’s rapid U.S. growth didn’t go unnoticed by its chief competitors, which had already been operating in the American market for some time. Spotify’s freemium business model combined with its early popularity forced Rdio and MOG to offer their own limited, free accounts after months of accepting only paid sign-ups. Like Spotify, Rdio and MOG require a paid subscription to eliminate advertisements and allow mobile access to their music libraries.

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