I’ve been a long time user of Spotify. When Spotify launched in Sweden (followed closely by other countries in Europe), they launched it as a “freemium” model, wherein they inundated free users with advertising. That model has since evolved in an effort to improve conversion of free to paying users. The pressure of converting higher users from free to paying comes from Spotify’s desire to launch in the US. Thus Premium (paying) users get a number of benefits - no advertising, unlimited listening, mobile app streaming, offline access etc.

I am a firm believer that the best things on the internet are not free. Things cost money, particularly good things, and they require a cash flow in order to support both the development and operational expenses of upkeep. And often times when they are free and they’re products I think have a tangible value to me, I will pay for them. Thus I paid for Spotify, even before the model had evolved to the immensely valuable product it is today.

However, Spotify is still unable to launch in the US, largely stemming from the fact that far too many users use their product for free. As someone who has worked on freemium products, I can firmly say that striking a balance of free to paying is of the utmost importance in building a sustainable business model. Evolving that business model over time is critical to the long-term success and growth of that business. Spotify is not succeeding at this yet, largely because they’re not being aggressive enough.

When they opened the “free” floodgates at launch, they acquired millions of users. Because in online, users are a huge measure of initial success, Spotify was largely successful off the bat. However, there comes a point, where you need to be willing to risk shedding a portion of that user base in order to become profitable and furthermore, in the eyes of investors, VERY profitable. Spotify appears to be unwilling to do this.

What would I do if I were Spotify? Drop the free. Be willing to lose half of my user base (which from personal experience is extremely unlikely to happen for a product as engaging as Spotify) in the interest of turning my product into a sustainable business. 

Rdio

I’d heard about Rdio early on from a friend who began working there. When I asked him how they planned on making money off their user base, he said, “Easy. We charge them money for what they use.” Rdio is essentially Spotify without the free. Though I instantly knew that this model would be limit their user numbers out the door, I had an immense amount of respect for the model. I also knew that if they made a high-quality, engaging product that the crowds would slowly but surely come.

I’m likely one of the *few* people in the world who has both an Rdio and Spotify subscription. I secured a year of Spotify before I left Sweden because I didn’t want to be without my streaming music everywhere I went.

Now that I’m in Canada, I’ve been trying Rdio for the past week. My thoughts are as follows:

• Rdio is a great product. No, it’s excellent. It’s by no means perfect, but it nails how we will all discover and consume music in the future.
• It’s fun. More fun than Spotify. The “news feed” of people I follow, what they’re adding to their Collections and what is in Heavy Rotation is awesome and is a most ideal way of discovering music.
• The catalogue is noticeably smaller than Spotify’s but it’s still a very rich catalogue. As their user base grows and more subscription revenue flows in, I anticipate that this will only grow larger.
• The continuous streaming/usability between the web and desktop app could use some work. My guess is that they know this and will be improving it in the future.
• It is absolutely, 100% worth it to pay $5/month (web only) or $10/month (web and mobile), because it’s not only an investment in the current catalogue, but an investment in the future of the product. If I spend $20/month on iTunes, then instantly I’m saving money by using Rdio and I don’t have to worry about things like storage. iTunes seems ridiculously outdated at this point.

Everyone that I have talked to about Rdio has seen the immense value in it. And many have been more than willing to throw down to have it. But I am amazed by how many know about Spotify and how few know about Rdio. So if I were Rdio, I would be investing in the word of mouth of the product (referral programs or virality features). Because if people know that Rdio exists, then Spotify’s launch in the US has instantly become a steeper uphill battle than it already was.

Good luck to the Rdio crew. I’m a huge fan of your product, service, and philosophy.