Posts tagged Million
Who says freemium doesn’t work? For Spotify, the hybrid free/paid business model has reeled in 6 million paying subscribers out of its 24 million total listeners. Not bad. But as the music streaming space heats up, the company will face some enormous challenges, both in the short term and down the road.
Spotify is growing fast. The company added 1 million new subscribers over just the past three months, according a report from CNET. Spotify confirmed those listener and subscriber numbers in an email to ReadWrite, but declined to comment any further on how its total revenue breaks down. Still, for just about any freemium product, a 25% conversion is pretty damn impressive. It would be even more impressive if Spotify can maintain that growth and the paid conversions well into 2013 and beyond.
Spotify’s Growing Competition: Google, Deezer and Daisy
The company really needs to keep these numbers up, because its neighborhood is about to get a whole lot more crowded — and complicated — this year. Deezer, another wildly popular European streaming service, is expected to launch in the U.S. this summer. Deezer offers roughly the same amount of music as Spotify, but has a much stronger foothold across the globe. Whereas Spotify is available in 17 countries, Deezer has launched in 182 countries as of last month. That means that connected users in 92% of the world’s nations can access Deezer. Spotify still has more paying subscribers, but that gap may start narrowing once Deezer secures the licensing deals required to go live in the U.S.
Of course, Spotify has the advantage in the U.S. Its launch here was preceded by at least a solid year of anticipation and buzz. Its growth since has been huge, fueled in part by a tight integration with Facebook. For being so young here, Spotify is practically a household name in the U.S., whereas very few people here even know what Deezer is. Meanwhile, the longer Deezer waits to enter the U.S. market, the stronger Spotify’s numbers get.
The more daunting threat is going to come from Google. The search giant has confirmed that it’s looking at a subscription model for its digital music products, which include Google Music and YouTube. That makes sense. Google already plays a massive role in online music thanks to YouTube, which is now the most popular source for music among teenagers. Google also has relationships with big content providers, which it has been placating with increasingly aggressive anti-piracy measures over the last several months.
Coming at Spotify from yet another angle will be Daisy, the music subscription service being launched this summer by Beats Electronics. The new venture will combine the popular headphone manufacturer’s name recognition with some high-profile music industry personalities and some hefty funding from well-connected investors.
Combined with digital album sales, streaming is shaping up to be something of a savior for the music industry, which is finally seeing increases (albeit minor ones) after a decade of decline. Industry-wide, revenue from streaming music was expected to grow 40% last year, according to IFPI’s Digital Music Report (PDF) Spotify’s success suggests that the optimism wasn’t unwarranted, although we’re still waiting to see the next installment of numbers from IFPI.
The pie is growing, as are the number of forks surrounding it. The question for Spotify is how big of a slice it can realistically hang onto.
Is Spotify’s Business Model Sustainable?
Since its launch, Spotify and services like it have faced fundamental questions about their business model. First, there’s the ongoing debate over artist royalty payments. The financial deals are obviously satisfactory for record labels, but some artists have been frustrated with a trickle of funds that’s decidedly slower than the revenue they see from digital or physical album sales.
There are two basic defenses to these complaints:
- The model is different. Streaming is not the same as purchasing, and therefore it makes sense for each stream to generate a fraction of what a download brings in. Over time, frequently-streamed tracks can earn real money, sometimes even more than sales could generate.
- Yes, it sucks, but this will get better in time as the listener base – especially the paying subscribers – grows. Hang tight.
Then there’s the other side of equation: How much money is Spotify making? It’s hard to tell, because we don’t know how many of these subscribers are paying $5 to silence the service’s ads and how many are shelling out $10 to get mobile access on top of that. (CNET reports that roughly 90% of subscribers are paying the higher fee.) We also don’t know how much money Spotify makes per listener from advertising (they wouldn’t tell us).
Inching Toward $1 Billion (Profit Is Another Story)
At Evolver.fm, Elliot Van Buskirk did some semi-educated guessing a few months back and predicted that Spotify could reach $1 billion in revenue this year. The logic is sound, but it relies on too many unknowns for us to tell if it’s realistic or not.
Based on current subscriber rates, Spotify is bringing in somewhere between $360 million and $720 million per year from subscriptions alone. If Buskirk’s theory that most users opt for the pricier premium subscription is true and the company is making a few hundred million from ads, he may well be right: Spotify is inching toward $1 billion.
Profit is another story. The company says it pays out about 70% of its revenue to rights holders. So, if it does hit $1 billion this year, it will be paying out $700 million of that to labels, songwriters and other rights holders. That leaves $300 million for compensation, operating costs, marketing and the like. When all is said and done, there’s probably not a ton of cash left over.
On the business side, Spotify and companies like it have a dual challenge: Somehow get licensing costs under control without alienating the artists and labels whose content is desperately needed to court the listeners who will pay the bills with subscriptions and ad impressions. Do the best you can with ad sales, but do everything in your power to convert as many listeners as possible to paying subscribers.
It’s a tricky balance to strike, but Spotify is pretty well-positioned to pull it off. For their sake, this momentum had better continue for as long as possible, because a year from now, the streaming music business is going to look pretty different. This game is not going to get any easier.
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The settlement ends a case against Google which dates back to 2010, when it was revealed that the company’s Street View camera units had been illegally snooping in on local Wi-Fi networks while the vehicles were taking pictures for the service.
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As reported last week Google has formally settled the so-called “WiSpy” case with 30 US state Attorneys General for $7 million. The agreement also contains some other non-monetary provisions that are, frankly, more meaningful. The investigation began in 2010 concerning unauthorized…
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According to AllThingsD, Google is about to settle the so-called “WiSpy” investigation with 30 US state Attorneys Generals. Google will admit no wrongdoing and pay $7 million according to the report. The article says the settlement will be announced next week. In early 2012, the US…
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Concluding its antitrust investigation of Microsoft for violating a deal that required Microsoft to offer EU users a clear choice in browsers, the European Commission has socked the US software giant with a €561 million (US$730.9 million) fine.
Under a 2009 agreement with the EC, Microsoft’s Windows customers in Europe were supposed to see a dialog box that would point them to Microsoft-hosted browserchoice.eu, which features choices enabling them to select Internet Explorer, Firefox or Chrome when launching Windows for the first time. The agreement was reached to alleviate the EC’s fears that Microsoft wasn’t providing better access for Windows users to take advantage of other browser technology. The choice screen was meant to be in place for five years, into 2014.
But when Microsoft released Windows 7 Service Pack 1 in February 2011, the EC noted that browser choice dialog was not visible in the release of that update to the Windows operating system. This, despite the face that Microsoft sent the EC its annual compliance report in December 2011 indicating that it was still in compliance.
Microsoft has already admitted the error to the EC, claiming it was a technical error, where the detection logic within the browser choice screen application was not updated properly when Windows 7 SP1 was released.
This is a significant fine for any company, even Microsoft, and it comes on top of €1.6 billion in other fines that the commission has slapped on Microsoft over the years for what the EC has deemed anticompetitive behavior. The EU can fine a company up to 10% of its prior year’s revenues.
Lead image courtesy of Shutterstock.
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Yesterday, Instagram Co-founder, Kevin Systrom, announced that the photo sharing app is now in the hands of 100 million active monthly users. The company has come a long way in a very short time. When Systrom and co-founder Mike Krieger started out with the idea, they were just two guys at rented desks in San Francisco. In [...]
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Well, that was fast. Almost a year after announcing that it had 27 million users, Instagram has surpassed the 100-million-user miletsone, according to the company’s blog. Over the last year, Instagram has continued to refine its already polished app, adding new filters and a Web feed for viewing photos in a browser rather than on a mobile device.
The service remains well-loved among existing users even as it chases new soon to be Insta-addicts. As much as its users have worried that Facebook will meddle with its photo-sharing darling, Instagram likely has Zuck and deep Facebook News Feed integration to thank for its threefold growth in the last year.
Instagram only seems to get better with age. Last December, Instagram successfully defused a minor revolt over changes to its terms of service, suggesting that even under the wing of Facebook, the company remains nimble and autonomous.
Image courtesy of Instagram.
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The pair, Google co-founder Sergey Brin and Facebook CEO Mark Zuckerberg, have teamed up for social good, establishing a science research prize that’s already awarded $33 million in its inaugural round.
A Big Stakes Science Fair
The award, known as the Breakthrough Prize, will be doled out to five winners each year, though a robust selection of 11 recipients were announced in the first round. The founding members of the new science foundation have committed to establish five annual prizes of $3 million for outstanding research that advances cures for intractable diseases.
Other founding members of the Breakthrough Prize include the wives of both Brin and Zuckerberg, who are both more science-minded than their tech-star partners. Anne Wojcicki, married to Brin, is the founder of 23andme.com – a genetics startup. Priscilla Chan, Zuckerberg’s wife, graduated from medical school after meeting Zuck at Harvard and was accepted to a prestigious pediatric residency at the University of California San Francisco (UCSF) last year.
“Priscilla and I are honored to be part of this,” Zuckerberg wrote in the prize’s announcement. “We believe the Breakthrough Prize in Life Sciences has the potential to provide a platform for other models of philanthropy, so people everywhere have an opportunity at a better future.”
Apple chairman Art Levinson will serve as the new foundation’s chairman, rounding out the trifecta of major tech companies with a hand in the new science prize.
Zuckerberg, Forgotten Philanthropist (In A Hoodie)
From disheveled boardroom 20-something to amoral hacker, Zuckerberg’s image runs the gamut – and it isn’t always flattering. But in 2012, the Facebook founder ran up a tab as the second biggest philanthropist in the U.S., giving away 18 million shares of Facebook stock valued at $498.8 million to a health and education foundation in Silicon Valley.
Brin is no stranger to writing epic tax deductible checks – or to co-founding his own nonprofit. Beyond Google’s own active nonprofit arm, the quirky Google co-founder has donated millions to foundations ranging from fighting poverty in the Bay Area to Parkinson’s disease research.
For more on the prize, the Breakthrough Foundation’s site has the full list of its first prize recipients.
Photo by Taylor Hatmaker.
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Guest author John Fearon is CEO of Dropmyemail.com, which backs up emails in the cloud.
As a CEO/Founder of a startup, you might very well find yourself seeking to raise $1 million.
Imagine your investors say “Yes” and you get the money. Is it really time to celebrate?
That depends on the valuation of the deal. Many startups struggle to get the proper valuation with the right amount share dilution with their initial rounds of funding. It can be tough to balance the need to keep the lights on at your struggling startup versus the loss of company control and a lower eventual payout.
Greedy investors have been known to take advantage of this to get a bigger stake of your company at a lower valuation.
If you find yourself in this situation, you should bit the bullet and call off the party. Just say “No” to the investment.
Every “No” Gets You Closer To A “Yes”
In most sales bibles, it is decreed “every ‘No’ gets you closer to a ‘Yes.’” The more people you pitch to, the more doors you knock on, the more cold calls you make, the more sales you will close. Don’t be afraid to be turned down by investors or turn them down. Keep knocking on potential investors’ doors and you will get there.
Remember the much fancied “80/20” rule, where 20% of the people you speak to will give you 80% of your desired funds. If you need $200,000, you need to speak more than 20 potential people about it to have a chance to land the 4 – 5 investors you need.
Why “No” Is A Good Thing
If you’re pitching your startup to investors and you’re getting an overwhelming amount of Yeses – it is likely that you have set the price too low. Assuming that your startup is doing well and there is significant interest from investors, you should be able to value your company higher.
Multiple interest from investors is an indication that you should maximize your opportunity. To avoid cheapening your company’s valuation, set the appropriate price point, once again, according to the 80/20 rule. If more than 1 in 5 investors agree wholeheartedly to your offer, stop and readjust until you reach at least that ratio.
Know When To Stop
Raising money for your startup can be absolutely critical to keep the business going. It is also necessary to know when to stop searching for capital.
If you raise cash equal to the total amount if your company’s valuation, you no longer own your company. Fund raising efforts should aim to keep valuations at levels that leave sufficient portions of the company to the founders. Ideally, you want to ced 15% – 20% of total valuation per funding round and retain 25% – 30% for when your company eventually cashes out – either by being acquired or even with a public offering.
That means you want to raise enough to get to the next stage – not to pad the bank account. Each round of funding should have a goal (to hire more developers, set up an overseas office, create a major publicity blitz, etc). Don’t sacrifice more equity just to feel secure – there are always future rounds to find the cash you may need.
No Time To Waste
Working 24/7, startup founders do not have the benefit of free time. Every second has to be well spent – you can’t afford to waste time raising excess cash. It can take 1-2 days to pitch your business and weeks to get an for an answer.
Keep in mind, if 4 in 5 investors turn you down, you could waste 4 – 8 days just retelling your story and business plan. If you’re running out of time and money, it’s acceptable to lower your valuation to a get deal done to keep the business afloat.
To keep meetings productive for all sides, be upfront with your potential investors about how much you want and how much time they have to respond. Focus on those investors who have the funds and track record to give your company what it needs.
No More Investors Than Needed
Though you may request the same investment from every one you approach, each investor will come in with different amounts and offerings. Besides money, investors can open up their network to introduce others to fund your company. Their advice could also be invaluable to your business.
Always pick and choose carefully – not all investors add value to your company. Some will bring excessive headaches – like asking for monthly or even weekly reports. They may insist that you change your strategy and pivot when it’s not really necessary. They may say they are protecting their investment, but the founders’ standpoint, it will seem more like non-productive micro-management.
Summary Of Nos
Startup life is a hard path. It is only human to yearn for positive re-inforcement instead of rejection, especially from investors. But valuations are subjective – it will be whatever you and your investors agree upon. And saying “Yes” too early usually won’t get you the best valuation for your company.
So as you raise funds and set valuations for your startup – it actually makes sense to eek out refusals. In fact, the more “Nos” you get, the better off your startup may be.
Hold out for the right valuation, regular stock dilution and appropriate investors. And revel in the surprising power of saying “No” to $1 million.
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