Spotify's Australian challenge

After months of waiting Spotify, the world's largest music streaming service, is finally here. With 10 million users worldwide and a catalogue of 16 million tracks the company is confident that it can still make a splash in an increasingly crowded market. However, the real question is just how Spotify is going to take on the likes of iTunes and existing outfits like Rdio.

The basic mechanics of the music streaming business are simple: a service allows users access to a vast catalogue of music, record companies offer access to the music in return for royalties per listen. The listeners don't gain ownership of the music; they temporarily stream it, which differs from sales based systems such as iTunes. So there is already one significant point of difference and will consumers actually be willing to pay for something that they don't already own?

The one big positive from the arrival of Spotify is that it should provide a handy boost to the music streaming model and that's something even its rivals will be happy about. The model has been slow to catch-on in Australia and it's unclear whether this is due to a lack of understanding by consumers or simply lack-lustre promotion by existing providers. Spotify managing director Kate Vale is certainly confident of the growth potential of the Australian market.

“Australia is very social, there are 11.5 millon people on Facebook and a very high smart-phone penetration. When those three things work together then Spotify is generally successful,” she says.

Music streaming systems thrive on their community nature where playlists are shared, new bands are suggested and apps drive innovation in how music can be disseminated. It's a core motto that drives Spotify and as company co-founder and CEO Daniel Ek points out, “music in inherently social and that's why we built the best social features into Spotify for easy sharing and the ultimate in music discovery.”

Services such as Rdio, JB Hifi's 'Now' and Songl are already operating in Australia and they hold a similar social promise, so the question remains what makes Spotify so different?

Vale suggests three key factors that make Spotify unique: it has the largest catalogue, the deepest Facebook interaction of any other system and they offer a free service. This final point is a major differentiator and although the free service does come with advertising and limit the service to a user desktop, it is an obligation free way for people to try the system and gain an understanding of streaming.

Vale explains that of the 10 million users worldwide, eight million are on the free service with 25 per cent making the move into the premium service each month. She stopped short of offering figures on the first day subscription numbers, but the Australian take-up rates will be a key indicator of how Spotify stacks up against its competition.

Spotify's free service is fuelled by advertising and the Australian launch has seen Spotify partnering with Commonwealth Bank, Carlton United, McDonalds and Virgin mobile. These sponsors break down four key industries and they will all have exclusive access to the Spotify advertising space for the first three months.

In their own bid at diversification Telstra has partnered with music streaming service MOG. This service has a vast catalogue, a smooth interface and powerful mobile capabilities, which are all standard these days, but its edge is that Telstra customers will be offered free mobile data transfers from the MOG service. This demonstrates the subtle difference between the systems, and the eagerness of local companies to find their place in the music streaming space.

Spotify boasts its own bevy of local features including a Triple J app which will make all of the radio stations content, including the Hottest 100, available on the streaming service.  

Spotify has the scale and the features that it hopes will be the key differentiators as the competition heats up and its emphasis on 'community-building' could be a major factor in determining its long-term success. If the company is able to quickly develop a loyal fanbase, that doesn't just access the music but also actively participates in sharing playlists and spreading the Spotify message, then it just might be able to gain that valuable first-mover advantage and assert itself as the key player.