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Business Operations Business Models

How Does Spotify Make Money (Business and Revenue Model)

The Spotify business model

How Does Spotify Make Money?
Here’s what you should know:
  • What is Spotify, and how does Spotify work?
  • How does Spotify make money?
  • Spotify Premium
  • Advertising
  • Spotify’s Subsidiaries, Acquisitions, and Exits
  • Spotify’s profit and revenue
  • What is the Spotify business and revenue model?
  • Spotify’s funding and market cap

How does Spotify make money? Here is a full, in-depth, breakdown of their two (2) revenue streams and the different products and services they offer, as well as the Spotify business model, their year-over-year revenue, and how Spotify works.

What is Spotify, and how does Spotify work?

Spotify is an audio and media streaming service that allows users to listen to over 70+ million songs and 2.9+ million podcasts.

How Spotify works is: Once a user signs up for an account, they have the option to choose between a free and paid plan. Depending on the subscription they pick, users can then listen to music and podcasts as well as create and follow playlists.

Founded in 2006 in Stockholm, Sweden, by Daniel Ek and Martin Lorentzon, Spotify now has more than 365 million monthly active users (MAUs) and over 165 million premium subscribers to date.

Some of Spotify’s competitors include Apple Music, Pandora, SoundCloud, TIDAL, Bandcamp, and other music streaming platforms.

Spotify App in Apple App Store | Spotify Business Model | How Does Spotify Make Money?
Source: Apple App Store

How does Spotify make money?

According to Spotify’s Q2 2021 Press Release, Spotify has more than 365 million monthly active users (MAUs) and over 165 million premium subscribers, as of June 2021. So how does Spotify make money off of all these active users and premium subscribers?

Below is a breakdown of how much money Spotify makes and its revenue model. Including all revenue streams and how much they charge for their services.

Here are the 2 ways of how Spotify makes money (in 2021):

Spotify has a revenue model that makes money in two (2) ways – subscriptions and advertising.

#1. Spotify Premium

Spotify makes the majority of its money from its premium subscription service, Spotify Premium. In fact, $8.4 billion or 91% of Spotify’s total revenue came from its subscription service in 2020.

The service offers three (3) subscription plans: Individual, Duo, and Family. Subscription costs vary based on the tier and each plan comes with its own set of perks such as ad-free listening, how many accounts a user can have on the plan, and more.

As of June 2021, Spotify has over 165 million premium subscribers.

Spotify Premium Cost:

  • Individual: $9.99 per month
  • Duo: $12.99 per month
  • Family: $15.99 per month

Note: 91% of Spotify’s total revenue of $9.24 billion came from its subscription service in 2020.

#2. Advertising

Spotify also makes its money through advertising. And according to page 49 of Spotify’s 2020 Form 20-F, ad-supported revenue accounted for $875 million or 9% of Spotify’s total revenue in 2020.

The way Spotify Advertising works is: Spotify offers a self-serving ad platform called Ad Studio for those with smaller budgets. And for advertisers with larger budgets, Spotify offers programmatic and direct advertising.

Price varies based on the type of ad package and a number of other factors like the country, target audience, ad format, length of the campaign, and what the advertisers’ demand is on the platform at that time.

Spotify Advertising Cost:

  • Ad Studio: $250 minimum
  • Programmatic and direct advertising: contact sales

Note: 9% of Spotify’s total revenue came from ad-supported revenue in 2020.

Spotify’s Subsidiaries, Acquisitions, and Exits

To date, Spotify Technology S.A. has made a total of 21 acquisitions, 5 investments, 3 lead investments, and 1 successful exit.

Spotify Acquisitions
Source: Crunchbase

Spotify’s profit and revenue

In 2020, Spotify reported $9.24 billion in revenue.

Note: Because Spotify Technology S.A. is a publicly traded company, under the Securities Exchange Act of 1934, they must file continuous financial filings with the U.S. Securities and Exchange Commission (SEC). You can find all of Spotify’s publicly released financial reports, including annual reports, through Spotify’s investor section on their website.

What is the Spotify business and revenue model?

Spotify makes money through a few revenue models that they combine within their company, they are:

  • Freemium (upselling) business model
  • Subscription business model
  • Advertising business model
  • B2B2C (partnerships) business model
  • Mergers & acquisitions (M&A) business model

Spotify’s funding and market cap

According to Spotify’s Crunchbase profile, Spotify has raised $2.1 billion over 18 rounds and has a market cap of $40.98 billion as of August 2021.