Spotify banks on “freemium” model following Australian launch

The local head of digital music service Spotify, which launched in Australia today, claims the company’s “freemium” model enables it to appeal to younger, cash-strapped consumers.

Spotify, founded by Daniel Ek and Martin Lorentzon, is a digital music service that gives users on-demand access to more than 16 million songs on their computers, mobile phones, iPads, etc.

Ek and Lorentzon launched the service out of a desire to develop a more convenient and legal alternative to music piracy.

Since its launch in Sweden in 2008, Spotify has become the largest music service of its kind, with more than 10 million active users and more than three million paying subscribers.

The service, which is available in 15 countries, is available in Australia from today.

In November last year, Spotify appointed former Google executive Kate Vale as its first Australian employee. Vale has since assembled a team of 10 local Spotify employees.

But, as she told StartupSmart, entering a new market is “not just something that happens overnight”.

“It takes quite a while to hire staff – definitely the full six months. The team will now grow as needed,” Vale says.

Less than a month after Vale was hired, Spotify struck a deal with Brisbane start-up We Are Hunted; one of 10 partners chosen to work on Spotify’s new App Finder service.

We Are Hunted, which was founded in 2008, provides the top 99 tracks being talked about, blogged, shared and reviewed online each day.

According to Vale, We Are Hunted will be involved in Spotify as much as any other app partner. As part of its Australian debut, Spotify has announced the launch of the Triple J app in Australia.

The app, created for Spotify users, will showcase new tracks on Triple J Hitlist, featured albums, and will include past Hottest 100 countdowns. The app will also feature all the latest music news.

Other apps include TuneWiki, which lets users sing along to their favourite lyrics, and Rolling Stone, which gives users the latest reviews.

There’s also Songkick Concerts, which lets users find out which of their favourite bands is touring near them.

Vale says while the Spotify service is aimed at “anyone and everyone”, it is particularly attractive among younger consumers simply because it is free.

Spotify offers three services. Spotify Free, as the name suggests, offers users free, on-demand access to more than 16 million songs. Then there’s Spotify Unlimited and Spotify Premium.

“Our audience does tend to have a younger skew, especially among a lot of young people that don’t have lots of money to spend on music,” Vale says.

“If they like Spotify, they have the option to upgrade. Our conversion from free to paid is about 25%.”

“They tend to get on the free service, get right into the service and then music becomes really important to them.”

In addition to younger consumers, Vale says Spotify will also be targeting the three million Australians who illegally download music every year.

“Piracy is huge in Australia… That will be our biggest challenge – getting people to understand how to consume music and move away from traditional ways of doing it,” she says.