Spotify’s update gives freebie users more—is it smart business?

by | May 9, 2018 | Public Relations

If you have the newly-updated Spotify app, and you’re a non-paying customer, you’re likely pretty happy with the company right about now. Your newly updated freebie app may still have ads, but it also has better bells and whistles.

The updated free version of the app will now allow customers to create up to 15 playlists, in which they can select individual songs to listen to—without dealing with shuffled songs. So…what gives?

Why would Spotify, in an ongoing blood feud with rivals Pandora, Apple Music and others, decide to give customers more for free? This seeming non sequitur is something web-based business pros have known for some time: Give customers something for free, and they are more likely to buy something…eventually. Even when the products are substantially similar.

The principle is to give customers a sample of the greener grass on the other side of the paywall or subscription fee, and see if they will make the jump. In many cases, they do, and that’s what Spotify is betting on.

Even with the new changes, mobile Spotify users won’t have free access to the entire catalog, and they still won’t get anything without ads. However, if they do decided to pay up, they can have access to the entire catalog, anytime they want, anywhere they want, without any ads. And this is the carrot they are dangling in front of customers. But will they bite?

There are several “pros” to this approach

First, Spotify is giving their customers something, without really giving away too much more at all. The ad-based revenue stream is still profitable. In fact, that area of business is actually growing, and some analysts are convinced the ad-supported model is the only way to go for long-term profitability.

Next, of course, is the free and easy conduit to potential paying customers

The bigger their contact book, the more people Spotify can do successful public relations, and market to. So, if they get more “free” customers through this additional benefit, they will increase their potential number of paying customers as well. Users are also more likely to download and try free apps, especially if they are considering a more advanced ‘pay’ version. Once they have sampled, the tendency toward brand loyalty will increase the odds that the tire-kickers will make the commitment.

That’s not to say there may not be downsides to this approach

From a consumer standpoint, we are quickly reaching a tipping point at which most people will no longer think twice about paying a monthly fee for streaming entertainment. Remember when people shifted from mostly broadcast to mostly cable viewing? That transition happened so quickly many didn’t really even notice. The transition to streaming media might take a bit longer, but that tipping point is coming.

The same can be said for radio

In the not too distant future the idea of paying a relatively small monthly fee to avoid advertising will no longer be considered a novelty. If this happens before Spotify can shore up its customer base against the competition, their ‘incentive’ of a freebie version will vanish, rejected out of hand by a consumer base accustomed to not seeing or hearing commercials.

When that happens, Spotify will need a lot more than this offer to entice customers to choose their brand over their rivals.

Ronn Torossian
Ronn Torossian founded 5WPR, a leading PR agency..