In principle, platform business models have the potential to democratise market access and directionality (producer-to-consumer-to-producer) which would be a BIG contribution and progress from the monodirectional, oligarchic structures that ruled still in the 80s and 90s - especially in media.
So that’s a “two thumbs up” for all platform businesses including Spotify. However, ignoring the dark side of the platform potential is being willfully ignorant (not saying you do this at all, but the valley kind often do). Zuckerberg and co will argue that the democratisation and flattening of hierarchies they bring are so valuable that it’s ok to have a little bit of economic and informational exploitation going on. Basically, it’s the cost of access.
But the philosophy has long shifted from genuine aim to democratise to an aim to dominate. No doubt about that, just look into comments made by Jeff Bezos, Mark Zuckerberg, Peter Thiel, and even diverse Google execs. Why do you think Trump put out an executive order against TikTok?
What that leads to is a flattening of of hierarchy alright - but the democratisation is subject to the benevolent dictator that is the platform owner. Case in point: Apple and Epic Games - Epic has complained, has rallied and yesterday I believe Apple told Epic that they would have their developer license revoked on the 28th August…
There are plenty of academics that argue the revolutionary power of platform models, me included, but we are coming to realise that the question of ownership of the platform is not just an trivial/economic one, but a crucial factor in determining a platform’s evolutionary trajectory and net-net impact on our socio-economic structures.
Spotify has DEFINITELY changed the game - and in many ways for the better. However their total grip on the value chain (as mentioned above, they hold ALL the cards in determining how value flows in and around their platform) means that a lot of the changes that have happened to the industry end up benefitting the platform more than its participants. It’s the emperor’s new clothes - significant revolution without the significant material impact.
And I do understand your bottom line argument of course, but the sad reality of startup capitalism today is that your bottom line just doesn’t really matter. Not to the entrepreneur, not to the investor, and certainly not to the customer. I know this is not sustainable, you are right, but it IS how the game works / has worked for the past 10-15 years.
I run a company that is in the 5-10m revenue per annum category. We’ve been profitable since day one and have been consistently running a profit over the past six years. If I would want to sell the company, I’d get a multiple of MAX 3x - and that would be a golden scenario. Currently valuations for our line of business would be more likely around 1x - 1.7x of annual revenue.
Spotify’s annual revenue in 2019 was €1.85bn Euros (1.6bn on subscriptions and 217m on ad revenue). It’s current market cap is just shy of 50bn… That’s a multiple of over 27x…on what basis? Not their profitability, I guarantee you that.
The reason these valuations are so high (Uber, Facebook etc) is one reason only: the promise of dominance over channel power.
Spotify know exactly what they are doing. They are playing it by the Valley playbook for scaling platform businesses, and I guarantee you that in this business model, the supplier is considered the lowest ranked participant in the value chain - which in Spotify’s case is the musician. Sure they paid Joe Rogan $120m for his podcast and Drake gets more payout from Spotify annually than a team of factory workers will earn in a lifetime, but in a way that’s EXACTLY what we had in the 80s and 90s also, where the winner took it all and the long tail was left hanging out to dry.