🎶 #160: Spotify's going public, but it might change everything
Spotify's IPO might change everything. Here's why.


Spotify's IPO could change everything

After 12 years as a private company, Spotify is going public in March with what might be the strangest IPO in startup history: a direct listing on the stock market.

Traditionally, startups join the stock market using a bank to underwrite the share offering, and help market the listing to potential investors – filling their war chests with money for years to come.

Spotify isn't doing that. Its direct listing will raise no money for the company, only existing investors, and its initial share price has such a wide opening range (more than $70) that it's difficult to know where it'll even open.

Why would Spotify do this? The answer, I believe, is in its filing documents this week: on paper it's one of the worst deals I've ever seen. 

We know the music industry is a difficult, expensive and competitive business, but until now there was never really any reference point for what that actually means. Spotify's documents reveal that it lost more than $1.5 billion in 2017 alone, at a rate of about $7.9 million per day by the end of the year.

That's wild, but it gets even more difficult: Spotify's average revenue per use fell every year in reporting, from a high of €7.06 in 2015, all the way to €5.24 in 2017, and 90 percent of new premium subscriber revenue is spent on actually acquiring that user.

For many companies, these are numbers that'd get laughed out of the room, but Spotify is betting it has the brand power, and user lock-in it needs to pull this off successfully. 40.3 billion hours of content were streamed in 2017, double that of the year before, and now 159 million people use the service.

Right now, Spotify's business model does not exist. It's clear that its valuation is predicated on two assumptions, the first being creating its own original content to retain users or bring them back (hey, Netflix) and the second is using the scale it has to pressure licensing fees from the music industry down.

Unfortunately, Spotify is up against the stiffest competition it's ever faced: Apple. With deep pockets, Apple is happy to run its service at a loss for years to come, and even better, it doesn't have to pay the 30% fee that Spotify does if a user subscribes via an iOS device. If Apple ever felt so inclined, it could undercut Spotify's business model by 30%, a discount Spotify could never swallow because of those fees.

The company's ambitions are big, nonetheless, as it pointed out in its own IPO letter that the music industry is controlled by just four major companies, so it hopes to redefine what a record label is defined as. Its practices, however, speak to the opposite of that.

It may also use its vast data trove to monetize, too. It has more than 200 petabytes of data on listening habits of users (compared with Netflix's 60 petabytes) and claims it uses more than 5 petabytes of that data everyday for personalization. That number doesn't tell us much directly, but it's quite interesting to consider just how much Spotify can know about you based on how you tune in to music, and how that might pan out long term.

With all of this in mind, this listing is much cheaper than a traditional one, and allows employees + investors with shares to cash in, after more than a decade of waiting for some. It might also mean that a secondary offering of shares to raise money for the company itself occurs later on.

Spotify's IPO itself will happen in March, and the technology industry will be watching. If it's a success, it provides an exit for many almost-unicorn startups that could struggle to go public the traditional way, but it's a huge risk.

🌎 Read the original news on Techcrunch

Other news

😬 Facebook's algorithm changes find their first victim

🕶  Snapchat plans Spectacles refresh this year

Twitter launches private bookmarks 

🚪 Amazon acquires Ring smart doorbell business for $1B


Try our daily briefing, re:Charged, delivered four times a week before you head to work to get the best update on the industry's happenings in minutes.

Sign up here with the code weekly-club to get 25% off your first month.


Run less software

This fantastic long-form insight from Intercom looks at how the company builds software, and how it makes decisions when procuring new services or technology that ends up in its stack. A great read for all makers, and incredibly well illustrated.

🌎 Read on Intercom's blog

Other great reads

A new report explains why the technology industry's diversity efforts haven't worked (USA Today)

How clean coal in America unraveled (The Guardian)

This great visualization of how Waymo's cars see the world (Medium)

Why I quit Google to work for myself (Michael Lynch)

How we fixed the Age of Empires' reboot pathing in the original code


"Spotify is a great idea with a fantastic execution and it will someday surely lose to Apple, Google Music, Amazon, YouTube etc. Music is now a check-box feature for companies that can afford to lose money on it forever."



A great weather app for Android

Here's something cool for the Android users out there like me: a fantastic weather app that has attention to detail I've not see on many apps from any platform. Everything about the balance, animations and customizability is lovely! 

🌎 Buy on Google Play


Thanks for reading! You're a part of a community of 15,000 others getting the best in tech news every week.


Like on Facebook:

🎶 #160: Spotify's going public, but it might change everything