No. 287: Spotify’s brand potential


Spotify’s chief marketer is leaving Spotify and their next CMO has an opportunity to continue its sprint towards 50% market share. In his parting words with AdWeek, Seth Farbman said:

By all measures, we’ve achieved [our] goals, but we’ve also done something most companies only dream of doing—we’ve turned affinity for the Spotify experience into love for the brand. 

And he’s correct. During his tenure, Spotify found ways to grow brand equity despite the offensive by Amazon and Apple Music. The numbers from January to June tell the story. Spotify maintained a 36% market share with a total of 83 million subscribers. Apple grew 2% market share, reaching a 19% stake of the market (43.5 million subscribers). While Spotify added 11.9 million subscribers, Apple has grown 9.2 million members. And Amazon added a half a point of market share, currently holding 12%.

But according to reports, Apple Music is set to overtake Spotify in terms of paid subscribers. Apple’s early Apple Music strategy consisted of music exclusives (Chance the Rapper, Drake) and live DJ sets (Zane Lowe, etc).

The relationship between Drake and Apple Music benefited both parties. Apple Music got first dibs on Drake’s record-breaking 2016 album Views, while the rapper is now the avatar for the paid music streaming era.

An often overlooked part of Apple Music’s library is Beats 1 radio, which in the case of Drake, who has his own OVO Radio show named after his recording imprint, means his fans have a reason to hold onto their subscription even if no new album on the horizon. Artists like Bad Bunny, Pharrell, Deadmau5, Elton John, Charli XCX, and Frank Ocean all have their own Beats 1 shows, reaching dedicated fans who’d rather connect with their favorite musician than trust an algorithm for song recommendations.

Slate: Why Apple Music is Winning Spotify’s Game

The the recent strategy seems to be Apple’s deepening moat around its hardware. While Spotify’s brand is more beloved, Apple has a growing technical advantage: its devices. By all accounts, iPhone and Airpod users are discouraged from choosing Spotify over Apple Music through subtle UX and Siri roadblocks, akin to Apple’s preference of Maps over Google Maps. This is most noticeable when attempting to control the Spotify app through your Airpods or playing music on your lock screen. In Spotify forums, moderators and community members are advocating that users delete Apple Music if they want a better Airpod x Spotify experience.

Apple’s continued growth will be closely tied to how well it develops Apple Music into the iPhone’s default. By cutting off Spotify’s seamless performance with Apple phones, their strategy is similar to Instagram’s uncoupling from Twitter’s timeline. By making it difficult for Twitter users to view Instagram photos, Facebook fostered its own ecosystem of engagement. Apple is benefitting from the same.

Apple music is for music enthusiasts and Spotify is for casual listeners. While Apple Music believes that this is their advantage, it is Spotify’s key differentiator. And it could decide the future of streaming.

By design (according to Jimmy Iovine), Apple Music makes it difficult to discover music. He believes that the service should exist for music lovers; Spotify is quite the opposite. The platform’s entire user experience is designed around (1) the promotion of artist discovery and (2) amplifying pop music’s inertia. Either you’re learning something new, thanks to their algorithmic and manually-curated playlists or you’re being steered towards the songs that are popular. Apple deemphasizes discovery, in this way.

Spotify’s ability to overcome Apple’s notable growth will hinge on the service aligning their brand with others and developing exclusivity partnerships. While their CEO may disagree, the platform’s defensibility will be closely tied to their faculty to “sell” music. While this is of little surprise, Spotify’s future may be influenced by how it sells brands.

Brands have sounds too

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One of dozens of user-generated playlists.

There’s a vibe when you walk into Ralph Lauren’s restaurant in downtown Chicago. The walls are mapped in gold framing, velvet, and vintage pictures of anyone who’s ever worn a tuxedo and evening gown well. But something sticks with you long after you leave, the restaurant’s music.

In a conversation with Lean Luxe founder Paul Munford, he had this to say about his effort to build his media brand through music playlists:

Keeps people engaged, keeps things interesting and fresh. Gives folks something cool to listen to each week under the LL banner. Keeps the brand top of mind in that way. It’s not a huge thing but is just another plot point for the brand that adds to the total sum, so to speak. Plus, it’s fun. I don’t think people are used to media or publications behaving this way. But that’s not to say the interest for publications to do more things like this isn’t there. You never know until you try.

Browse Spotify for your favorite retail brands and it’s possible that the brand will have some presence in the app, whether through an official brand playlist or – more commonly – as a fan-generated project. You’ll find “The Glossier Megamix”, “Ralph Lauren Classy”, “Lululemon Spring 2018”, and dozens of lists devoted to Victoria’s Secret. Spotify has a unique opportunity here. More and more brands are using playlists to shape their brand image. Music can provide a halo effect that helps to keep retailers at the top of consumer minds.

2PM Data

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August 2018 on Spotify: “Lucid Dreams” and “In my Mind” bolstered by Spotify playlists

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Method for music discovery (United States: 2018)

Growing playlist spins through partnership

Given Spotify’s recent decision to secure exclusive podcast partnerships with two celebrities, it’s clear that partnerships are on the executive team’s whiteboard. But this isn’t just about performers and brand evangelists aligning with Spotify. Spotify takes pride in experimentation and, as such, the company is primed to take a page out of Apple Music’s original playbook. The streaming service could make great progress by emphasizing its partnership division.

By the time a song lands on Today’s Top Hits or other equally popular sets, Spotify has so relentlessly tested it that it almost can’t fail. “There are very few artists that get into the flagship playlists and then get kicked out,” Holmsten says. When “Call On Me” made that list, it was already destined to go viral—even though most people had still never heard it.

WIRED: on the power of Spotify’s playlists

Spotify has been somewhat of a kingmaker for independent artists and on-the-bubble pop stars. To amplify this effort, Spotify is overdue to take a page out of the direct-to-consumer marketing playbook. Here are the top proposed partnerships with physical “retailers.”

By attaching discovered music to positive, physical retail experiences, Spotify can amplify a key performance indicator (KPI): repeat listens of new and popular music. Here are a few ideas:

  • Orange Theory | OT has earned a network of over 1,400 locations and a loyal following of fitness enthusiasts and business travelers.
  • Core Yoga | This studio is known for its unique practice and a franchise network of over 160 locations.
  • Soho House | The famed members-only club has 50,000 members and a unique vibe in each of its 23 locations.
  • WeWork | Their offices manage 100,000+ members and over 10,000,000 sq. ft. of workspace.
  • Delta Airlines | known for its pre-flight track list, the premium airliner has the ability to set the mood and the wifi for the Spotify deep-dive to continue throughout the flight.

By generating playlist spins through these locations, Spotify can accomplish two things: (1) generate more revenue for artists and (2) convince artists to sign exclusive deals by way of guaranteed minimum spins per month based upon estimated engagement times at Spotify’s potential retail partners.

Apple Music is catching up with Spotify’s lead by building a competitive advantage into its hardware. The company has grown despite glaring weaknesses in the app’s user experience. Spotify may not be able to ship hardware like its chief competitor but that doesn’t mean that it cannot partner with physical retailers. They can redefine their approach to hardware. Beyond their superior engineering, Spotify’s chief advantages could be their partnerships with retail spaces and up-and-coming musicians. Spotify has an opportunity to find an advantage where Apple has yet to look.  Their CEO says it best,

I think long term, we at Spotify have some defensible moats, but success for us will be determined by our ability to move faster than everyone else in the space. And just keep on innovating.

Read more of the issue here.

By Web Smith | About 2PM

No. 286: The DTC Fitness Brand


Silicon Valley wants to redefine the fitness membership. Through the adoption of connected devices like the Peloton bike, there’s been an inflection point as consumers seem to be trickling away from the current model. No longer do you have to drive to a place to be in a community. As Americans become more health conscious and driven to maximize performance, the DTC equipment industry is a timely bet on the next generation of  fitness data-driven IoT (internet of things).

Venture-backed startups are taking the same page out of the direct-to-consumer playbook that became a launchpad for digitally vertical native brands.

 ClassTotal Funding Lead FounderCityWorkforce Learn More
Peloton Interactive
Equipment$994.7M (2012)Graham StantonNew York 641Visit Peloton
Echelon BikeEquipmentPublicly traded (2018)Ron SegeSan Francisco 173Visit Echelon
MirrorEquipment$38M (2018)Brynn Jinnett PutnamNew York 19Visit Mirror
EquipmentUndisclosed (2015)Aly OradySan Francisco 78 Visit Tonal
Whoop Advanced Wearable$49.8M (2011)Will AhmedBoston 79Visit Whoop
Trainers Vault Community App$30,000 (2016)Cortney WoodruffLos Angeles6Visit Trainersvault
Asana Rebel Community App$24.8M (2013)Pascal KleinBerlin 42Visit Asana Rebel
True Rowing Equipment $5MJustin MooreBoston19Visit True Rowing

Whereas the Fitbit-phase of wearables emphasized individual fitness, the next generation of connected devices seem to be incorporating community in ways that could emerge as a challenge to the status quo: community-driven fitness facilities. Venture-backed startups are taking a page out of the direct-to-consumer playbook, the same page used by digitally vertical native brands like Warby, Harry’s, and Away.

By building systems that allow community to be gained outside of physical retail outlets, these tools are aiming to become the new medium for instruction and training.  These internet-enabled equipment manufacturers aren’t just selling plastic and metal, they’re selling virtual community. With the advent of polished functional fitness gyms like Orangetheory and CycleBar, fitness consumers have grown to value the ability to: a) train with a group b) and track progress over time, with the use of a provided IoT device.

Zooming out of the studio and looking at the big picture, Orangetheory Fitness has 930 locations worldwide. Since it opened its first studio in Fort Lauderdale in 2010, there have been no closures. As a global franchise, CEO Dave Long reported that network-wide annual revenue is set to cross the billion dollar mark this year. Long’s vision is to open 300 new locations a year, as the brand aims to shift towards international expansion.

Inc. Magazine | April 2018

DTC fitness brands like Peloton are building brand equity by servicing the same needs but in the privacy of one’s home gym. Tonal and Mirror recently launched to add the same experience to the functional fitness experience. Get to know the growing list of players in the DTC fitness space:

Tonal’s practice of automatically assigning weights based on performance and encouraging exercisers to push their limits is both convenient and motivating — but could also be dangerous. The machine’s handles have buttons that release the weights, as well as an option for “spotting,” which will reduce the load if the machine senses it is too difficult.

Mirror’s screen gives exercisers cues to work harder or ease off based on their heart rate, while offering workout options tailored to a person’s injuries or pregnancy. Mirror also has the option for one-on-one training sessions, which use the device’s camera, for an extra $40 to $75.

Mirror and Tonal will likely endure the inevitable pushback. One look at the comments section of the New York Times feature and you’ll be reminded that fitness is a religion and equipment is often its proverbial scripture. However, Peloton avoided a lot of the initial pushback for several reasons:

  • Peloton is firmly positioned as a luxury status symbol
  • spin classes are easier to address by way of Peloton’s screen, the user is stationary.
  • the average person who attends a spin class needs less instruction on safety and form. The average person who will begin a functional fitness regimen will need a considerable amount of instruction on safety and form.

Issue No. 265: Can a DNVB achieve modern luxury? 

Peloton is not a traditional luxury product, but it shares consumers with traditional luxury brands. Think about the type of living arrangement necessary to house a wi-fi enabled bicycle or a $4,000 VR treadmill. It’s a brilliant piece of hardware that blends community with product and service. The brand’s proposition explicitly states that the purpose is to free the owner to focus more on experiences.

Peloton’s value proposition is as much about what you can accomplish away from the treadmill. Why take the time to travel to a gym? That time could be better spent elsewhere. This is the mark of a modern luxury brand.

Both hardware platforms will have its detractors but their early adopters, ease of use, and scalability (novice to enthusiast) will determine whether or not the products will achieve long-term viability.

2PM Data: the overall market

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Brick and mortar fitness facilities (US): projected revenue
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Projected growth in the wearables industry: projected units sold

As interest in gym membership rises, in tandem, with the demand for fitness trackers, smart home kits, and gaming consoles – there’s been no better time to innovate in this space. But the tell will be whether or not platforms like Mirror and Tonal can build community around their equipment. Or whether products like Whoop can continue innovating on the droves of consumer data that they are receiving each day.

CEO of Mirror, Brynn Jinnett Putnam said to the New York Times, “We’re looking to be the next screen in people’s lives. We desire to be an immersive platform, not just a piece of gym equipment.” This quote is a lot to unpack. Whereas Tonal’s system excludes the need for outside equipment so they are directly competing with equipment manufacturers. But Mirror’s take is what Silicon Valley wants to hear; they are hoping that a screen and programming will unlock a greater use for your existing equipment. Only time will tell whether immersive platforms attract the attention of a very specific demo: the high maintenance, upper middle-class gym goer, with ample space in on their spare room’s fortified wall, a strong broadband connection, and a willingness to leave behind their existing fitness community for a purchased one.

If and when manufacturers like Mirror and Tonal figure this out, it could spell trouble for your gym. Spin franchises are already beginning to adjust to the threat of Peloton and as the threat of connected cycles continues to grow as also-has brands rise up in the wake of Peloton’s premium pricing.

Read the rest of the letter here.

By Web Smith | About 2PM

No. 285: The End of Ownership

Scene: the perfect vacation experience, fueled by rented products.

Go on vacation and you’ll undoubtedly encounter at least one couple who snaps photos of their perfectly manicured brunch experience. They took an Uber to get to the general area, asking the driver to play their favorite Spotify playlist for the 17 minute drive. Rather than walk the final .7 miles, they both grabbed Bird’s to the brunch spot. Hey, it was more scenic and memorable that way. The husband followed along so that he could snap the perfect candid shot of his wife’s Rent the Runway dress billowing in the wind. And when they finally arrived to their seats, he snapped another photo of her with their DSLR from Parachut. It was the picture perfect experience.

Let’s breakdown access vs. ownership: 

  1. Rather than drive their vehicle, they accessed an Uber.
  2. Rather than listen to their music, they accessed a Spotify playlist.
  3. Rather than walk .7 miles, they accessed a Bird scooter.
  4. Rather than own the dress, she rented it from the runway.
  5. Rather than buying the iPhone, the husband has access to one through AT&T.
  6. Rather than configuring his own DSLR, the wife sourced one through Parachut.

But the memory of this was very much their own. They owned that memory and it’s well documented in the place where America stores their moments: Instagram. A place that keeps what we really care about owning. Above all else, we care about owning great moments. The couple accessed rented goods to own an experience.

Issue No. 265: Can A DNVB Achieve Modern Luxury

Buying experiences over buying consumer goods is a trend being adopted by the luxury-set. The interpretation of the word luxury means something altogether different for the types of customers who have the means and awareness to shop with DNVB brands. Skift’s latest research shows a clear shift in demand for more transformative travel experiences among upscale travelers (Skift / May 2, 2017). Whereas expensive products used to be the consumer desire: products, community, and service now play the role of enabling experience economy.

What’s the access economy? An economy driven by a business model where physical goods and services are traded on the basis of access rather than ownership: it refers to renting things temporarily rather than selling them permanently.

If you ask Joe Fernandez, CEO of Joymode, he’d tell you that a consumer revolution is coming. This belief is an increasingly popular sentiment held by founders and executives of the companies fueling the access economy. And there’s validity to it. Consider sector startups like: Rent the RunwayArmarium, Parachut, and For Days. These startups provide hard goods in exchange for a monthly subscription fee. For consumers, this shift isn’t just about personal economics or reducing the cost of ownership. It is a redefinition of what it means to “own” and whether or not permanent possession of a product is more valuable than access. Some would argue that access is ownership.

BMW is testing it’s new program called “Access” of all things. Here’s an excerpt by Andrew Hawkins of The Verge:

For $2,000 a month, users can choose between models like the X5 SUV, 4 Series, and 5 Series sedans, including all plug-in hybrid versions. For the higher-tier $3,700-a-month fee, they can get M4, M5, or M6 convertibles, as well as X5M and X6M SUVs, but it doesn’t include access to BMW’s highest-end 7 series. The fee includes insurance, maintenance, and roadside assistance, BMW says.

Consumerism is a part of America’s DNA, it’s what drives us. It powers our national economy, it fuels international trade, and it incentivizes entrepreneurial innovation. But even a casual observer can understand how the accumulation of goods, accelerated by eCommerce, can have detrimental effects. Consider this passage from a recent article in The Atlantic, “We Accumulate a Mountain of Things.” 

Thanks to a perfect storm of factors, Americans are amassing a lot of stuff. Before the advent of the internet, we had to set aside time to go browse the aisles of a physical store, which was only open a certain number of hours a day. Now, we can shop from anywhere, anytime—while we’re at work, or exercising, or even sleeping. We can tell Alexa we need new underwear, and in a few days, it will arrive on our doorstep. And because of the globalization of manufacturing, that underwear is cheaper than ever before—so cheap that we add it to our online shopping carts without a second thought. 

In many ways, Joymode is at the forefront of the movement to alter consumer behavior, with respect to the concept of ownership. At first glance, it’s easy to look at Joymode and reduce them to an events company, a place to go to have fun. But only at first glance. Upon further exploration of their offering, you’ll notice the featured products are everyday items. The platform rents everything from an Oculus Rift set to camping essentials. There is access to products for events and products for everyday life. It makes you wonder. If this is where things are going, how many products do we really need in our closets, cabinets, and basements?

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Essential products. Do we need to own them?

There is a massive backlash coming in the form of a cultural shift in how people consume. I love that we get to be a part of it. This weekend more than 15,000 products left the Joymode warehouse and it will all come back and go to different families next week. There are massive amounts of people fed up with the cycle of debt, clutter and waste.

Joe Fernandez, Cofounder and CEO of Joymode 

Fernandez, the former founder of Klout, is adamant about what he believes to be the future of ownership. He may have a tougher task ahead, when compared to companies like Rent the Runway. The barrier to entry in seeing value in paid access to clothing may be slightly lower than that of common household goods. But our analysis indicates that we will see more brands entering the rental service space. It’s no longer just about cost basis reduction.

There are numerous macroeconomic indicators that bolster Fernandez’s views: accelerating urbanization, increases in the housing rental community, millennial debt loads, the growth of streaming entertainment, and even how we travel. As a consumer, you will own fewer things. But those accessed items will be personalized to your specific needs.  People are beginning to redefine the need to buy because access is, in effect, ownership. It’s the community of like-minded consumers that they’re buying into. They’re paying for more than access to products. They’re paying for access to a collective who believes in an ideal. And that ideal could change retail, for better or worse.

By Web Smith | Edited by Meghan Terwilliger | About 2PM