Home › Case studies › Spotify
ManagementPricing & LoyaltyEntertainmentIntermediate2008
Spotify: Freemium Music Model
The challenge
In 2006, music piracy was rampant. iTunes sold individual songs but there was no legal way to access all music for a monthly fee. The music industry was in decline. Daniel Ek wanted to make legal music streaming better than piracy.
The strategy
Spotify's freemium model — free with ads, premium without — was designed to convert pirates to legal listeners gradually. The free tier needed to be good enough to attract users but limited enough to motivate upgrades.
Want the full story, outcome and quiz?
Read how Spotify executed it, the results, key lessons and test yourself with a quiz. Free on CaseLearn.
Try the full case free →Key lessons (preview)
- Freemium works when free is good enough to attract but limited enough to motivate upgrades.
- Giving equity to key suppliers aligns their incentives with your success.
- Social features create network effects that make switching costs higher.