At the Center of Digital Music

VERONICA DIQUATTRO, A BOCCONI GRADUATE IN INTERNATIONAL MANAGEMENT, IS YOUNG AND THE ITALIAN HEAD OF SPOTIFY, THE FAMOUS MUSIC STREAMING SERVICE. FOR HER, THE CHALLENGE IS TO STRIKE THE RIGHT BALANCE BETWEEN FASTER AND BETTER, AND ALWAYS BE A STEP AHEAD OF THE COMPETITION WHEN IT COMES TO INNOVATING

Last time Veronica Diquattro visited the via Roentgen building, she was graduating in International Management. “Bocconi had just completed it”, she remembers. Six years onwards, she’s in charge of the Italian market for Spotify, the company that offers on demand music streaming to 60 million web listeners, 15 million of which pay for the service. Founded in 2006 as a startup in Stockholm by Daniel Ek and Marting Lorentzon, Spotify was created with the idea of offering people a way to listen to music legally on the Internet. Today, it’s available in 58 countries and has become synonymous with music streaming. It has a business model based on the freemium logic, one that could save the nose-diving music industry: purchases of recorded music are falling, and so are paid music downloads.

Spotify landed in Italy in 2013, during the Sanremo Festival. “The record industry welcomed us as saviors”, says Veronica. “The first Italian HQ was straight out of my home in Milano: basically it was me and my PC. Since I didn’t have a meeting room, I had business guests meet me at a California Bakery. Now we have offices in downtown Milano and employ 10 people.

Before landing a job at Spotify, you worked for Google as online media strategist. What are the challenges of working in fast, innovative companies?

The search for the right balance between faster e better, i.e. the need to be the first to launch an innovation without compromising on quality. My years at the University helped me greatly. Bocconi’s classes mimic the business challenges and complexities of the real word. I learned here to be performance-oriented, meet deadlines, and develop strategic thinking.

How much room for maneuvering does Spotify Italia have with respect to the parent company?

Our strategy is global, but we are fully autonomous when it comes to communication, marketing, partnership. It’s what you need to reach out to customers in your market.

What are the peculiarities of the Italian market?

In Italy, digital piracy is rampant: more than 70% of household connections are used to download music illegally. But things are changing. Last year, for the first time in 25 years, Italy was no longer included in the US blacklist of countries that do not respect intellectual property. This occurred because of the new Agcom regulations protecting copyright. Also, Italy is at a disadvantage because of low broadband penetration and the limited volume of online transactions, also due to the low diffusion and usage of credit cards.

Today, record charts take into account the number of streams on platforms like Spotify, rather than actual record buys, to determine the top 50 hits: have we made the transition from the age of purchase to the age of access?

The idea of unlimited access mirrors a deep change in consumption patterns. No matter the type of content (music, books, movies, news), users want to have access to a vast catalog of digital entertainment that can be instantly accessed from any device anywhere. Any winning business model must be sought within this new consumption framework.

Spotify’s business model is based on 70% of the revenues raised by the service going to music labels and aggregators, which in turn give musicians part of their share. Advertising revenues are modest, so business sustainability depends on the growth of premium users. What strategies you are implementing to make sure it happens?

The free-to-premium conversion rate is already quite high: it is well beyond 20%. How do you encourage people to make the step? By giving them more free music trough promotions, bundling music with cell phone services such as Vodafone’s, by offering risk-free trial periods. You need to increase customer engagement. And for this you need to improve the product, so that the user understands the advantages of listening to legal quality music. Sixty million global users is not a lot, if you look at YouTube. But what would happen if YouTube users moved to Spotify? What kind of earnings would be generated?

Spotify has distributed $2 billion to copyright owners. But artists are complaining about the meager flow of revenues. According to estimates, each time a song is listened to in streaming 0.6-0.8 dollar cents are generated. Some express the fear that Spotify is just another way of giving away music for free. Why should music artists place their trust in you?

Because we acknowledge the value of their work, and this has been Spotify’s mission from day one. Anyway, what are the alternatives? Either lower-value streaming services or downright piracy. Thinking that not giving your song to Spotify will increase sales is delusionary. And beyond the earnings it directly generates, Spotify activates associated channels, from merchandising to live concerts.

How important is data analysis in your business?

It is fundamental. It enables you to anticipate trends and enhance user experience. This is the reason why we have acquired Echo Nest, a data intelligence company. The challenge is to make the user discover the songs he/she wishes to hear.

Music streaming is growing: in 2013, it was worth 12% of the Italian record market; in 2014, it jumped to 22%. Other streaming services are available, and Apple is poised to enter the music streaming market, after dominating the market for paid downloads. How will you stave off the competition?

By focusing on product quality and music discovery at three levels: the interaction of users on social media; an algorithm that suggests new music based on past listening behavior; valuable editorial content in order to help the user create the right playlist for his/her state of mind. We strive to integrate Spotify in each moment of one’s daily life, to have your music follow you wherever you go. This is the sense of the agreement we have signed with Uber.

There is only one Facebook and one Amazon. Will there be only one streaming platform left standing?

The Internet provides total transparence in terms of market offers. The best will remain, but other ways of enjoying music, such as CDs, will not disappear. After all, the top selling albums on the Billboard charts are the same as on Spotify: those who want to buy a record won’t abstain because they have listened to it in streaming mode.

Are smartphones the future of streaming?

53% of streaming already occurs on smartphones and tablets, so we have created a free tier for mobile users. It was a risky bet, but it generated a percentage increase in premium usership. It was proof that our theory worked: the more music you offer, the more likely it is that a user starts paying for it.

 

by Claudio Todesco
Translated by Alex Foti