1st Steps to Spotify’s $30B Fame
Welcome to today's episode! We're diving deep into the Spotify story to discover how a student from Sweden managed to transform the way we consume music today.
Picture Daniel Ek back in 1997, who had a passion for technology since he was a kid. At only 14, while most of us are navigating turbulent teenage years, he was already building websites from his school computer room.
He charged just $100 for the first website, then double that. As the digital age surged and more folks wanted a piece of the online pie, he recruited his friends to help.
Soon, Daniel led a strong team and raked in $15,000 monthly - most of which he splurged on video games.
At age 16, Daniel tried to get a job at Google (as he got obsessed with the platform’s speed) but hit a roadblock: no fancy degree.
Rather than seeing this as a setback, he thought, “Why not make my own search engine?â€
However, it didn’t take him long to realize that competing with Google wasn’t the smartest move...
Daniel then entered university, but it must’ve been a tad uninteresting since he dropped out in the first year.
He launched several projects during this period, though most didn’t quite take off.
However, his luck took a positive turn when he sold Advertigo, his advertising venture, raking in a little over a million dollars.
Daniel got himself a fancy apartment, a Ferrari, and even considered retiring (mind you, he was only 23!). Suddenly, life was all parties and late nights.
But guess what? Money didn't bring him happiness, and having no life purpose got old real quick.
One day, Daniel met Martin Lorentzon, who was at a similar unhappy stage in his life. Together, they started brainstorming to build something COOL.
Now, here's where music enters the scene. Around 2000, everyone was downloading music, but not always the right way.
Basically, most folks were pirating tracks from services such as Napster, Pirate Bay, and a bunch of others.
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Artists along with the labels, weren't getting their due. Daniel believed that fighting piracy with laws is nearly useless, but rather thought of creating something better.
That's how Spotify started to take shape. Here’s a fun fact: the company name?
It came about when Martin shouted something, Daniel misheard it as “Spotifyâ€, and they decided to go with it!
In 2006, when they founded the company, the music industry was struggling, with revenues dropping big time.
For consumers, the options weren’t great either.
On one hand, you had pirate downloads from sites full of viruses and malware, offering slow download speeds and questionable audio quality.
On the other, there was Apple's iTunes charging up to $2 per song.
"I really believe that if we create the right product which is better than piracy, people will come," declared Daniel.?
Spotify's guiding principle was crystal clear - prioritize the user. The goal was to make users feel as though every song ever recorded was stored on their hard drive.
One day, at the KTH school of technology and business, Fredrik Cassel of investment firm Creandum, caught wind of a pitch about Spotify.
Fredrik became one of the first 1000 Spotify users. When testing the platform, he got blown away when he chose a small local artist, and miraculously their songs were on Spotify.
Important note here: Daniel and Martin had to pirate hundreds of thousands of tracks to make the app look like the real deal.
Fake it till you make it, as the saying goes.
Impressed and believing in its potential, Creandum would go on to back Spotify after a good 18 months of intense negotiations, seeing the platform's commitment to quality.
The investment helped, however, the journey to the peak was far from smooth.