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The internet has popularized the freemium model like no other channel, but building a successful business on this model can be quite a challenge.

One company that has succeeded: Spotify, the Swedish company that has become Europe's most popular music streaming service.

But despite the success of the model it has used to date, Spotify apparently thinks some changes are needed.

Yesterday, it announced that it will be taking a little bit of 'free' out of freemium in an effort to ensure that it can continue to provide the service to its millions upon millions of users. The Spotify blog explains:

Here’s how the changes will work:

  • New users will be able to enjoy our unrivalled free service as it is today for the first 6 months.
  • As of May 1st, any user who signed up to the free service on or before November 1st 2010 will be able to play each track for free up to a total of five times. Users who signed up after the beginning of November will see these changes applied six months after the time they set up their Spotify account.
  • Additionally, total listening time for free users will be limited to 10 hours per month after the first six months. That’s equivalent to around 200 tracks or 20 albums.

According to the Financial Times, the changes are a result of record label doubts about Spotify's long-term viability. Spotify claims that's not the case and that all is going swimmingly well. But as paidContent:UK's Robert Andrews asks, "If free is so valuable at converting users to paid (one million customers amongst six million active users or 10 million total users), then why cut free allowance in half?"

It's a good question. Determining where 'free' should end and 'premium' should begin is usually difficult, but Spotify's paid-to-free ratio looks quite healthy, indicating that the company has done an excellent job of finding a good balance.

While it would be premature to predict a mass exodus of users who are still enjoying the 'free' music, the volume of negative buzz coming from Spotify users hints that these changes have hit a nerve.

At the same time, given Spotify's popularity, even if there is some user attrition as a result of its freemium dial-down, there's also a decent possibility that the company has done enough to establish its value and will see more conversions from users who love the experience but have up to this point been on the fence about opening their wallets.

From this perspective, the biggest question is how these changes will impact the company's upcoming and much-anticipated launch in the United States. There, consumers haven't had a taste of Spotify, and it will be interesting to see if a more restrictive freemium model attracts fewer consumers when the company does finally jump the pond.

If the major record labels had a hand in pushing Spotify to modify its model, speculation the company denies, it may prove to be a premature move that hurts its chances in the market that could determine just how prosperous the company becomes.

Patricio Robles

Published 15 April, 2011 by Patricio Robles

Patricio Robles is a tech reporter at Econsultancy. Follow him on Twitter.

2392 more posts from this author

Comments (2)

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Vincent Roman

I feel for Spotify. Congrats to them on convincing 1m people to pay for their service. Not even Last.fm could do that, and look where they are now. Spotify is everything I hoped Last.fm would become but alas did not under the cosh of the music industry.

I won't be taking up the premium offering, because most of the music i listen to I buy from http://www.aquariusrecords.org and run off my computer. Who needs to pay for Britney right? But I do wonder if this doesn't spell a serious down turn for spotify's fortunes, or the beginning of the end.

As you point out, it's going to make selling the product into the US market place harder, especially when emusic and others are already in that shared space.

over 5 years ago

Eoin Kenneally

Eoin Kenneally, Ecommerce Consultant at Consultant

The free model was never free as you listened to ads. Currently all I have use it for is some classic comedy and a few playlists from facebook.

I think the American Launch has made these changes necessary, however the level of competition has grown and they will now struggle.

It is a bit much about nothing and not the end of the world, just the end of spotify.

over 5 years ago

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