7 Reasons Why Google Might Consider Buying Spotify

July 24, 2014 - Written By Joshua Koh

Spotify is probably one of the most successful subscription-based music service and it shouldn’t come as a surprise that Google has at one point of time wanted to acquire Spotify to better leverage against other digital music providers such as iTunes etc. An article at the Guardian has listed down several reasons as to why Google should still seriously consider adding Spotify to the fold and we will be taking a look at these ideas.

The first reason would be the Spotify is considered as the biggest subscription based music provider. This does not refer to the size of Spotify’s overall userbase but the number of paying users. Deezer, Spotify’s biggest rival has 5 million paying users whereas Spotify has double that amount at 10 million subscribers. This makes excellent business sense as Google has its own subscription-based service and would simply serve to add on more value in terms of market awareness/branding and further extending its userbase. The only caveat here is that Spotify has a price tag of $10bn which isn’t exactly the price that Google is willing to fork over.

The second reason lies in Google’s recent acquisition of Songza in which could signify Google’s attempt to better integrate subscription-based music. Spotify could play a role here as it provides on demand listening versus that of Songza’s radio approach which is based on playlists. Having said this, there is the possibility, that Google has already obtained the necessary pieces required to create an all in one subscription service by obtaining Songza and simply needs to work on integrating Youtube, Playmusic and Songza together. Cost-wise, it should take less than $10bn to do this.

The third reason lies in PR. When it comes to the music industry relations, Google is seen as ‘evil’. This comes from independent labels being strong-armed into accepting Google’s subscription service and in how as a search engine, Google has been instrumental in the act of piracy. This results in a sense of mistrust and that Google’s focus is on profit generation. Spotify has had a better reputation as it has worked with labels and publishers allowing them a great say as to how subscription should be carried out. Acquiring Spotify might help to reset Google’s reputation, there is also the possibility that the opposite might happen as the move might been seen as a grab for profit.

The fourth reason lies in Spotify’s expertise in subscription based entertainment. Having had thrived on subscription for six years now, Spotify could be well placed in teaching Google has to profit from subscriptions/converting free users to paying customers. Google’s strength lies in advertising, this can be seen in Google having half the revenue that Apple has though it has twice the number of users. Youtube subscription service lack of success is another indicator of how Google hasn’t quite caught on to the secret of subscription entertainment. Again, it isn’t necessary to obtain Spotify to work out what needs to be done, as hiring a bunch of people who has the expertise in subscription entertainment is less pricey.

The fifth reason lies with Apple. The acquisition of Beats Music coupled with iTunes basically makes Apple a pretty tough competitor. iTunes alone is the de facto music downloading site for most and Apple’s move in this sense would be a serious competitor to Google. The counter to this, is to leverage on Spotify’s clout to even out the playing field. It also serves to highlight the importance of the digital streaming service and how Google is/should really get its act together.

The sixth reason is Facebook. It is pretty evident that Facebook is more than willing to throw a huge lump of cash so as to obtain what it considers vital to a ‘single purpose first class experience’. Seeing that the likes of WhatsApp and Oculus Rift are acquisitions in the billions, it would make perfectly good sense for Google to propose a counter offer. The fact that Google’s chief business officer, Omid Kordestan, so happens to be a director of Spotify might just be an indicator of this. Admittedly, Facebook might just decide to lay off the multi-billion acquisitions for the time being.

The final reason lies in Spotify’s profitability. As successful as Spotify is at streaming, there is always a cost to providing the infrastructure for hosting and streaming, royalties and expansion. This is probably the main reason why Spotify is considering going public so as to enable the business to be profitable. It is also quite possible that Spotify might consider selling out to Google as a quicker and more efficient manner of obtaining funding.

Taking all seven reasons together, it paints the picture of the race to provide an all in one digital streaming subscription service. The ultimate winner is the company which is able to provide entertainment on demand on a subscription which must be efficient and convenient to use. Google having a billion Android users and the delivery mechanism such as Play music and Youtube might just be able to do so. The only issue lies in its strategy to integrate them together into a cohesive/attractive package and Spotify might just be the solution.