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When they were young

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When Spotify was young: the early years

Spotify launched two and a half years after it was founded in 2006, and had 1M users in five months

Innovation series by Steven Loeb
November 6, 2017
Short URL: http://vator.tv/n/4a64

As our readers know, Vator has started a series called when they were young.

It's a look back at the modest days of startups, what traction they had in their first few years, and how they evolved. In the end, we hope to provide a glimpse into what great startups looked like in their first three years.

Stories like these are always well received because it reminds us that anyone, regardless of pedigree and environment, can rise above the noise and have great influence. They show us the value of being resilient, persistent, and committed. If we can follow their footsteps, maybe we too can have similar success.

This segment is on Spotify.

 

— Spotify's First Year —

Founded: The Spotify domain is registered on April 23, 2006.

Founders (ages at the time): Daniel Ek (23), Martin Lorentzon (37)

Initial company description: "We, Martin Lorentzon and I, met 2005 when Martin moved back from Germany where he had been based with his old business. We discussed a lot of ideas back and forth and spent a lot of time hanging out in my apartment in a suburb to Stockholm. We pretty much spent all of the autumn just discussion a ton of ideas. I remember however that we sat around my media htpc machine quite a lot and thought that it was a cumbersome to get content, despite the technology having been around (Napster) since at least 2000. I think that's why we got stuck on the idea of Spotify," Ek writes on Quora in 2010.

The name "Spotify" comes about totally by accident, though the company would come up with an explanation later on. 

"Martin and I were sitting in different rooms shouting ideas back and forth of company names. We were even using jargon generators and stuff. Out of the blue Martin shouted a name that I misheard as Spotify," Ek later writes.

"I immediately googled the name and realized there were no Google hits for the word at all. A few minutes later we registered the domain names and off we went."

The company later claims that the name comes from the combination of "spot" and "identify."

Product, at one month: In a 2012 pitch deck, early employee Jon Aslund shares the original sketch of what would eventually become Spotify's interface. 

  

— Spotify's Second Year —

Product, at one year: In April 2007, after spending eight months working on Spotify, the company releases a beta test version of the product.

(Photo image: TechCrunch)

Revenue, at eight months from founding: At the end of 2007, Spotify sees a loss of 16 million kronor.

Business model, at 10 months from founding: In February 2008, Spotify begins testing ads for some of its beta users.

"We have started testing ads in Spotify for a group of interested beta testers. If you want to be a part of the test, please let us know and we’ll get you some ads. In this phase we’re testing different formats and models, so any ideas, input or feedback is highly appreciated. How would you like to see ads in Spotify and what do you consider a good ad?" the company writes in a blog post.

— Spotify's Third Year —

Business model, at one year and three months from founding: In July 2008, Spotify expands the ad tests to all beta users.

Launch, two years and six months from founding: On October, 7, 2008, Spotify officially launches out of beta in Scandinavia, the United Kingdom, France and Spain. While a Premium subscription is open to everyone, the free version is initially available only by invitation.

Product, two years and six months from founding: At the time of its launch, Spotify also announces licensing deals with Universal Music Group, Sony BMG, EMI Music, Warner Music Group, Merlin, The Orchard and Bonnier Amigo.

Ek says later that he originally thought it would only a few months to make deals with the music labels.

"I got on a plane to New York, sat down with all the major labels and some of the bigger indies, and everyone was super supportive. 'Yeah, this seems really interesting, really great, if you can come back in a few weeks we'll try to figure something out.' So I remember walking out, calling my co-founder Martin and saying, 'Well, you know, this seems totally reasonable, we'll do it in about six months.' And about two and a half years later we launched," Ek says in a 2015 interview.

Product, two years and six months from founding: On October 17, 2008, Spotify offers its first exclusive, allowing Premium users to listen to John Legend’s new album Evolver, including two additional bonus tracks, a week before it is released to the public.

First funding, at two years and six months from founding: In October 2008, Spotify raises a Series A round of $21.7 million from Northzone, Li Ka-shing, Horizons Ventures, Creandum and Click Ventures.

Revenue, at two years and eight months from founding, two months from launch: At the end of 2008, Spotify sees a loss of 31.8 million kronor ($4.4 million).

Business model, at two years and 10 months from founding, four months from launch: In February 2009, Spotify begins allowing users in the United Kingdom to join its free service without an invitation.

Product, at two years and 10 months from founding, four months from launch: Spotify makes a deal with CD Baby, which represents over 175,000 independent artists, including Colin Hay, Gary Jules, Stan Ridgway and Joe Purdy, to add their music to the platform.

Traction, at two years and 11 months from founding, five months from launch: In March 2009, Spotify registers its one millionth user

"Our user growth has been amazing since we launched back in October, in particular the past few weeks have been phenomenal and growth continues to pick up speed. We can only thank our users who have been great at spreading the word for us and we look forward to our next big milestone," the company writes. 

Product, at two years and 11 months from founding, five months from launch: In March 2009, Spotify partners with 7digital to begin offering users in the UK, France and Spain the ability to the option to download tracks and albums off Spotify. The company eventually discontinues the feature in January of 2013.

 

— Spotify's Fourth Year —

Second funding, at three years and four months from founding, 10 months from launch: In August 2009, Spotify raises a Series B round of $50 million led by Horizons Ventures, along with Li Ka-shing and Wellington Partners.

Business model, at three years and four months from founding, 10 months from launch: On August 24, 2009, Mark Zuckerberg uses his Facebook account to promote Spotify, updating his status to say, "Spotify is so good." The post results in major media coverage for Spotify.

Platform, at three years and four months from founding, 10 months from launch: In August 2009, Apple approves the Spotify iPhone app, despite the fact that it competes directly with Apple's own iTunes. 

"We're not surprised but we're thrilled," Ek says in an interview with the BBC. "We had a great dialogue with Apple from day one."

Traction, at three years and five months from founding, 11 months from launch: In September 2009, Spotify has more than two million users in the UK, and more than six million across Europe.

Platform, at three years and five months from founding, 11 months from launch: In September 2009, Spotify launches on Android in the majority of its available countries including the UK, Sweden, Spain, France and Norway. 

Product, at three years and six months from founding, one year from launch: In October 2009, Spotify extends offline mode to mobile, allowing Premium subscribers to select their playlists and set them to be ‘Available offline’. The playlists are then synced to the users computer. Each computer is able to store up to 3,333 tracks at a time.

Product, at three years and six months from founding, one year from launch: In October 2009, Spotify has around 6 million songs on its platform. 

Third funding, at three years and 10 months from founding, one year and four months from launch: In February 2010, Spotify raises a Series C round of €11.6 million, led by Founders Fund, with Sean Parker, the creator of Napster, also participating.

“I’ve been playing around with Spotify. You’ve built an amazing experience. As you saw, Zuck really likes it too. I’ve been trying to get him to understand your model for awhile now but I think he just needed to see it for himself," Parker writes in an outreach email to Ek.

"You guys nailed the core experience: it's at least as good as Napster for search and listening, and everything else can be built from there. Even though it's not a download service, it has all the advantages of Napster for two reasons:(1) streaming -- widespread consumer broadband has made high-quality streaming possible, and(2) playlists -- quick and easy storing of songs in playlists which allows Spotify to act as a great front-end to your virtual music collection."
 

 

— Spotify's Fifth Year —

Product, at four years from founding, one year and six months from launch: In April 2010, the company makes what it calls "most significant upgrade since Spotify’s launch in late 2008," when it launches "Spotify Music Profile."

New features include being able to connect Spotify to Facebook, the ability to publish music profiles on the Web, along with other social features.

“Today Spotify has moved a step closer to making music more connected, and realizing our dream of becoming THE music platform. We want to empower users to share and discover music in a way that hasn’t been possible up until now. It’s never been easier to enjoy music together," Ek says in a statement. 

Accolades, at four years and five months from founding, one year and 11 months from launch: In September 2010, the World Economic Forum announces that Spotify as a Technology Pioneer for 2011. Thirty-one companies from 13 countries and five continents are represented in the award, including Atlassian, foursquare and OpenDNS.

"To be selected as a Technology Pioneer, a company must be involved in the development of a major technology and/or innovation and have the potential for long-term impact on business and society. In addition, it must demonstrate visionary leadership and show all the signs of being a long-standing and sustainable market leader – and its technology must be proven," WEF writes.

Fourth funding, at four years and 10 months from founding, two years and four months from launch: In February 2011 Spotify raises its Series D round of $100 million led by Accel Partners, along with Kleiner Perks, DST Global and Access Technology Ventures.

With this round, Spotify is valued at $1 billion.

Traction, at four years and 11 months from founding, two years and five months from launch: In March 2011, Spotify announces that is has one million paying subscribers, with 6.67 million users in total. 

1 Million Subscribers

"It’s a testament to our fantastic users who continue to support us and spread the Spotify word, either by telling friends or sharing some of the 200 million playlists that you’ve put together so far," Ek writes.

— Spotify Today —

Spotify expanded to the United States in July 2011, and is now available in 61 markets around the world. 

It currently has over 140 million users, 60 million of which are paying subscribers, who can listen to over 30 million songs and 2 billion playlists. 


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