Daniel Ek founded his first company at the age of 14, and hasn’t slowed down since. After launching several businesses, retiring, and coming back out of retirement before the age of 25, he decided to get serious. Together with Martin Lorentzon he hammered out a plan to create a product that would provide free seamless access to all the world’s music while rebuilding the ailing record industry.

Monetising listeners

A decade later, the industry is finally showing its first real signs of growth since the turn of the century, in large part because of Ek and his company’s work. Today, Spotify is worth over £8 billion, and Ek has been named the most powerful person in the music industry by Billboard’s “Power 100”.

The music industry’s dilemma

In 1999 and 2000, peer-to-peer file sharing platforms, most notably Napster, permanently transformed the music industry. While online file sharing predates these platforms, Napster, Kazaa, and other similar platforms brought music piracy to the masses. For the first time, the record industry lost control of their product, and sales plummeted. But why did people suddenly engage in mass theft? The ability to copy and distribute music far predates the internet, but people didn’t feel compelled to do so in previous decades. Why then?

Users didn’t feel they were doing anything wrong

At the time, attitudes regarding the legality of downloading copyrighted materials weren’t entirely clear. People had been creating mixtapes and burning CDs for each other for decades without raising any eyebrows, because it didn’t significantly slow record sales. To regular internet users, these new tools seemed no different than borrowing a burned CD from a friend. If anything, people were even less comfortable with the idea of spending money on an intangible download than with paying for a physical object like a CD.

It was far more convenient

Getting access to your favourite songs in the past meant physically going to a store and buying what was available. Not only did this require time and money, it also meant purchasing entire albums, which often contained songs that customers didn’t particularly like or want. File sharing, on the other hand, allowed people to get access to exactly the music that they wanted at no cost and virtually no effort.

What made Ek’s approach different?

iTunes tried to solve the problem by offering a way for users to simply buy and download the songs they liked directly. While this partially addressed some issues and did recover some revenue for the music industry, it still turned out to be more complicated than simply downloading music for free. Further, it didn’t do anything to address the fact that many users simply weren’t willing to pay for music anymore.

Ek had a far more complete and elegant solution. Rather than trying to fight consumer preferences, he would harness them to create a new way to pay for music. While traditionally minded users could simply pay for their music using a subscription option, they wouldn’t necessarily be required to spend any money if they didn’t want to.

Free and safe on-demand access

Spotify has an exhaustive music library that can be accessed and streamed from for free, on-demand, at any time. Unlike some competitors, it allows users to choose exactly what they want to listen to, to create and share playlists, and to generally treat it like their own personal bottomless music library. Unlike the first generation of file sharing options, it was also far less likely to serve as a vector for malware.

Monetising listeners

Ek realised that it wasn’t necessary to force listeners to purchase the songs that they wanted to listen to. There was no reason that a website couldn’t operate on the same basic business model as a radio channel. Instead of selling music to listeners, he could attract an audience, and then sell their attention to advertisers. Allowing an ad to run requires no effort on the part of the listener, while effectively paying for the song on their behalf. This allowed users to continue to access music as conveniently as before, while also generating the revenue that the music industry needs to survive.

Social integration

While Spotify’s original model engendered its initial success, its growing dominance is the result of another one of Ek’s strokes of genius: Social media integration. Spotify was designed from the ground up to make music sharing on Facebook, Twitter, and other networks easy. Today, Spotify is integrated into thousands of popular apps and websites, making it the obvious default source for music on the web.

While other businesses fought to preserve an obsolete business model, Daniel Ek embraced change and used it to disrupt and dominate the entire music industry. His innovative approach transformed how we listen to, share, and pay for music all over the world.