location based blog: If Spotify Won't Go Public, Here's Who Should Buy It

Wednesday, January 5, 2011

If Spotify Won't Go Public, Here's Who Should Buy It

Spotify founders Martin Lorentzon and Daniel Ek

We're big fans of European free music streaming service Spotify, and think they should go public. But they might not. And if they don't, they'll look for an acquirer.

Spotify has two big problems right now: record labels and money. Which boil down to one problem: money.

Spotify's business model, based on premium subscriptions, is actually doing very well. But for it to become as profitable as it can be, it's going to take time (i.e. money).

And record labels don't want to give Spotify the rights to launch in the US because they're still, after all these years, scared and clueless about the internet. But this is also a money problem, because labels could give them the rights if Spotify agrees to a big, fat, upfront payment.

They could raise the money for that payment through an IPO, but they could also get acquired by a big company who will put up that cash. Plenty of acquirers have been mooted for Spotify, from Google to Apple.

But here's who makes the most sense: Amazon. Why?

Amazon's MP3 store is dead in the water. Amazon needs to be a huge store of digital media, as physical media goes the way of the dodo bird. In eBooks, it's dominant, in video it's holding its own, but in music it's getting crushed by iTunes.
A streaming service is Amazon's only chance to beat iTunes. Right now, Amazon tries to beat iTunes by offering big discounts, but even that's not moving the needle. To change the game, Amazon needs something big and innovative, and that's exactly what Spotify is.
Spotify is all about the cloud, and no one does cloud better than Amazon. This one is pretty self-explanatory. Spotify is a cloud music service, and Amazon is a huge leader in cloud computing. From that perspective, it makes total sense.
Meanwhile, the cloud is Apple's blind spot. Apple just has a problem with the cloud. Its cloud email and calendar service MobileMe is underwhelming, as are its other cloud initiatives. It's crazy that you need to plug an iPad to a computer to activate it. With Spotify, Amazon can use its strong suit against Apple's weak spot.
There's not many other buyers, so they might be cheap. Spotify is probably too big for Apple, which favors small acquisitions. Google is always a possibility, but they've only dabbled in online music, it's unlikely they would make a big play for Spotify.
Amazon's stock is way up. That's great acquisition currency.
Amazon has a knack for not ruining acquisitions. Spotify is a beautifully designed product. Google would probably ruin it. Apple would probably fold it into iTunes, which some people love, but which many people hate. Amazon would probably leave it be, which is the best thing for the service.