ARPU, or average revenue per user, is a crucial metric for attention merchants like Facebook. It assesses the ability of the platform to monetize its users. For instance, by the end of 2023, Meta’s ARPU worldwide was $13.12. In the US & Canada, it was $68.44; in Europe, it was $23.14; in Asia-Pacific, $5.52; and in the rest of the world, it was $4.50.
However, there are a few considerations to make here.
Spotify’s businessmodel, contrary to Facebook, is primarily skewed toward premium members who pay a subscription to the platform.
Those members are kept on the platform with engaging content, which is released continuously, and it’s optimized for a long engagement.
Whereas a company like Facebook needs to optimize its ARPU to make it as high as possible in the short term since this is subsidized by advertisers (companies pay to advertise on top of Facebook, which is what makes up its average revenue per user).
On Spotify, the company optimizes for the lifetime of the subscriber.
In short, it will take less today but for a more extended period.
Spotify’s ARPU, over time, might increase substantially if the company strengthens its ad-supported segment.
In fact, for that segment, Spotify can work on increasing the short-term value of ARPU thanks to the advertising network, similar to what Facebook does.
The multi-billion music streaming company Spotify is primarily owned by its founders, Daniel Ek and Martin Lorentzon. As of 2023, Daniel Ek has 15.3% ownership of ordinary shares and 30.5% of the voting power. Martin Lorentzon has 10.9% of ordinary shares and 42.7% of the voting power. Another key shareholder is Baillie Gifford & Co, a Scottish-based money management firm (12% ownership ), followed by Tencent (8.4% ownership).
Spotify is a two-sided marketplace, running a free ad-supported service and a paid membership. Founded in 2008 with the belief that music should be universally accessible, it generated €13.25 billion in 2023. Of these revenues, 87.3%, or €11.56 billion, came from premium memberships, while over 12.6%, or €1.68 billion, came from ad-supported members. By 2023, Spotify had over 600 million users, of which 236 million were premium members and 379 million weread-supported users.
Spotify Audience Network is the underlying advertising infrastructure that supports its ad-supported user base. The Spotify Audience Network was born as the result of the acquisitions of Anchor and Megaphone. By 2023, Spotify had 379 million ad-supported users.
Spotify licensing deals affect its businessmodel. The company runs on both a free service, which is ad-supported and a subscription premium service. They have different economics.
The ad-supported business had a 10% gross margin in 2021, compared to 29% of the subscription-based business. That’s because the more the content gets streamed on the platform, the more that increases royalty costs for Spotify. That is also why the company invested in developing its content. Thus, in part transitioning from platform to brand.The Spotify Model is an autonomous approach to scaling agile, focusing on culture communication, accountability, and quality. The Spotifymodel was first recognized in 2012 after Henrik Kniberg, and Anders Ivarsson released a white paper detailing how streaming company Spotify approached agility. Therefore, the Spotifymodel represents an evolution of agile.
Spotify generated €11.56 billion from premium members and €1.68 billion from ad-supported members. The premium membership revenuecost was €8.23 billion and €1.62B billion for the ad-supported segment. Thus, premium members generated a profit of €3.33B billion for Spotify in 2023. Meanwhile, the ad-supported segment generated a €62 million gross profit in 2023. The ad-supported segment, which is run almost at a loss, is critical for Spotify as it enables it to build a sustainable self-serving funnel to convert free users into paid subscribers!
Gennaro is the creator of FourWeekMBA, which reached about four million business people, comprising C-level executives, investors, analysts, product managers, and aspiring digital entrepreneurs in 2022 alone | He is also Director of Sales for a high-tech scaleup in the AI Industry | In 2012, Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy.
