Online music needs a personal touch

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Music streaming sites have announced significant changes recently, with Spotify integrating its software with Facebook and UK rival We7 removing its on-demand service in favour of personalised radio stations. These differing “discovery” systems could be the key to maximising revenues and marketing opportunities.

We7’s strategy shift aligns it alongside Last.fm. Users type the name of an artist, song or genre into a search box and the sites provide streams of similar tracks, interspersed with ads. A separate subscription service offers the same basic functions without commercial interruptions.

Users of Spotify’s free service now get six months of streaming without restrictions, and after that are limited to ten hours a month and five plays of each song. Its paid-for services offer unlimited streaming and, thanks to its new tie-up with Facebook, users are now strongly encouraged to share what they listen to with friends via the social network.

Clearly Spotify has the advantage in gaining subscription revenues, but the paywall barrier and limited free plays mean it will always lack the reach, and indeed the data gathering opportunities of the less restricted web-based services. Spotify has around 2 million paying subscribers, in contrast to the 3 million monthly unique visitors We7 claims to have and the 30 million publicly claimed by Last.fm in 2009.

The ways that users go about discovering music on Spotify could also be as much a hindrance as a help in terms of data collection. Users can simply search for tracks, albums and artists and listen to whatever they wish. But they also have the option to click on what their Facebook friends are listening to, or to set up a radio stream by selecting different types of music they would like to hear.

The last of these options would probably be most useful for Spotify in getting to know its customers since they input their preferences of their own accord and then get exposed to new songs. But it is probably the discovery method least likely to be used since it gives users the fewest options.

The search box lets users listen to anything, but they need to know what they want before searching for it, so it is unlikely to lead to the discovery of much new music. Facebook sharing allows on-demand listening to a wider range of recommended tracks, yet the data is not going to be available for other marketing uses by Spotify.

Ironically, despite being the more restrictive experience for consumers, the personalised radio approach used by We7 and Last.fm might be the more likely to get consumers to tell the sites useful information about themselves. As they discover new music by chance and search for new artists and songs, the sites build up a user profile. This would be invaluable for offering targeted ads and other future marketing initiatives.

It remains to be seen whether this will matter to Spotify if its paid subscriptions are profitable. Both Spotify and We7 are believed to be operating at a small profit. Last.fm cut its losses from £17m to £2.8m in its last reported results, for 2009.

The fact that We7 chief executive Stephen Purdham says “we now know that the majority of people want their music picked for them” is telling – not because it is necessarily true but because he believes it is more commercially viable.

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