Spotify’s launch in the U.S.

The latest innovator in a long list of products proposing a business model that would “revolutionize” the music industry is the Swedish Spotify, the peer-to-peer music streaming service that allows instant listening to specific tracks. Unlike other “radio” services such as last.fm, Bebo and Pandora; Spotify’s users can select the music they want to listen to instead of accepting “suggestions” from third parties.

Spotify is extremely popular in Europe and its protracted launch in the U.S. has been awaited with eager anticipation; however, questions remain about the viability of its business model, a mix between ad-supported and subscription. As CEO Daniel Ek said on the one-year anniversary of Spotify, “overnight success takes a long time”, and in an industry where hype is a byword and digital music start-ups are buried before they even hatch, slow conscientious growth seems as difficult as hitting a high C.

Eager U.S. music aficionados have been kept waiting longer than originally expected as Spotify seems to be caught between its loyalty to its mixed business model and the huge licensing costs they face in the United States. Earlier in September, Spotify closed its doors to new non-payers in the UK citing “huge demand”. Revenues from the advertising Spotify inserts into free streams are understood to be very low so a substantial level of subscription-based users must be secured before Spotify can press play in a market as vast as the American.

Perhaps one of the strategic decisions taken by Spotify to hit the right note in America was to enter the booming mobile phone market. Midway through 2009, the company designed versions of its software for the iPhone and the Android that allow on demand streaming and caching on the move, but perhaps more importantly for its revenue model, they are only available to paying subscribers. Analysts were initially sceptic about Apple approving an app for the iPhone that was seen as a threat to iTunes. Nevertheless (or perhaps because Apple came under FCC investigation for its apps approval process), Spotify’s iPhone application was approved ahead of competitors Rhapsody, a subscription based music streaming provider, and Grooveshark, a similar service to Spotify but without the key feature of caching. If the apps prove to be popular in Europe, they might signal the green light for the company to finally enter the prized U.S. market.