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Spotify Just Made the Wrong Announcement

With its new apps platform, the music start-up is trying to follow in Facebook's footsteps. But it would be much better off taking a cue from Zynga.
Spotify founders Daniel Ek and Martin Lorentzon
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Music service Spotify has made the big announcement it’s been teasing: the company has created an apps platform for its service and opened the door to outside developers. In other words, Spotify wants to become Facebook. Or maybe Google. Or Apple.

In other words, Spotify has officially said that it wants to own an ecosystem of its very own. Unfortunately, management has chosen to do the exact opposite of what it needed to do in the hyper competitive online music space. Instead of becoming the framework, it should have become the everyone-needs-it component.

A new reality

High tech has historically had two opposing trends. In one, you controlled an important part of an ecosystem, like the symbiotic relationship between Microsoft Windows and Intel-based PCs in personal computing. Windows (and MS-DOS before it) created a way for many independent software vendors to write applications that millions would use. And many companies built PC-compatible hardware.

The other tendency was to create a self-contained product, like consumer electronics. But even then, the devices were generally only successful because they provided access to music or video or some other material.

Guess which won? Both. In today’s high tech reality, extensible ecosystems of hardware and software are also the way to get to video, audio, apps, and written entertainment and information. To succeed, a company can control the ecosystem, become an indispensable component, or own the content.

Spotify had the right idea…

Spotify has seemed like a standalone service, but it actually wasn’t. It required someone else’s ecosystem (hardware and operating system) and someone else’s content (third-party music). The smart move came in the integration arrangement with Facebook.

Granted, suddenly finding that everyone you were connected to on Facebook could know what you were listening to was creepy. But the concept was smart. Just as Zynga has profitably learned, a service can become a component in a larger structure and do even better than it could alone.

Getting that type of integration was critical and probably one big factor in the recent rapid growth in the company’s paid subscriptions in the U.S. Becoming a component in at least one infrastructure gave Spotify another tool in competing with the legion of music services now out there.

…and then lost it

That’s what makes Wednesday’s announcement seem like the company is moving in reverse. Clearly, the ability for third parties to extend Spotify is smart. For example, install the beta applications and you find a radio feature, which has been a glaring omission in the past for the service. Some people don’t want to build play lists; they want to choose a genre and see what comes along.

But far more important a competitive strategy would have been to fully make Spotify a component—not only for Facebook, but for any entity that wanted to call upon the cloud-based service as a part of its own offering. That would have shot the company ahead of all its competition, with the ability to pull music into games, exchange compiled playlists transparently over social networks, or add a themed adjunct to localized services, to name just a few possibilities.

That’s seems unlikely to happen with this development. Spotify wants to be front and center in the lives of its users. But too many established ecosystems—ones that already provide paths to music—already get that sort of attention from hundreds of millions. People can deal with only so many hubs of their lives.

That attention is what the ecosystem wars are really about, and Spotify has essentially just said that it wants to compete with Apple, Google, Microsoft, and Facebook. Such a big mistake. Even worse, by focusing only on developers creating apps for its system, Spotify has left the door open for a Pandora, Rdio, Rhapsody, or any other start-up that comes along to become the indispensable music component to which developers for all the ecosystems automatically turn.

IMAGE: Spotify
Last updated: Dec 1, 2011

ERIK SHERMAN | Columnist

Erik Sherman's work has appeared in such publications as The Wall Street Journal, The New York Times Magazine, and Fortune. He also blogs for CBS MoneyWatch.

The opinions expressed here by Inc.com columnists are their own, not those of Inc.com.



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