Spotify's Hangover From Apple's Hard Cider -- 5 Daunting Dilemmas

It's the morning after yesterday's Apple WWDC bender.  Spotify, how's your head?  May be time to grasp for that Motrin -- because it's now officially "game on" with Apple Music (Cupertino's decidedly non-Beats music subscription streaming service announced yesterday and launching June 30th).

Spotify, yes you have a 15 million paid subscription lead over Tim Cook's gang.

But, here's what Apple has that you don't:

(1) Fundamentally more business freedom as a result of a business model that you can never match.  Apple Music is one big advertisement for Apple hardware (iPhones, Macs) -- a marketing expense, if you will.  Apple Music can be a success even if it doesn't generate a single stand-alone $1 of profit.  You, Spotify, can't say that.  Here's my earlier detailed analysis that lays this all out.    Here's my earlier analysis that lays this all out in the context of Apple's inevitable OTT video service vs. Netflix (just insert "Spotify" in place of "Netflix" in my digital media version of Mad Libs) (and here's a second "bonus" analysis that adds further color).  You have only one obvious antidote to cure that ill -- and that is to be acquired by another "big fish" with an Apple-like multi-pronged business model (Google, Amazon, Samsung anyone?).

(2) Native distribution via Apple's ownership of the OS, iOS 9 that is.  Apple Music comes natively to iPhones and Macs with new iOS 9.  That's a lot of immediate and pervasive distribution (i.e., virtual real estate) that Spotify can't match.  Let's face it, membership has its privileges.  (And one more important thing, Apple Music will not exclusively be for the Apple core anymore -- it will be available for Android too in a few ... kind of like when iTunes crossed the chasm 10 years ago into the world of PCs, a seismic strategic shift proudly enabled by my former company Musicmatch);

(3) Massive marketing dollars & "real" real estate outside your grasp.  How about this for a 1-2 punch?  Apple Music surrounding you both natively and online on iPhones and Macs, but also in offline real estate -- i.e., in Apple's stores around the world.  Expect to be bombarded with Apple Music pitches (elegantly, of course) with every breath you take, and every move you make in the store near you -- and also via the Apple marketing machine turned up to "11" everywhere you glance (on TV, buses, subways, billboards, cabs, pedi-cabs ....).  There will be no escape.

(4) Significantly deeper and "invested" artist relations.  Apple Music has Jimmy Iovine and Dr. Dre leading the way in its overall artist-first narrative (and many of the service's announced features leverage that positioning).  Spotify, on the other hand, can count a very vocal and very bitter Taylor Swift.  You see, family heritage also matters -- and Spotify's hails from a distant land (foreign to most major music artists, at least) and proudly proclaims its tech-first bent -- while Apple and Jobs always (from the very beginning) played to artist sensibilities and were Californians just like many of them;

(5) Direct immersive artist-fan engagement opportunities to enable deeper connections and ultimately deeper monetization.  In fact, Apple calls this new feature "Connect" -- with the immediate benefit being that all artist social feeds are brought together in one place.  But, more interesting is the tantalizing possibility of artists giving their fans what they really want -- and that is, special access to them!  Rabid fans will pay for rapid access.  Rhapsody's recent deal with BandPage hints to these exciting new possibilities (here is my separate post about that new deal).  Artists win.  Fans win.  Apple wins.

Spotify.  Make no mistake.  Apple's threat is real.  It is daunting.  And, just because Apple Radio and Beats Music have done no damage to you or Pandora, doesn't mean that Apple Music will meet that same fate.  Apple is invested in every possible way to see Apple Music succeed.  It paid $3 billion for Beats.  But, much more than that, iTunes has been the "soul" of Apple (and the foundation for its rocket launch to becoming the #1 valued company in the world) for the past decade.  Apple Music is its hope ... nay, its mission! ... to transition effectively away from the download-driven world of yesterday to the subscription streaming-driven world of today and tomorrow.  In other words, Apple must succeed.

So Spotify, what's your next move, especially when daunting dilemmas #1, #2 and #3 are simply out of your reach by definition?  You are betting big on video of course to expand your current one-dimensional business model (here's my recent post about that major new strategic move).  But, will that be enough, especially when Apple inevitably launches its own "Netflix Killer" OTT video service later this year?  (More on that Apple v. Netflix discussion here.)

Or, will you need a little help from your friends ... the other 800 pound tech gorillas who feel threatened like you do today?

Apple Watch! WWDC Preview & Predictions, That Is ...

Apple Watch!  No, not the Watch itself -- but rather "watch" as in your local station's "Storm Watch" (anytime a drop of rain is expected) -- as in my preview of (and predictions for) Apple's upcoming World-Wide Developers Conference (WWDC) next week.  All eyes in the business world will obsessively fixate on San Francisco once again, as Tim Cook kicks off on June 8th what everyone hopes to be "the next big thing" in our increasingly tech-hungry lives.

So, will it be the kind of "big thing" that will excite the Apple flock?  And, if so, what will "IT" be?  (I discuss that question with USA TODAY's Jefferson Graham later today on his video show -- and then, once again, Thursday night LIVE at 5 pm Pacific/8 pm Eastern on his "Talking Tech" radio show via TuneIn Radio).

Four big buckets of announcements are expected -- (1) Apple Watch, (2) iTunes Music, (3) Apple TV, and (4) iOS9.

(1) APPLE WATCH -- No big surprises here.  Tim Cook will update us all on the expected massive initial numbers for Apple's latest product expansion (and also impress us all with the increasing number of native apps that require no iPhone link).  (I just got mine shipped this past week and am wearing it now for the first time as I write this -- that is mine in the picture above -- NOTE to Cupertino: I tried to change the time to 6:08 to make it more relevant to Tim Cook's June 8th keynote, but the settings weren't very intuitive).

(2) ITUNES MUSIC -- Apple bought Beats last year for $3 billion for a reason -- and, this reason finally comes to light next week when Apple announces its new "Spotify Killer" $10/month subscription service.  No ad-free alternative here -- it's all-or-nothing with this new service (although a limited free trial period is expected).  So, what is Apple's "special sauce" to make a dent in the Spotify machine?  Actually, the Apple core has a good story to tell here.

First -- the Apple juggernaut is just that ... a juggernaut.  It is a marketing machine -- with both online  and offline (retail) channels.  Spotify can't compete with that.  If Apple wants to make a dent, it can by its sheer heft.  It can simply throw gazillions of dollars at the problem/opportunity.  There is nothing else like it.  That's the beauty of being the most valuable company in the world.  Short-term losses are no problem if they lead to long-term success.  And, Apple's tantalizing prospect is to convert a significant portion of its 110 million iTunes users (who spend an average of $30/year) to a subscription model (yielding $120/year instead).  Which leads me to my next point ...

... Second, unlike Spotify, Apple's iTunes subscription service can be a success even if it loses money because, ultimately, it functions as marketing for Apple hardware (iPhones, Apple Watches, etc.) (Here's my separate relevant discussion/analysis in the context of Apple v. Netflix of why this is the case).  Spotify doesn't have that luxury.  Spotify must make money from the service itself -- and, that hasn't happened yet (no matter how massive it is -- with 86% of the U.S. on demand streaming market, 15 million paying subs worldwide, and $1 billion annual revenues).

Third -- and more important than most people think -- unlike Spotify, Apple takes great strides to portray itself as being creator and artist-friendly -- and that matters.  Spotify proudly trumpets its emotion-free tech-first heritage -- and has lost some allies along the way because of it (Taylor Swift, anyone?).  But, emotional appeal matters -- because humans (especially artists!) are emotional.  Apple's fearless leader Steve Jobs set the tone in this regard by smartly placing artists first in his initial iTunes/iPod marketing (which was natural, since he was very much an artist himself).  And Apple's Tim Cook stayed true to this DNA when he bought Beats in significant part to bring Jimmy Iovine and Dr. Dre into the fold (and, consequently, all of those other artists who respect them).  By doing that, Cook bought numerous allies that can help him shape a differentiated user/listener experience.  Listen closely next week.  That artist savvy will permeate discussion and functionality of the new service (with significant impacts to Pandora as well).

(3) APPLE TV -- everyone expects Apple TV to get a major face-lift next week (clues in this regard were obvious in the WWDC invitation itself), but how "major" will that face-lift be?  Will "IT" simply be "a better little square box" -- or will it be the long-anticipated full-fledged all-in-one beautiful flat-screen iTV?  As much as I would like to say the latter, I don't expect it ... yet (although that day will come).  But, the Apple TV "hobby" we know and love (at least some) will have more power ... including new features like Siri integration and initial hints to home automation ... and, most significantly, may even come with its own new OTT streaming service (aka "Netflix Killer").  Apple has long faced major hurdles with studios and broadcasters to license a critical mass of content -- and those challenges continue -- so it's not certain that Cook will yet announce the on-demand streaming video service.  But, I think he will.  Cupertino lawyers are feverishly trying to ink those final deals right now -- and they can be persuasive (after all, Apple's war chest doesn't hurt).

But, once Apple does launch its inevitable OTT video service, can it make a dent in the Netflix machine?

I absolutely think it can -- and for many of the same reasons that apply in the music/Spotify discussion above.  In fact, I previously wrote about Apple v. Netflix at length -- analyzing the threat Apple poses to the market leader.  Definitely worthy of a read (as self-promotional as that sounds).  And, don't forget, Apple's inevitable OTT video service will feature both VOD and live linear TV (including ESPN).  Netflix certainly doesn't have that.

(4) iOS 9 -- Virtually everyone expects new iOS 9 to be announced next week -- which makes sense since it is a developers conference after all.  Yes, this ain't the sexy stuff, but it is still "stuff" that matters to us all -- because the OS defines our individual user experiences.

Any major "gasp"-worthy new functionality in iOS 9?  Not really (although there is some chatter about some early Augmented Reality (AR) functionality) -- which follows Apple's recent purchase of AR company Metaio.  Performance will be optimized -- and some "nice to haves" that many others have already discussed.  But, it's always nice to get new features.