{"id":6974,"date":"2018-03-05T18:05:02","date_gmt":"2018-03-05T23:05:02","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-digit\/submission\/amazon-music\/"},"modified":"2018-03-05T18:07:58","modified_gmt":"2018-03-05T23:07:58","slug":"amazon-the-new-king-of-music","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-digit\/submission\/amazon-the-new-king-of-music\/","title":{"rendered":"Amazon: The New King of Music?"},"content":{"rendered":"<h3><strong>Amazon Music captures value by strengthening the Prime ecosystem<\/strong><\/h3>\n<p>Amazon Music now captured the hearts of 16M subscribers, commanding a 12% global market share of music streaming [1]. Amazon offers three tiers of music streaming services: &#8220;Prime Music&#8221; free for access to a library of 2M ad-free songs or &#8220;Music Unlimited&#8221; at either a $3.99\/mo. subscription to play on the Echo only or $7.99\/mo. for Prime members opening the subscription to all devices ($9.99\/mo. for non-Prime members) [2].<\/p>\n<p><a href=\"https:\/\/d3.harvard.edu\/platform-digit\/wp-content\/uploads\/sites\/2\/2018\/03\/subscriber-market-share2.png\"><img loading=\"lazy\" decoding=\"async\" class=\" wp-image-6982 aligncenter\" src=\"https:\/\/d3.harvard.edu\/platform-digit\/wp-content\/uploads\/sites\/2\/2018\/03\/subscriber-market-share2-300x225.png\" alt=\"\" width=\"363\" height=\"272\" srcset=\"https:\/\/d3.harvard.edu\/platform-digit\/wp-content\/uploads\/sites\/2\/2018\/03\/subscriber-market-share2-300x225.png 300w, https:\/\/d3.harvard.edu\/platform-digit\/wp-content\/uploads\/sites\/2\/2018\/03\/subscriber-market-share2-768x576.png 768w, https:\/\/d3.harvard.edu\/platform-digit\/wp-content\/uploads\/sites\/2\/2018\/03\/subscriber-market-share2-1024x768.png 1024w, https:\/\/d3.harvard.edu\/platform-digit\/wp-content\/uploads\/sites\/2\/2018\/03\/subscriber-market-share2-600x450.png 600w, https:\/\/d3.harvard.edu\/platform-digit\/wp-content\/uploads\/sites\/2\/2018\/03\/subscriber-market-share2.png 1168w\" sizes=\"auto, (max-width: 363px) 100vw, 363px\" \/><\/a><\/p>\n<p style=\"text-align: center\">Source: MiDIA analysis [3]<\/p>\n<p>The way Amazon Music creates value to users and artists is no different from other streaming services: artists receive license fees from whenever users listen to their songs and users benefit from on-demand access (across personal devices) to millions of songs, personalized playlists, and song-discovery.<\/p>\n<p>What does meaningfully differ, however, is Amazon&#8217;s enhanced ability to capture value through it&#8217;s broader Prime ecosystem:<\/p>\n<ul>\n<li><strong>Prime-member 2x sales uplift:<\/strong>\u00a0If Amazon can use Amazon Music as a spearhead to gain new customers or a benefit to build loyalty and retain customers in Prime membership, it would help boost Amazon.com retail sales: Prime members tend to spend double the mount of non-Prime customers [4].<\/li>\n<li><strong>Echo adoption and voice shopping:<\/strong>\u00a0Of Amazon, Apple, and Spotify, Amazon was until just a month ago with Apple&#8217;s HomePod launch the only speaker-integrated streaming service. To the extent that Amazon Music drive Echo adoption, this will further enhance the strength of the Prime ecosystem: ~32% of Echo owners use Alexa to buy through Amazon Prime [5] and spend ~$1,700 on Amazon vs. ~$1,300 for ordinary Prime members [6] &#8211; around 30% more in sales.<\/li>\n<li><strong>Better recommendations\/ads<\/strong>: Music tastes reveal a lot about our personalities, preferences, and daily patterns which Amazon can use to improve their recommendations to target offerings and ads.<\/li>\n<\/ul>\n<h3><strong>Despite Amazon Music being a new entrant, Spotify and Apple should worry<\/strong><\/h3>\n<p>Even though Amazon Music Unlimited (Prime Music launched in mid 2014, but had a limited library) was late to the game launching only in late 2016 [7], the competitive dynamics of music streaming platform markets enabled the service to take share.<\/p>\n<p>While users wouldn&#8217;t want to subscribe to an endless number of streaming services due to subscription costs, multi-homing is high for artists and users face <em>low switching costs<\/em>\u00a0to jump between services. Network effects matter to the extent that users want to have a large library, but this library can easily be negotiated with artists who would consider Amazon&#8217;s reach worthy of the time and energy to sign a royalty deal. Together, this means that there is room for more than one player in the industry.<\/p>\n<p><span style=\"text-decoration: underline\">This is why Amazon can play along:<\/span><\/p>\n<ul>\n<li><strong>Unlock Prime members:<\/strong>\u00a0 Amazon already has more than 40 million Prime members in its ecosystem [1]. All Amazon has to do is to persuade these users to make the switch (e.g., through incentives such as Prime rebates).<\/li>\n<li><strong>Echo and third-party Alexa speakers: <\/strong>31 million Echo family speakers have found their way to our homes (Amazon currently demands\u00a0 ~70% smart speaker market share [2]), and is investing heavily to expand reach by embedding Alexa into third-party speakers, like the recent Sonos One. When users ask Alexa to play music, Amazon Music will be the default &#8211; no installation required. Spotify has no hardware ownership and Apple&#8217;s $349 price tag of the HomePod is likely to exclude many homes from getting one (vs. Echo&#8217;s $99).<\/li>\n<li><strong>Easy sign-up:\u00a0<\/strong>Amazon already has your credit card on file. All you have to do is press play.<\/li>\n<\/ul>\n<p><span style=\"text-decoration: underline\">So &#8230; what can Apple and Spotify do to fend off this threat?\u00a0<\/span><\/p>\n<ul>\n<li><strong>Exclusivity:<\/strong> Apple has in the past negotiated exclusive content with artists like Prince and Taylor Swift. Spotify records &#8220;Spotify Sessions&#8221; with famous bands.<\/li>\n<li><strong>Strengthen network effects<\/strong>: Spotify not only provides a streaming service, but also an online community where users can create and share playlists with each other. If the community becomes strong, switching costs go up.<\/li>\n<\/ul>\n<p><strong>Sources:<\/strong><\/p>\n<p>[1]\u00a0https:\/\/musicindustryblog.wordpress.com\/2017\/07\/14\/amazon-is-now-the-3rd-biggest-music-subscription-service\/<\/p>\n<p>[2]\u00a0https:\/\/www.amazon.com\/gp\/dmusic\/promotions\/PrimeMusic<\/p>\n<p>[3] https:\/\/musicindustryblog.wordpress.com\/2017\/07\/14\/amazon-is-now-the-3rd-biggest-music-subscription-service\/<\/p>\n<p>[4]\u00a0https:\/\/www.cnet.com\/news\/amazon-raises-us-monthly-prime-subscription-18-percent\/<\/p>\n<p>[5]\u00a0http:\/\/www.businessinsider.com\/what-people-do-with-amazon-echo-chart-2017-2<\/p>\n<p>[6] https:\/\/www.digitalcommerce360.com\/2018\/01\/03\/us-shoppers-echo-device-spend-significantly-more-amazon\/<\/p>\n<p>[7]\u00a0https:\/\/www.theverge.com\/2016\/10\/12\/13244158\/amazon-music-unlimited-launch-echo-availability-price<\/p>\n<p>[8] https:\/\/www.voicebot.ai\/2018\/01\/26\/cirp-says-18-million-smart-speakers-sold-q4-2018-bringing-installed-base-45-million\/<\/p>\n<p>[9]\u00a0https:\/\/insights.spotify.com<\/p>\n<p>Photo credit:\u00a0https:\/\/www.pcmag.com\/review\/348717\/amazon-music-unlimited<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Amazon has become the third largest music subscription globally [1]. Should Apple and Spotify be scared? Yes.<\/p>\n","protected":false},"author":2456,"featured_media":6994,"comment_status":"open","ping_status":"closed","template":"","categories":[156,2062,458,399],"class_list":["post-6974","hck-submission","type-hck-submission","status-publish","has-post-thumbnail","hentry","category-amazon","category-itunes","category-music-streaming","category-spotify","hck-taxonomy-organization-amazon","hck-taxonomy-industry-technology","hck-taxonomy-country-united-states"],"connected_submission_link":"https:\/\/d3.harvard.edu\/platform-digit\/assignment\/growing-businesses-in-the-age-of-platforms-2018\/","yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.3 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>Amazon: The New King of Music? - Digital Innovation and Transformation<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/d3.harvard.edu\/platform-digit\/submission\/amazon-the-new-king-of-music\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Amazon: The New King of Music? - Digital Innovation and Transformation\" \/>\n<meta property=\"og:description\" content=\"Amazon has become the third largest music subscription globally [1]. 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