SC

Strategy Canon

Rdio

Rdio built the more carefully designed app and charged from the first play, so the friends Spotify reached through Facebook could listen free there but met a subscription page at Rdio, and on thin label margins it never gathered enough listeners to pay its way.

Why Rdio lost to Spotify

  1. 1 · 2010A polished paid service, licensed through label tiesA US preview in June 2010 at $4.99 a month on the web or $9.99 with phones; the founders credited label relationships from Kazaa.How to win
  2. 2 · 2010–15Paid on-demand listening; free stayed radioNo free listening until 2013–14, and in 2015 the chief executive still called free on-demand listening unsustainable.
  3. 3 · 2011–13Friends from Facebook met a paywallRdio joined Facebook's listening feed in 2011, but a click led to a subscription offer, and marketing never kept a leader.Resource allocation
  4. 4 · 2010–15Discovery through other listenersFollowing people was the core; the algorithmic picks came from The Echo Nest, dropped when Spotify bought it in 2014.Personalization
  5. 5 · 2013–15Thin label margins without scale; bankrupt in 2015Losing about $2 million a month with $190 million of secured debt; Pandora bought selected assets for $75 million.Resource allocation

Versus Spotify: Spotify gave on-demand listening away with ads, let friends arriving from Facebook play free, and turned the listeners it gathered into personal recommendations SPX-1 SPX-4 SPX-2. Rdio sold a polished subscription to people already willing to pay, kept its free listening to radio, and had too few paying listeners to carry the labels' share of each subscription RD1 SPX-9 SPX-13.

Arena: Market Conditions Before Rdio

People who wanted their music on several devices · 2010 · United States

Enabling technology shiftEssential supplier control

In 2010 an American who wanted music on a computer and a phone could buy downloads from iTunes or Amazon's MP3 store and copy the files between devices, listen to internet radio such as Pandora, or subscribe to an early streaming service such as Rhapsody, Napster or MOG RD1. Buying built a permanent collection but made trying new music expensive, one album at a time. Radio cost little and made exploring easy, but it chose the songs for the listener. Subscriptions promised a whole catalog for a monthly fee, yet services differed in which labels they had licensed, how well they played on phones, and whether a collection followed the listener from device to device RD1. Capable smartphones and faster networks were making streaming to a phone practical, and people were getting used to flat monthly prices RD1.

How each step happened

Step 1 of 5 · 2010

A polished paid service, licensed through label ties

Built for people who already bought music

Rdio set out to fix what its founders saw wrong with digital music: pricing, moving music between devices, playback, sharing and discovery RD1. Backed by Janus Friis and Niklas Zennstrom, the founders of Kazaa and Skype, it opened an invitation-only US preview in June 2010: more than 5 million songs for $4.99 a month on the web or $9.99 with phones included RD1. A desktop app read a listener's iTunes history and rebuilt that collection in Rdio within seconds, so nobody started from an empty library RD1. The customer Rdio designed for already paid for music and wanted it everywhere.

The licenses came quickly. Rdio launched with EMI, Sony, Universal and Warner, and Friis told TechCrunch that the relationships he formed with music executives during Kazaa's litigation and settlements were key to getting the service started RD1. That gave Rdio the catalog on day one, but the same labels licensed the same songs to every rival at similar prices RD1. Rdio's difference had to come from the app, and it did: Engadget's Nathan Ingraham, a subscriber from 2011, chose it over Spotify for its design and album collection SPX-14. Rdio competed with buying music, not with getting music free.

Rivals Spotify had launched in Europe in 2008 with a free version beside the paid one, and aimed at piracy, which was free and instant; Daniel Ek set a 200-millisecond play target so a streamed song felt like a file on the listener's own computer SP15 SPX-1.

How to win

Step 2 of 5 · 2010–15

Paid on-demand listening; free stayed radio

Rdio charged from the first play and held that line for five years, which is why this step spans the rest of the story. No one could choose songs on Rdio without paying, so everyone who tried it had already decided music was worth $5 or $10 a month RD1. It added advertising-supported listening only after a 2013 deal with the radio company Cumulus, and made web streaming free for everyone in January 2014, two days after Spotify made its own free listening unlimited SPX-14 SPX-15.

Even then free was kept apart from paid. Anthony Bay, who succeeded Drew Larner as chief executive in 2013, described Rdio's free tier as radio: the listener picked a station and the service picked the songs SPX-9. In June 2015 he said free on-demand listening was not a sustainable model, and argued that giving music away mostly moved people who would have paid onto the free service SPX-9 SPX-11. In May 2015 Rdio added Select, $3.99 a month for 25 chosen songs a day plus radio without ads SPX-16. The policy protected revenue per listener and gave up the route by which a casual listener becomes a daily one.

Rivals Spotify treated free listening as the way into Premium: Gustav Soderstrom says the better the free product, the more people use it and the more of them convert SPX-1. By 2014 more than 80% of its 12.5 million subscribers had started as free users SP16.

Step 3 of 5 · 2011–13

Friends from Facebook met a paywall

Social listening was part of Rdio from the start. Its managers called activity streams, which showed what friends played and bought, the core of the service, with basic links to Twitter and Facebook RD1. When Facebook launched its listening feed at the f8 conference in September 2011, Rdio, MOG and Slacker joined it alongside Spotify SPX-4.

What happened after the click depended on step 2. A friend who followed a Spotify post could play the song free; one who followed an Rdio post met a subscription offer SPX-14. In the week after f8 Spotify's Facebook app went from 3.4 million to 5.3 million monthly users; no figures were reported for Rdio SPX-4. Rdio also did little to create demand of its own. Former staff told The Verge that the company never kept a marketing chief for more than a few months, and one said no one was overseeing marketing at all SPX-14 SPX-13.

Rivals Spotify gained more than a million new users in the week after f8, with free listening as the landing page SPX-5 SPX-4. Engadget pairs that free tier with a much larger war chest, including a $1 billion raise SPX-14.

Resource allocation

Step 4 of 5 · 2010–15

Discovery through other listeners

Rdio's answer to what to play next was other people. Listeners followed friends and people whose taste they trusted, saw their activity and played what they found RD1. Algorithmic suggestions and artist radio were there too, supplied by The Echo Nest, whose technology ran Rdio's autoplay, recommendations, radio and personalization RD1 GFA-1. Following other listeners grows only as fast as the community does.

In March 2014 Spotify bought The Echo Nest. Echo Nest said its programming interface would stay open to other services, but within a week Bay said Rdio would stop using it and move to other partners such as Gracenote, which had less experience in music data GFA-2 GFA-1. Rdio came late to programmed stations for listeners who did not want to choose every track SPX-14. In 2015 Rdio took about $1.5 million a month in subscriptions, a small audience for recommendations to learn from SPX-12.

Rivals Spotify gave its playlist editors data on skips and built Discover Weekly (2015) on the more than 2 billion playlists its users had made; it reached 40 million users in its first year SPX-1 SPX-2 SPX-3.

Personalization

Step 5 of 5 · 2013–15

Thin label margins without scale; bankrupt in 2015

The licenses that let Rdio launch in step 1 also fixed its economics. Labels took most of every subscription dollar. Wilson Miner, Rdio's former design lead, said margins stayed very thin whatever the company did, and that a service could make up for it only with enormous volume SPX-13. Bay described streaming as a retail business with margins in the high 20s to 30s percent SPX-10. Miner's diagnosis was that Rdio tried to become sustainable too early, worrying about profit before it had the growth that volume required SPX-13. Charging from the first play, keeping free listening to radio and spending little on marketing were the same choice: protect the margin on each subscription instead of paying for scale.

The figures at the end show the result. Rdio took about $1.5 million a month from subscriptions and up to $150,000 from advertising, while spending about $4 million a month on operations, royalties and salaries SPX-12. It owed more than $190 million in secured debt, mostly to its majority owner Pulser Media SPX-12. In November 2015 it filed for Chapter 11 and agreed to sell assets to Pandora for $75 million; Pandora said it was buying technology, intellectual property and staff, not the operating business RD2. The service closed on December 22, 2015 RD3. Bay said the team had built "an acclaimed product and technology platform" RD2. The product from step 1 survived the sale; the paying audience never grew large enough to carry it.

Rivals Spotify's scale later improved its terms: in 2017 the three major labels cut their share of its revenue from 55% to 52% SPX-6. It named Apple Music, not Rdio, its nearest competitor by then SP3.

Resource allocation

Key dates

  1. 2010-06Invitation-only US preview, $4.99 web or $9.99 with phones
  2. 2010-065 million songs Licensed from EMI, Sony, Universal and Warner RD1
  3. 2011More devices and countries
  4. 2011-09Facebook listening feed; Spotify's Facebook app grows from 3.4 million to 5.3 million monthly users SPX-4
  5. 2013Bay replaces Larner; about a third of staff laid off SPX-14
  6. 2013Cumulus deal brings ad-supported listening
  7. 2014-01Free web streaming, two days after Spotify's free tier goes unlimited SPX-15
  8. 2014-03Spotify buys The Echo Nest; Rdio drops it GFA-2 GFA-1
  9. 2014-11Spotify: 12.5 million subscribers, most of them started free SP16
  10. 2015Stations and radio programming
  11. 2015-05Select: 25 chosen songs a day for $3.99 SPX-16
  12. 2015-06Bay calls free on-demand listening unsustainable SPX-9
  13. 2015-11$1.5M a month in subscriptions Against $4M a month of operating costs, royalties and salaries SPX-12
  14. 2015-11$190M secured debt Mostly owed to majority owner Pulser Media SPX-12
  15. 2015-11Chapter 11; Pandora agrees to buy assets for $75 million RD2
  16. 2015-12Service closes; Pandora completes the purchase RD3

Sources

Oldest first.

  1. SP15 Merlin to join Spotify at launch. Merlin · 2008-10-07 Rights-holder launch announcement
  2. RD1 Rdio kicks off US launch: a chat with founders and management. TechCrunch · 2010-06-03 Founder interview
  3. SPX-5 Spotify gains 1 million new users from Facebook integration. The Next Web · 2011-09-28 Trade report
  4. SPX-4 Spotify Users Jump 3.4 Million To 5.3 Million In 1 Week Thanks To Facebook. Hypebot · 2011-09-30 Trade report
  5. SPX-15 Rdio Caves To The Competition, Makes Web Streaming Free For All Users. BGR · 2014-01-17 Trade report
  6. GFA-2 Spotify Acquires The Echo Nest. TechCrunch · 2014-03-06 News article
  7. GFA-1 Rdio Will Drop The Echo Nest For Music Recommendations Post-Spotify Acquisition. TechCrunch · 2014-03-12 News article
  8. SP16 $2 Billion and Counting. Daniel Ek / Spotify · 2014-11-12 Founder explanation
  9. SPX-16 Rdio Launches Cheaper On-Demand Music Streaming Service. TIME · 2015-05-14 Trade report
  10. SPX-9 Rdio CEO talks radio, Spotify, indies and freemium (interview). Music Ally · 2015-06-22 Participant interview
  11. SPX-10 Rdio boss: streaming music is 'a retail business not an internet business'. Music Ally · 2015-06-23 Participant interview
  12. SPX-11 Spotify rival attacks free streaming models. CNBC · 2015-06-26 Participant interview
  13. RD2 Pandora asset purchase agreement with Rdio. Pandora / SEC · 2015-11-16 SEC filing
  14. SPX-12 Why didn't Pandora buy Rdio? It was $220m in debt. Music Ally · 2015-11-18 Trade report on bankruptcy filing
  15. SPX-14 Too good to survive: The rise and fall of Rdio. Engadget · 2015-11-18 Trade report
  16. SPX-13 "The classic startup mistake": What went wrong for Rdio. SmartCompany · 2015-11-23 Participant interview
  17. RD3 Pandora 2015 Form 10-K. Pandora · 2016-02-18 Annual report
  18. SPX-2 Matt Ogle talks Discover Weekly and Spotify's personalised evolution. Music Ally · 2016-03-21 Participant interview
  19. SPX-3 Spotify seeks more personalized playlists after Discover Weekly finds 40M users. TechCrunch · 2016-05-25 Trade report
  20. SP3 F-1/A registration statement. Spotify / SEC · 2018-03-14 Listing filing
  21. SPX-1 How to build trust fast. Masters of Scale (WaitWhat) · 2018-09-19 Podcast transcript
  22. SPX-6 Spotify: We don't expect major labels to 'hand us an additional pile of gross margin'. Music Business Worldwide · 2018-11-01 Trade report