In this post, we will conduct a Pestel analysis of Spotify which is the largest music streaming network in the world with a strong global presence and a monthly active user base larger than 400 million.
Spotify is the world’s largest music streaming network with a global user base of more than 400 million MAUs at the end of 2021. The brand has enjoyed strong growth in its user base in recent years driven by its increased focus on innovation, higher customer engagement and increased penetration of several new markets.
Spotify offers its services across 184 countries and territories. The company has entered several new markets in 2021. Despite the strong competition that it faces from Apple, Amazon, Google and other players in this industry sector, it continues to retain its leadership position. In 2021, the company also enjoyed improved financial performance. While it has still not been able to generate a positive net income, the online music distribution network has experienced a sharp decline in its net loss during 2021. Its parent company is Spotify Technology S.A., based in Luxembourg, Sweden.
Since Spotify is a global brand, its business is affected by several factors including those which are political, technological and economic in nature. In this macroenvironmental analysis of Spotify, we will analyse the impact of these forces on Spotify’s business and how the company has managed their impact on its business.
SPOTIFY’S PESTEL ANALYSIS
Political:
Political forces are now playing an increasingly important role in the context of international business and particularly in the tech industry, businesses need to watch for political changes that might have a direct impact on their operations and profitability. Usually, sudden changes in the political environment of a market can have detrimental impact on business operations.
Spotify is based in Sweden and delivers its services online across 184 countries and territories. Political factors including government changes, government policies and regulations related to specific sectors and trade relationships; all of them can have a solid impact on business operations. Government policies and regulations related to specific sectors can differ from country to country and market to market.
Government oversight of the tech industry across various regions including the western markets has grown in recent years. Whether it is about user privacy or the use of customer data, governments around the world have made stricter policies related to how the companies are using or sharing user data.
Spotify has mostly avoided such controversies that could bring it on the government’s radar in any region. Businesses also need to mind their brand image in order to avoid complications and government action.
RELATED:
SPOTIFY SWOT ANALYSIS
Economic:
The role of economic factors in the context of international businesses is of critical importance. Businesses operating in the international environment have to deal with several factors that can be economic in nature including the economic situation of the various markets, employment, competition and other similar factors like currency exchange rates.
When the global economy is doing well, companies generally see higher sales and increased revenue. It is because when the economic conditions across various markets is good, the level of employment is higher and people have higher disposable income to spend on leisure and entertainment.
Worldwide, Spotify has been able to grow its user base faster driven by several factors. The role of economic factors with regards to the growth of Spotify has also been critical. Over the past few years, the world economy has generally performed well except for a temporary recession in 2020 caused by the pandemic. Online streaming businesses including Spotify or Video streaming services like Netflix have also experienced impressive growth over the recent years.
There are also some important factors that help businesses minimize the negative impact of economic factors on their business. For example, the pricing strategy of a business can have a positive impact on its sales even when the economic performance of a market is declining. Spotify offers both premium and free services which also helps it manage the negative impact of economic factors. Spotify offers different plans for different markets based on the purchasing power of the customers in those markets to maintain sales and business growth.
Sociocultural:
Sociocultural factors have acquired a strategic importance in terms of business operations and marketing. These factors are especially relevant for businesses operating in the international markets and across various societies and cultures. Businesses have to consider these factors in terms of their business strategy, operations and marketing. Worldwide, societies have undergone major changes driven by technological advancement, globalization and due to demographic changes. These changes have also affected businesses in various ways.
Businesses like Spotify know that they are marketing and selling to a tech savvy and modern generation of users. Apart from it the tastes and preferences of users can vary from one region to another based on the sociocultural environment of each market. Spotify considers these factors to provide its users an improved experience which is also a reason that the company has been able to experience higher growth across the globe and enjoys a larger market share compared to its rivals. Spotify has also adopted a marketing strategy that considers these differences and yet maintains a neutral tone to appeal to its global user base.
Technological:
Technology has become a fundamental driver of growth for businesses across all industry sectors. Whether it is a core technology business like Spotify or in other sectors including food, fun and fashion. Technological advancement has brought several important changes to the industry including growth in the sales of products and services across digital channels.
Spotify is an online music and podcast streaming platform that has experienced increased penetration of international markets driven by increased internet usage worldwide. As the use of internet technology has grown worldwide, it has led to increased use of online streaming services like Spotify, Apple music, Amazon Music, YouTube, Netflix and other similar online streaming channels.
The music streaming industry is experiencing intense competition. Companies like Spotify have to focus on user experience and innovation to maintain sales and growth momentum. The company is a leader in this area and spends a major sum each year on research and development. While it has helped the company grow its user base, it has also enabled the music streaming network to achieve higher user engagement and build a strong competitive advantage.
In the streaming industry, the competitive strength of companies is based mainly on their technologies. Spotify has also acquired several smaller businesses in its history to improve its streaming network and its quality of services. Now, the company also offers a large collection of podcasts apart from a huge collection of music labels. One of the leading attractions of the platform is the way it caters to user preferences worldwide through the use of modern technologies like AI and machine learning.
Environmental:
The environmental impact of businesses is now a critical consideration not just for the businesses and their stakeholders but for the entire society. Governments around the world have enacted laws that encourage businesses to improve their environmental performance. However, it is not just about managing their own environmental impact but tech businesses including Spotify also use their resources and capabilities to improve environmental awareness among their users.
Even if their overall environmental impact is low, businesses in the digital streaming industry have to manage their operations sustainably since it does not just affect operational performance but also their brand image among their users.
Spotify reviews its environmental impact and uses the findings to set tangible goals. The company has made sustainability a critical part of its business operations. It calculates all the greenhouse gas emissions linked to its business including electricity use, travel and pollution as well as all the activities across its entire value chain. The company targets to reach net zero GHG emissions in the next decade and from 2019 to 2020, it has experienced impressive decline in its GHG emissions. The company is also using its platform to raise environmental awareness through playlists and podcasts.
Spotify focuses on sustainability and acts in a socially responsible way not just because it is the right thing to do but because all its stakeholders expect it to act this way. The company has maintained a strong social image. Its focus on sustainability, social responsibility and equity has helped the company maintain a strong social image.
Legal:
Legal factors and compliance are of critical importance for businesses operating at a global scale. Companies need to remain compliant in all the required areas since governments around the world have formed stringent laws related to user privacy, data sharing and other areas affecting user’s personal data. The tech industry is especially experiencing higher legal scrutiny from governments and legal agencies all over the world.
In the case of Spotify, copyright laws related to musical content and other laws like those related to user privacy are of critical concern. Spotify has also faced several legal tussles in its history including those related to copyright infringement. The company was sued by Eight Mile Style LLC, the publisher with the copyright to Eminem’s songs, for intentionally infringing the copyrights to 243 Eminem songs in 2019. There are more such legal issues that the company is dealing with.
Around the world, in several markets, the legal framework is quite complex and companies need to remain compliant in order to avoid hefty fines and loss of brand image. Spotify has still not generated a positive net income as of the end of 2021. However, legal issues can prove costly for the brand and in case of a violation, it might end up losing millions of dollars. Therefore, legal compliance and ethical business practices are critical concerns for tech businesses operating globally.
A few last words:
The macroenvironment of any business includes several factors that affects its operations, profitability and success. Managing these six important forces in the macroenvironment is important for any large and international business due to their impact on its market position. While technology is one of the most critical forces shaping the entire industry and its transformation, managing the other forces including those which are political, economic or sociocultural in nature is also critical for achieving success.
Spotify’s growth is also driven by technology as it has emerged as the dominant player in a highly competitive industry sector. However, the company has also managed the impact of the other macroenvironmental factors well including political, economic and sociocultural, which is evident in its growth across various parts of the globe. It has adopted a freemium business model which has helped it grow its user base across the globe and mitigate the threat from the economic factors.
The company invests a huge sum in research and development since technological innovation is at the core of its business operations and the fundamental driver of its competitive advantage. As the leading music streaming network, it enjoys strong brand awareness across the world and while several of its competitors have remained limited to only western countries, Spotify has successfully expanded its user base to Asia, Africa and other parts of the world. The role of sociocultural factors in terms of business growth and expansion cannot be ignored whether in case of a technology company or any other business. Spotify’s strong popularity and brand awareness around the globe demonstrate that across various societies and cultures, the brand has been able to strike a strong bond with its customers.
Apart from the other macroenvironmental factors, legal factors are also a critical consideration for tech businesses including Spotify. The company has dealt with several legal challenges in the past and not just due to the financial losses that they can cause, these legal challenges are critical since they hurt brand image also.
Overall, Spotify’s business is in strong shape and the company is enjoying a solid competitive advantage driven by innovation, customer experience and marketing apart from its large collection of musical content and podcasts. One of the crucial reasons that the company has found impressive success is that it has successfully managed both the microenvironmental and macroenvironmental forces.
Abhijeet Pratap is a passionate blogger with seven years of experience in the field. Specializing in business management and digital marketing, he has developed a keen understanding of the intricacies of these domains. Through his insightful articles, Abhijeet shares his knowledge, helping readers navigate the complexities of modern business landscapes and digital strategies.