Spotify’s Business Model Isn’t Sustainable — It Should Try This Instead
Back in December, I wrote a viral article about Spotify’s recent round of layoffs. I think this particular piece resonated with readers because it highlights the fragility of subscription business models. Workers employed by subscription-based companies are exposed to cost-cutting efforts when a company reaches a limit to its own growth.
Subscriptions have been lauded for being lean business models that generate consistent cash flow and predictable revenue. These types of businesses look great on paper. But as Spotify shows, a subscription model is far from perfect.
The biggest challenge facing businesses that employ a subscription-based business model is that there is a natural limit to growth. What happens when all 8.1 billion people on the planet subscribe to a service? Unlike a car or a house, a subscription can’t be purchased in volume. To grow, the business will have to find some way to add new revenue channels — or simply raise prices. Even then, there’s a limit to what consumers are willing to tolerate.
But there’s another — arguably more important — problem. Companies like Spotify that sell subscriptions don’t own any assets. They simply own the digital infrastructure that connects consumers with creators and producers. In that regard, Spotify is merely a digital…
