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Understanding Spotify: Making Music Through Innovation

Spotify Logo

Understanding Spotify: Goodwater Thesis Highlights

Goodwater Thesis is designed to help founders better understand leading consumer tech companies and how they were built.

Spotify is a case study in transforming a challenged industry through a disruptive consumer-centric technology product.

Global Recorded Music Industry Revenues

Transforming the Music Industry

  • The first wave of internet-based music services facilitated piracy and illegal digital distribution. Global music revenues declined by 40% from $23.8 billion in 1999 to $14.3 billion in 2014.
  • Spotify’s streaming model was a key driver of the music industry’s inflection point. In 2016, global music revenues reached its highest annual growth rate in 20 years.
  • Spotify’s revenue represents 30% of the global music market and 42% of the streaming music market – the largest and fastest growing portion of the market.

spotify innovation case study

Streaming Adoption & Consumer Trends

Mainstream adoption of music streaming aligns with the rise of several consumer technology trends:

  • Access over ownership. Most music streaming services offer on-demand access without downloading
  • Data-driven personalization. Companies leverage data to better understand users and recommend personalized content, increasing engagement.
  • Content unbundling. Music services unbundle albums into songs that can be repackaged into playlists

Spotify Positive Sentiment

Introducing a Disruptive Consumer Music Product

  • Founded in 2006 in Sweden, the company has 71 million paying subscribers and 159 million MAUs across 61 markets.
  • Spotify has played a key role in transforming how consumers experience music by offering unprecedented convenience, accessibility, and data-driven personalization to drive discovery and engagement.

Global Streaming Music Subscribers (June 2017)

Dominating the Streaming Market

  • Today, Spotify is the world’s largest music streaming service -- of 136.3 million music streaming subscribers globally, Spotify accounts for 40% of subscribers.
  • Spotify competes primarily with large technology incumbents who seek to supplement their product suite (Apple, Google, Amazon), as well as music-focused venture-backed companies like Pandora, Tidal, and SoundCloud.

Spotify Revenue

Rapid Revenue Growth

  • The success in both user types allowed Spotify to grow its total revenue 39% and premium subscriber revenue 38% in 2017, resulting in a 45% 2-year CAGR for total revenue growth.
  • Spotify primarily monetizes users through its premium subscribers, who account for 90% of revenue.
  • The remaining 10% is generated from its ad-supported, free users.

Winning Strategies

  • Harness social platforms to increase distribution and drive network effects.
  • Disrupt existing models with new ones better aligned with consumer needs.
  • Introduce new paradigms in large markets facing systemic challenges or uncertainty.

Spotify Growth Timeline

Winning Strategy 1 Harness social platforms to increase distribution and drive network effects.

  • Spotify leveraged music’s inherently social nature to drive sharing and discovery amongst users.
  • Unlike earlier music piracy services that destroyed value for music industry revenues with each share, Spotify created a viral loop that increased the value of the market and network with each new user.
  • Spotify’s growth-oriented social features such as shared links, shared playlists, and aggressive integrations with social networks like Facebook in 2011 catalyzed rapid audience growth.

Music Streaming Net Promoter Scores (Q4 2017)

Winning Strategy 2 Disrupt existing models with new ones better aligned with consumer needs.

  • Spotify introduced an all-you-can-eat utility service for a fixed monthly subscription that unlocked an audience of customers willing to pay for music with strong customer love - the highest NPS by far among streaming services.
  • Expanded from utility to discovery, offering users data-driven personalization that drove both discovery and engagement.
  • Spotify’s large captive audience further enabled its momentum in building out a two-sided marketplace, connecting and benefiting both creators and consumers.

Quarterly Subscriber Retention (2016-2017)

Winning Strategy 3 Introduce new paradigms in large markets facing systemic challenges or uncertainty.

  • With the industry’s declining performance, Spotify’s entry into the music market was timely.
  • Publishers and labels were receptive to trying new revenue models to revive growth, while consumers were ready to adopt a new paid option to access an unlimited jukebox.
  • Spotify’s product-centric, highly personalized, access-based model drives higher retention rates compared to other music services after four quarters.

The Next Level

  • Grow users in existing and new markets.
  • Enhance the platform to retain and convert users.
  • Maintain or improve margins in the ad-supported business to unlock costless, rapid growth.
  • Improve gross margins through audience scale.
  • Develop a stronger moat through proprietary and diversified content.

Spotify MAU Growth by Geography

The Next Level 1 Grow users in existing and new markets.

  • Spotify is available in 61 countries and territories, but only 13% of payment-enabled smartphones in those markets have used the platform.
  • To increase its penetration rate in existing markets, Spotify will continue enhancing the product’s freemium service, personalization, and content offerings.
  • Spotify will also expand geographically into new markets, which requires optimizing for local music preferences and obtaining rights to local content and curators.

Premium Monthly Churn

The Next Level 2 Enhance the platform to retain and convert users.

  • The company reports a nominal monthly customer churn of 5%, but 40% of its churned premium subscribers rejoin the platform within 3 months, yielding an effective monthly churn of 3% – 4%.
  • While individual songs are not exclusive and can be accessed from other music services, Spotify seeks to differentiate and keep users on its platform with its superior user experience, curated playlists, discovery mechanisms, and data-driven personalization.

Monthly Ad-Supported ARPU

The Next Level 3 Maintain or improve margins in the ad-supported business to unlock costless, rapid growth.

  • Achieving positive gross margins on these free users is a key turning point for the business that transforms a marketing cost into a margin-producing revenue stream.
  • Today, 10% of Spotify’s revenue is generated by ad-supported users. Spotify will continue to improve ad targeting, develop compelling ad experiences, and build relationships with brands to run high eCPM campaigns.
  • Spotify increased ad-supported revenue by 41% from 2016 to 2017, primarily driven by programmatic channels that increased ad impressions 31% and represented 18% of ad revenue.

Gross Margin

The Next Level 4 Improve gross margins through audience scale.

  • While Spotify successfully scaled an audience and built out an impressive library of content, the company is still unprofitable and faces notable challenges toward profitability.
  • Spotify’s biggest hurdle to profitability is at the gross margin level where it pays out more than 70% of its revenue in royalties.
  • Spotify needs to leverage its sizeable and growing audience to negotiate increasingly favorable contracts with labels to improve gross margins.

Monthly Gross Profit per User

The Next Level 5 Develop a stronger moat through proprietary and diversified content.

  • 87% of Spotify’s streams are licensed from Universal Music Group (UMG), Sony Music Entertainment (SME), Warner Music Group (WMG), and Merlin.
  • To continue growing its business and expanding margins, Spotify will need to diversify away from licensed catalogs towards other content sources.
  • Echoing the Netflix model of developing exclusive and proprietary content, initiatives like Spotify Studios enable Spotify to directly develop artist relationships, which could yield significantly better margins.

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Executive Summary

Spotify is the world’s largest music streaming subscription service, and has played a key role in transforming how consumers experience music by offering unprecedented convenience, accessibility, and data-driven personalization to drive discovery and engagement. Founded in 2006 in Sweden, the company has 71 million paying subscribers and 159 million MAUs across 61 markets as of December 31, 2017 1 . From 2015 to 2017, the company increased revenue to over $5 billion (a 45% 2-year compounded annual growth rate) while expanding gross margins from 12% to 21% 2 . Spotify’s streaming access model reversed the industry’s declining revenue trend, unlocking revenue and adding value for consumers, artists, and all players in the music ecosystem. As Spotify enters a new phase of growth post-IPO, the company will be focused on leveraging data to further enhance its platform, growing its customer base via expansion into new markets, and achieving profitability.

The Market Opportunity

spotify innovation case study

Winning Strategies

What can entrepreneurs and investors learn from Spotify’s path to IPO?

  • Build scale through an organic & controlled go-to-market strategy. Spotify’s go-to-market strategy enabled it to organically build a large audience through controlled scaling by geographic region. By rolling out in Europe (2008) and the United States (2011) with an invite-only system, the company generated buzz and increased demand through perceived scarcity. This strategy also equipped Spotify with a lever to control growth given its variable cost structure, incurring royalty costs for each new user who listens to songs. Spotify also launched a freemium service, attracting a large initial audience and expanding the market by offering a solution that bridged customers from legacy music options like iTunes and piracy software into a streaming music experience.
  • Harness social platforms to increase distribution and drive network effects. Spotify leveraged music’s inherently social nature to drive sharing and discovery amongst users. Unlike earlier music piracy services that destroyed value for music industry revenues with each share, Spotify created a viral loop that increased the value of the market and network with each new user. Spotify’s growth-oriented social features such as shared links, shared playlists, and aggressive integrations with social networks like Facebook in 2011 catalyzed rapid audience growth. The company subsequently launched innovative integrations with platforms like PlayStation (2014) and Uber (2016).

spotify innovation case study

  • Disrupt existing models with new ones better aligned with consumer needs. By introducing an all-you-can-eat utility service for a fixed monthly subscription, Spotify offered a clear consumer value proposition that unlocked an audience of customers willing to pay for music and increased revenue across the music ecosystem. As the company accumulated data from its growing user base on music tastes and preferences, Spotify expanded from utility to discovery, offering users data-driven personalization that drove both discovery and engagement. In Q4 2017, the average Spotify MAU consumed 25 hours of content per month, and 44% of MAUs accessed Spotify daily 7 . Spotify’s large captive audience further enabled its momentum in building out a two-sided marketplace, connecting and benefiting both creators and consumers. Spotify provides a platform for creators to monetize their work, connect with their fans, and access analytics to better understand and grow their business. Playlists are critical to the marketplace, enabling discovery for both consumers and artists: listening time for personalized and curated playlists increased from less than 20% two years ago to 31% in 2017 8 .
  • Introduce new paradigms in large markets facing systemic challenges or uncertainty. The first wave of internet-based music services facilitated piracy and illegal digital distribution, significantly impacting global music revenues which declined by 40% from $23.8 billion in 1999 to $14.3 billion in 2014. Piracy also delivered a poor customer experience as polluted BitTorrent networks left consumers unable to consistently access high quality music. With the industry’s declining performance, Spotify’s entry into the music market was timely – publishers and labels were receptive to trying new revenue models to revive growth, while consumers were ready to adopt a new paid option to access an unlimited jukebox. Furthermore, music labels have fixed production costs and little-to-no variable costs for incremental distribution, incentivizing them to forgo exclusive contracts and widely distribute their songs on every platform.

The Next Level

spotify innovation case study

  • Grow users in existing and new markets. Spotify is available in 61 countries and territories, but only 13% of payment-enabled smartphones in those markets have used the platform 9 . Europe is Spotify’s largest region, accounting for 37% of total users, followed by North America at 32%. The fastest growing regions are Latin America which grew 37% in 2017 to 21% of total Spotify users, and rest of world which increased 51% to 10% of MAUs 10 . To increase its penetration rate in existing markets, Spotify will continue enhancing the product’s freemium service, personalization, and content offerings. Spotify will also expand geographically into new markets, which requires optimizing for local music preferences and obtaining rights to local content and curators.
  • Enhance the platform to retain and convert users. With increasing competition in the streaming music market, Spotify will enhance its product offering to not only drive continued engagement and conversion from existing users, but also to attract new users. The company reports a nominal monthly customer churn of 5% 11 , but 40% of its churned premium subscribers rejoin the platform within 3 months, yielding an effective monthly churn of 3% – 4%. Spotify will continue to make strategic acquisitions, invest in research and development that leverages data to deepen personalization, and expand on its platform-agnostic strategy to increase its presence and network effects among users. While individual songs are not exclusive and can be accessed from other music services, Spotify seeks to differentiate and keep users on its platform with its superior user experience, curated playlists, discovery mechanisms, and data-driven personalization.

spotify innovation case study

  • Improve gross margins through audience scale. While Spotify successfully scaled an audience and built out an impressive library of content, the company is still unprofitable and faces notable challenges toward profitability. Spotify’s biggest hurdle to profitability is at the gross margin level where it pays out more than 70% of its revenue in royalties 12 . In parallel with investing in direct artist relationships, Spotify needs to leverage its sizeable and growing audience to negotiate increasingly favorable contracts with labels to improve gross margins.

spotify innovation case study

  • Maintain or improve margins in the ad-supported business to unlock costless, rapid growth. Spotify materially improved the gross margins on its ad-supported users to 10% in 2017 from negative margins in previous years. Achieving positive gross margins on these free users is a key turning point for the business that transforms a marketing cost into a margin-producing revenue stream. Spotify can now accelerate growth cost-effectively by attracting free users into the ad-supported product while still generating positive margins on those users. The company increased the ad-supported segment’s gross margins by creating more value for advertisers and better monetizing ad-supported users. Spotify increased ad-supported revenue by 41% from 2016 to 2017, primarily driven by enhanced programmatic channels that increased ad impressions 31% and represented 18% of ad revenue 13 . In September 2017, Spotify launched its self-serve advertising platform – Spotify Ad Studio – to improve efficiency and scalability of its advertising platform. Today, 10% of Spotify’s revenue is generated by ad-supported users. Spotify’s ad-supported ARPU was $0.51 in 2017 compared to Pandora’s ad-supported ARPU of $1.18 14 , suggesting ample room for growth in ad-supported revenue. Spotify will continue to improve its ad targeting to deliver more relevant ad content, develop compelling audio, video, and display ad unit experiences (e.g. skippable audio ads, sponsored playlists), build relationships with brands to run high eCPM campaigns, and improve advertiser analytics to improve campaign performance.

spotify innovation case study

  • Develop a stronger moat through proprietary and diversified content. Today, 87% of Spotify’s streams are licensed from Universal Music Group (UMG), Sony Music Entertainment (SME), Warner Music Group (WMG), and Merlin 15 . To continue growing its business and expanding margins, Spotify will need to diversify away from licensed catalogs towards other content sources which are either proprietary to Spotify or net new in the market. Echoing the Netflix model of developing exclusive and proprietary content, initiatives like Spotify Studios enable Spotify to directly develop artist relationships and content, which could yield significantly better monetization and margins as demonstrated by the difference between Netflix’s $3.24 gross profit per subscriber 16 , and Spotify’s $1.40 gross profit per subscriber. Spotify is also expanding beyond music content by offering podcasts, artist merchandise, concert tickets, and short form videos that feature substantially higher margins or do not require fees. Diversified and exclusive content increases Spotify’s ability to raise premium subscription pricing in the future.

spotify innovation case study

  • Continue to win over the modern family. Changing demographics and consumer behaviors have redefined the term “family” from its original connotation of the “nuclear family”. Technology and media companies must increasingly service the needs of this modern family of roommates, friends, family and peers who may not be in the same physical location. While video streaming services have experienced unauthorized sharing (30% of Americans use someone’s shared password 17 , Spotify addresses this need with its family plan, providing access for up to 6 accounts for $14.99 per month. Spotify makes adding friends and family to this plan seamless, only requiring users to register their account with the same home address. By comparison, Apple Music’s Family Sharing plan is limited to iOS users and has a much higher hurdle to adoption, requiring users to be part of an additional Family Sharing account. Spotify’s family plan improves retention by adding economic and social friction to switching platforms.

Business Overview

Spotify is a mobile-first, online music streaming platform with paid subscribers and ad-supported users. Paid subscribers can play and download songs on demand from their phone, desktop or other devices while free users can play songs on-demand only on their desktop and can listen to radio-like playlists on their phones with intermittent ads.

History . Today, Spotify is one of the largest drivers of global music revenue, with 159M MAUs generating $5.1 billion in revenue in 2017. The journey began 12 years ago when Daniel Ek and Marten Lorentzen founded Spotify in Stockholm, Sweden. Key milestones include:

  • 2007. Launched first public beta in Spring. Viral growth followed in Winter with the introduction of shared playlists.
  • 2008. Launched in Europe in October. As it grew in distribution, Spotify decided to monetize its free users through ads; they controlled free user growth through an invite-only mechanism. Raised a $22 million Series A round.
  • 2009. Raised a $50 million Series B in Summer 2009 to license the labels’ music by prepaying, which helped to secure deals with labels that were not initially familiar with the new music streaming business model. Launched mobile platform in Fall 2009, taking advantage of the rising tide of iOS and Android devices.
  • 2011. Announced 1 million paid subscribers in Spring. Expanded internationally into US. Raised a $100 million Series D.
  • 2012 and beyond. Went on to raise $2 billion in total equity financing while making Spotify more accessible to users through partnerships with Facebook, Uber, and PlayStation, and introducing pricing options such as student and family plans.

spotify innovation case study

Providing value to both sides of the marketplace. While providing a best-in-class experience for music listeners, Spotify also empowered its suppliers by helping artists and labels better monetize, distribute, and analyze their songs. In a challenged industry, Spotify helped drive growth by making artists’ songs easily discoverable by its millions of users across 61 countries, and provided artists with $8B+ in royalties. Spotify’s robust data is also additive to artists, enabling them to be more easily discovered by future fans through its personalized and curated playlists, as well as to engage their audience more meaningfully through data analytics tools.

Market Landscape

Rise of digital streaming. From 1999 to 2014, the music industry lost nearly 40% of its revenue. Spotify’s launch in 2008 introduced streaming, which catalyzed a second wave of music services that restored growth to the global music industry. Global music revenues in 2016 reached its highest annual growth rate in 20 years, increasing 6% from 2015 to reach $15.7 billion. Spotify’s revenue accounted for 30% of the global music market in 2017, representing 42% of the streaming music market. Paid streaming subscriptions continue on an upward trajectory across the music industry; streaming revenues grew from 9% of global music revenue in 2011 to 72% in 2017 21 .

spotify innovation case study

Streaming competitor landscape. Spotify competes for consumer time and attention across different forms of media and content, such as radio, video, social media, and other on-demand music streaming services. Of 136.3 million music streaming subscribers globally, Spotify accounted for 40% of subscribers 25 . On-demand streaming competitors are dominated by large technology companies like Apple (19%), Amazon (12%), and Google, as well as well-capitalized music-focused companies like Pandora, Tidal, and SoundCloud.

spotify innovation case study

  • Access over ownership. Most music streaming services offer on-demand access to media where users can stream a song without having to download it. The trend of favoring access over ownership extends to both digital (Netflix and video) and physical (Uber and cars) behaviors.
  • Data-driven personalization. Music services facilitate discovery in a giant sea of content.  Companies are collecting and leveraging data to better understand users and recommend personalized content to deliver a better experience and increased engagement. Stitch Fix, for example, leverages data combined with human judgment to provide personalized retail at scale.
  • Content unbundling. In the past, music was “bundled” and sold in albums. Music services today unbundle albums into individual songs that can be repackaged and personalized. Cable television similarly experienced disruption when consumer technology services offered unbundled content.

Large Tech Incumbents. Large technology incumbents seek to supplement their product suite by offering music services. Apple, Google, and Amazon have a significant advantage in owning platforms with large distribution, and benefit from existing scale, brand recognition, and budget as leverage to negotiate licenses and build out their music libraries.

  • Apple Music is Spotify’s closest direct competitor with 38 million paying subscribers compared to Spotify’s 71 million 27 . Apple has previously experimented with exclusives and differentiation based on human touch, like its Beats 1 radio and playlists which are curated by tastemakers 28 .
  • YouTube & Google Play Music. Alphabet’s biggest differentiator is its YouTube catalogue with an unparalleled collection of music videos, original content, remixes, and covers that be accessed on-demand, as well as offline via YouTube Red. Music is one of the most popular genres of video on YouTube with more than 1 billion users per month 29 .
  • Amazon Music offers a limited catalogue of ad-free, on-demand music as part of Amazon Prime, and can be upgraded for a fee to Amazon Music Unlimited which includes an expanded library and offline listening. Amazon Prime music is usage is most concentrated in US, Japan, Germany and UK, where 35% of Prime subscribers are Prime Music users 30 .

Pure Streaming Players. These well-capitalized companies focus on music as a core part of their business, each with a different consumer value proposition.

  • Pandora is a personalized radio service with hundreds of curated stations by genre. To compete with the rising popularity of on-demand streaming, Pandora offers ad-free premium services that offer offline play, higher quality, and on-demand options.
  • Tidal was founded in 2014 by Jay-Z and is widely known for its audio quality and artist-friendly business model.
  • SoundCloud is known for its user-generated content, which is augmented by its creator-friendly tools for uploading and sharing files. It is popular among niche audiences for content like indie music, electronic dance music, podcasts, etc.

spotify innovation case study

Consumer Trends & Research

Goodwater conducts proprietary consumer research via survey panels and sentiment word clouds to identify consumer insights and trends.

Survey Panel. Every quarter, Goodwater runs a 3,000-person consumer survey across a panel of consumers representing all ages, demographics and geographies of the US. We systematically track the usage of hundreds of products, market share changes between competing products, and expected increased or decreased usage. The insights below are based on the following music streaming services: Spotify, Pandora, Apple Music, Google Play Music, Amazon Music, and SoundCloud.

Music service usage distribution. In Q4 2017, 65% of respondents used at least one music streaming service. Over the last year, Pandora consistently had the highest usage rate at 34-35%, followed by Spotify at 21-25%. Music services by large technology incumbents Amazon, Apple, and Google Play had less usage across respondents, ranging from 13 to 17%.

spotify innovation case study

Financial Overview

Marching towards profitability. Overall as the Company has continued to scale, its EBITDA margin has steadily improved to -8% in 2017 from -12% in 2013. These improvements primarily flow through from the gross margin level. Spotify has successfully maintained its marketing cost as a percentage of revenue around its current level in 2017 of 14% even as the Company has accelerated user growth and gained significant scale. Spotify’s marketing efficiency is largely attributed to continued word-of-mouth growth lowering Spotify’s dependence on paid marketing as well as funneling marketing costs through their freemium go-to-market strategy. As a result, Spotify achieved positive contribution margins after marketing costs beginning in 2013.

The Company’s R&D expense as a percentage of revenue has also stayed consistent at 10% in 2017. To reinforce the importance of tech enablement in the business, Spotify’s management believes the R&D expense percentage will rise in the future as the Company continues to innovate on the customer experience.

spotify innovation case study

Comparables Analysis

spotify innovation case study

There are a number of risk factors to Spotify’s long-term prospects, including:

  • Spotify is dependent on third-party licenses for music streaming content. Failing to negotiate favorable terms or obtain these licenses will materially impact the business and customer experience.
  • Recent changes to copyright laws will increase the streaming royalty rates due to songwriters and music publishers, and could negatively impact gross margins.
  • Spotify relies on successful partnerships with third-party platforms, operating systems, and hardware to reach customers.
  • Spotify has incurred significant operating losses and may not be able to generate sufficient revenue to be profitable.
  • The Company has also identified historical weaknesses in internal control over financial reporting, which could adversely affect the accuracy and punctuality of financial results.
  • Assertions by third parties of intellectual property infringements or violations by Spotify can harm its business. Since July 2017, six lawsuits alleging unlawful reproduction and distribution haves been filed against Spotify.
  • Continued competition from larger platforms (Apple with iPhone, Google with Android, Amazon with Alexa) that can easily integrate and bundle music services could slow adoption.
  • The emergence of new interfaces (e.g., car, voice) where consumers will want to access music may provide entry points for new competitors.

Executive Team

  • Daniel Ek (CEO & Co-founder). Prior to founding Spotify in 2006, Daniel founded Advertigo, an online advertising company that was acquired by TradeDoubler. He previously held senior roles at Nordic auction company Tradera (acquired by eBay) and was CTO at Stardoll, a fashion and entertainment community for pre-teens. He studied engineering at Royal Institute of Technology before dropping out to focus on his IT career.
  • Martin Lorentzon (Co-founder) has been a member of Spotify’s board of directors since July 2008. Mr. Lorentzon has served as a member of the board of directors of Telia Company AB, Sweden’s main telecom operator since 2013. In 1999, he founded TradeDoubler, an internet marketing company based in Stockholm, Sweden. He holds a MS in Civil Engineering from the Chalmers University of Technology.
  • Barry McCarthy (CFO) has served as CFO of Spotify since June 2015 and is also an executive advisor at Technology Crossover Ventures. He served as CFO and Principal Accounting Officer at Netflix from 1999 to 2010, and prior to that served in various management positions in management consulting, investment banking, and media and entertainment. He holds an MBA from the Wharton School of Business at the University of Pennsylvania and a BA in History from Williams College.
  • Seth Farbman (CMO) has served as Spotify’s Chief Marketing Officer since April 2015. Prior to that, he was Global Chief Marketing Officer at Gap, Inc., Senior Partner at Ogilvy & Mather, Senior Vice President at CRT/tanaka, Director of Marketing at PrimeCo Personal Communications (Verizon Wireless), and a producer and photographer at NBC News. Mr. Farbman holds a BA in Journalism from Ithaca College and an MS in Communications and Journalism from Syracuse University.
  • Katarina Berg (Chief Human Resources Officer) has been at Spotify since November 2013. Prior to that, she was Head of HR & Communications at Rusta and Vice President at Swedbank. Ms. Berg holds an MA in Human Resources Management and Development in Behavioral Science from Lund University.
  • SPOT F-1, at page 1.
  • SPOT F-1, at page 72.
  • SPOT F-1, at page 94.
  • Goodwater Estimate.
  • SPOT F-1, at page 95.
  • SPOT F-1, at page 3.
  • SPOT F-1, at page 4.
  • SPOT F-1, at page 6.
  • SPOT F-1, at page 11.
  • Bloomberg, https://www.bloomberg.com/news/articles/2018-03-12/spotify-is-said-to-plan-new-york-listing-during-week-of-april-2.
  • SPOT F-1, at page 70.
  • Pandora Company Filings; Morgan Stanley Equity Research. 
  • SPOT F-1, at page 17.
  • Netflix Company Filings; Morgan Stanley Equity Research. 
  • Video Advertising Bureau Requiem For A Stream: Part II – Video Streaming Behaviors (2016 Report).
  • SPOT F-1, at page 115.
  • SPOT F-1, at page 108.
  • RIAA, http://www.riaa.com/wp-content/uploads/2017/09/RIAA-Mid-Year-2017-News-and-Notes2.pdf.
  • Goldman Sachs Equity Research: Music In The Air (October 4, 2016).
  • MIDIA, https://musicindustryblog.wordpress.com/2017/01/06/music-subscriptions-passed-100-million-in-december-has-the-world- changed/.
  • Business Insider, http://www.businessinsider.com/technology-is-changing-the-way-americans-listen-to-music-2017-11.
  • CNET, https://www.cnet.com/news/apple-music-hits-38-million-subscribers/.
  • Macworld, https://www.macworld.com/article/2934744/software-music/apple-music-faq-the-ins-and-outs-of-apples-new-streaming-music- service.html.
  • MIDIA, https://musicindustryblog.wordpress.com/2017/07/14/amazon-is-now-the-3rd-biggest-music-subscription-service/.

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Liner notes: innovation, what innovation looks like across spotify.

We’re hungry to keep doing what we’re doing—only better. Driven by a thirst for knowledge, we’re committed to collaboration and the ever-underlying pursuit of creativity. Take a look behind the scenes at the different ways we work to turn our ideas into reality.

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Social Sharing: A Conversation

Hack week dispatches, open source meets basic pitch.

  • 'Gender-Inclusive Language' in Germany

Distributed-First Contributes to Spotify’s Strength

Even before social distancing measures introduced in 2020 relegated employees to home workspaces and virtual meetings, Spotify was a place with an appreciation for the intricacies of hybrid meetings. The events of 2020 and employee feedback spurred us to accelerate our timeline and start transitioning to a distributed-first organization. Fast forward to now to see how it’s working.

Social sharing is ever popular among our users. Whether it’s an album drop, a podcast episode, or their Wrapped data stories, Spotify fans are eager to share and explore their favorites with friends and family. We’re empowering fans and artists to express themselves through Spotify.

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Going “Green” With Spotify IT

Stockholm-based product designer Mauricio Portilla explored ways of updating the company’s Green IT processes, asking questions informed by his background in design thinking.

A Climate Footprint Calculator for Listeners

An international team of employees set to work on a project involving Spotify’s platform, a carbon calculator, and the potential to merge the two.

Connecting Hack Week & Everyday Work

Serah Rono collaborated to improve “Spotify for Developers” by working towards greater energy efficiency.

I was wondering whether bands know their own footprint and if they’re trying to reduce it. Then I wondered how Spotify could help them get that data. I want creators to feel empowered, know their data, and be able to take action. .innovation-wrapper .sections .section.grid .quote .meta cite { color: #000; }

We talked to Rachel Bitner about Open Source and how we use it at Spotify via projects like Basic Pitch that align with the company’s mission to enable one million creators to live off their art.

Gender-Inclusive Language in Germany

Language—and our understanding of it—is constantly evolving. In Germany there’s been a movement in recent years away from the gender binaries within the language to provide room for inclusivity and diversity within existing words and grammar. Learn how Spotify is supporting gender-inclusive language or gender-responsible language on our platform.

Further Reading

The latest stories about innovation at Spotify.

spotify innovation case study

Spotify Everywhere Shows the Way We Soundtrack Everyday Life

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Experimentation at Spotify: Three Lessons for Maximizing Impact in Innovation

spotify innovation case study

As companies mature, it’s easy to believe that the core experience and most user needs have been resolved, and all that’s left to work toward are the marginal benefits, the cherries on top. Cherries on top might add delight and panache, but they rarely cause fundamental shifts in performance and success. And as a business, even a mature one, we’re looking for the innovations that tangibly impact the KPIs we care about. 

Because we’re testing things that have a lower chance of causing top-line impact, experimentation as a practice and method can become a questionable task. Why spend time and effort to prepare and run an experiment if the results are inconclusive? It’s an understandable and fair question. At the end of the day, a business needs to prioritize actions that contribute to its objectives.  However, it would be the wrong conclusion to think we have to write off experimentation altogether — we can, instead, change our approach to it. 

In order to make better use of the experimentation method and achieve more tangible impact for the business in a mature context, we ensure we are following three rather straightforward strategies:

  • Start with the decision that needs to be made.
  • Utilize localization to innovate for homogeneous populations.
  • Break the feature apart into its most critical pieces.

Starting with the decision that needs to be made

Our quest for information, as humans and as organizations, often stems from the need to make decisions. We search for information about travel destinations and flight options to plan a vacation; companies try to decide whether to acquire organizations by gathering yearly statements and other financial data. And in the case of product development, we need to consider what to build, how to build it, for whom to build it, when it will launch, and ultimately decide whether it might be worth it to build at all.

To make a decision, we don’t necessarily need perfect information — or all the information. We need just enough to feel confident about going one way or another. One can see it as an optimization function between spending as few resources as possible to obtain relevant information versus empowering decision-makers to confidently reject alternatives and choose a path forward. Experimentation can be a rather resource-intensive exercise, requiring months of planning, building, running, and analyzing, and in the end, the results might be inconclusive if the right preparations haven’t been made. It’s easy to overdo experiments by cramming in too many variations or by testing something we already have the answer to. On the other hand, experiments can also be under-done — a consequence of attempting to minimize resource use, which results in a lack of information for making the intended decision. 

The key here is to approach experimentation, and research in general, with the questions (a) What decision are we trying to inform? and (b) Why are we not able to make that decision with the information at hand? This helps us identify the appropriate — and least resource-intensive — method for finding the answers. And in a case where experimentation is the right answer, this helps us design the test to be as useful as possible.   

Utilizing localization to innovate for homogeneous populations

As a response to the difficulty of moving top-line metrics in a mature org, we often fall back on discussing alternative definitions of success and the tiering of metrics or user behavior changes to arrive at conclusions about a feature’s potential value. But that conversation overlooks another important dimension: the heterogeneous population of users and needs that we’re solving for as a global company. 

We recently set out to experiment on new features for the Japanese market. The Japanese market is unique in many ways, and it has evolved to become a cultural epicenter of the world. We started a year ago with foundational market research to better understand consumers and their behaviors in this market. We ended up with a hypothesis for a new feature that we wanted to test and a specific cohort to test it on. We discovered that by quite rigorously limiting the scope and the target audience for the experiment, we were able to achieve positive top-line impact with an experience that, in a global experiment, would have been lost in the vast smorgasbord of features within our app. 

The key to why we were able to achieve positive results for the Japanese experience was in part the limiting of the audience, both in terms of the market and the specific cohort of users within that market. A limited cohort of users in a specific market allows us to solve for a targeted user need and build a solution closely adapted to that, instead of shooting widely and blindly. It’s intuitive to think that we have a higher chance of proving a hypothesis right (or technically rejecting the null hypothesis) if that hypothesis has been carefully crafted from real user needs and is to be proven on a verified segment of the market. 

Furthermore, the metrics through which we validate the hypothesis will generally vary less when we measure data for a specific, and more homogeneous, sample compared to all users globally. A concrete example of this idea is the difference in IQ distributions between men and women, where the average is the same but the variance is greater among men than among women. So if you experiment on the whole population, you get a larger variance than if you were to only experiment on a subgroup of women. This is important because it means that we can measure smaller changes in the success metric with maintained significance, i.e., increase our chances of concluding impact. 

To add to this, the quality of the localization, in terms of, for example, translations, can be higher when keeping the scope focused on a single market, which in turn reduces the risk of usability issues and value being lost in translation. By having a targeted focus, and not building for a generic global user, we can greatly improve our chances of building and testing impactful products.  

Breaking the feature apart into its most critical pieces

When starting new product development projects, we often fall into the trap of wanting to test the whole new experience against a control without it, because we’re expected to motivate investments through impact on business KPIs. We might think that this will save resources, because we can learn early on whether this new product is a worthwhile investment or not. But in practice this approach often ends up being more costly because when testing a complete experience too early, the risk of bugs, usability issues, and small quirks in the user flow is much higher, which can then hinder the realization of high-level impact and lead to the false conclusion that the product is not valuable or the user need is not real. Or we spend time building a complete experience that turns out to be “meh” at best. 

It might initially sound counterintuitive to test small changes to maximize impact, but it’s often the case that the more we’re able to isolate individual changes to the product experience, the more useful and interpretable the data coming out of the experiment will be. Not to mention, the requirement of maturity of the product and code for testing is much lower if we are testing an isolated piece of the experience — which means we can do these types of tests earlier and cheaper than with a full-blown product. However, for this approach to be practically and statistically viable, we need to have a thorough understanding of the user needs through UX research so that we can prioritize the most relevant, or risky, aspects of the experience for testing. 

We saw a recent example of this when experimenting on new localized features in some markets in Southeast Asia, where a complete experience was launched for a marketing campaign, without having been tested with users beforehand. The hope was that the experience together with the campaign would drive new user acquisitions, but we ended up being unable to prove any such effects. What happened was that the entry point took up too much real estate in the app, causing negative effects on users who were not interested in the new experience. Had we spent time up front, when designing the experiment, we could have isolated the entry point aspect of it, to make sure we learned about that in particular, which could have helped us draw more definitive conclusions about top-line impact. 

All in all, experimentation is a tool to help us find the innovative experiences that move the needle forward and contribute to the business. But to really do that effectively in a maturing product, we need to have a solid understanding of what decisions we’re trying to make, the users, and the needs we’re solving for. By focusing on more homogeneous groups of users, such as those in specific markets, and localizing the product for them, we can find a shortcut to experiments that actually can prove top-line impact.

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This chapter follows on from the previous chapter’s discussion and provides an in-depth analysis of how Spotify found a solution to the digital recording industry’s financial woe persisted since Napster. It examines how this successful legitimate digital music service innovation arose in the least likely place, Sweden, the hotbed of piracy, and addresses major attributes that brought victory to Spotify over the then seemingly unflinching popularity of P2P file-sharing. I continue the discussion on the changing dynamics brought by Spotify and some of the concerns emerging around this new digital music consumption platform.

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For more discussion on this, see this chapter, Sect. 5.2.2 .

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Spotify: The future of audio. Putting data to work, one listener at a time.

Spotify logo

About Spotify

A Google Cloud customer since 2016, Spotify is the most popular global audio streaming subscription service with 248m users, including 113m subscribers, across 79 markets. Spotify is the largest driver of revenue to the music business today.

Spotify exemplifies the new era of scaling a business. It launched a music-streaming service in late 2008, surpassed 1 million customers in early 2011, and today offers 248 million monthly active users in 79 markets access to more than 50 million songs and podcasts.

That’s technology-driven hypergrowth by anyone’s standard. Equally striking, though, is the way Spotify has continued to innovate its offering, while adhering to the enduring principles for growing and sustaining a successful business: Pay attention to the customer. Find new ways to delight them. Use your comparative advantage, doubling down on the things you are best at, and find good partners to handle other work. Focus on scaling your culture even as you scale your technology.

Those old truths may be even more urgent in the digital age. Streaming audio is a competitive business, requiring fast product development, customer understanding, and powerful tools for things like recommendation, music discovery, and connecting people. Besides helping people find new music and podcasts, Spotify helps artists connect with fans and collaborate with each other.

Google Cloud is proud to support Spotify’s increasing diversification and success. In 2016 we worked together to move 1200 online services and data processing DAGs (directed acyclic graphs) as well as 20,000 daily job executions, affecting more than 100 Spotify teams, from Spotify’s data centers to the cloud. Today, Spotify’s customers listen to billions of daily plays of music and podcasts leveraging Google Cloud’s global network.

By employing automated, developer-friendly services on Google Cloud, Spotify’s teams could focus better on its core business, while gaining access to services, like data analytics, on which it could grow.

“Google Cloud removes a lot of the operational complexity from our ecosystem. That frees up time,” said Tyson Singer, vice president of technology and platform at Spotify. “We can iterate quicker on key needs, like data insights and machine learning. Having infrastructure managed for us, with the lower-value details taken away, streamlines our ability to concentrate on what’s important to our users and give them the experiences they know and love about Spotify.”

Spotify, not surprisingly, has a very engineering-driven culture, with almost half of its staff focused on building, launching, and maintaining its products. With major research and development offices in Boston, Gothenburg, London, New York, and Stockholm, the size of its workforce matches the global scale of its business. That requires a culture of collaboration and swift execution. In the fourth quarter of 2019, Spotify reported 271 million monthly users and 124 million Premium subscribers, a record, continuing its history of global growth.

Effective data use that preserves customer privacy even as the services scale is another core part of the process. Some of that increase is from a growing user base, but even more is from effective understanding of the customer experience on Spotify. The engineering brilliance that matches data-driven insights with improved customer experiences is increasingly easier and faster on the cloud.

Robust building blocks that exist on top of core data storage, computing, and network services help take away much of the backend hassle on the way to new product creation. Spotify’s technology leaders point to the particular importance of BigQuery, the Google Cloud data analysis tool, as well as Pub/Sub, for faster software application development. Dataflow, for real-time and historical data analysis, has also been particularly useful.

Much of that data goes towards solving the tricky issue of personalization in new ways. Data privacy is at the core of Spotify’s development activities as it seeks to offer music lovers new ways to find the sounds they love and connect with artists. Podcasting, a recent groundbreaking effort, relies even more on robust discovery to discern things like topics, creators, and user interest levels.

For artists, the ability to find and connect with fans, or work on new material with other musicians, is another dimension of data-driven discovery. Artists on Spotify have access to dashboards that let them gain knowledge about their fans and other artists, which helps them make better-informed decisions about everything from where to plan their upcoming tour to when to drop their next release.

Ultimately, it is great user experiences that powers a business. In the past year alone, the number of Spotify’s premium subscribers has grown by 29 percent . The company credits growth in new markets, as well as innovative new products, for the increase.

Underlying Spotify's growth is its commitment to experimentation and innovation. Being able to go faster and to more efficiently test a wide spectrum of new features and ideas means Spotify will be able to focus its DNA of creativity and excellence on even more innovative experiences for its happy listeners.

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The Soundtrack to Growth: A Spotify Marketing Case Study

  • Growth Marketing

The Soundtrack to Growth: A Spotify Marketing Case Study

At Spotify’s 2023 “Stream On” event, CEO Daniel Ek announced that the platform had just passed half a billion monthly listeners across 184 countries and markets . Looking ahead, Ek aims to grow Spotify to 1 billion users by 2030; an ambitious — but not unwarranted — goal, considering the immense growth and success that Spotify has achieved over the past few years. 

From viral organic marketing strategies to bold moves in the metaverse space, here’s an in-depth analysis of everything Spotify did to become the world’s most popular audio streaming service today. 

What Is Spotify’s Marketing Strategy? 

Spotify’s marketing strategy is centered around the three main principles of personalization, emotion, and data. Everything that Spotify does begins with considering the end user; whether it be through personalized playlists or user data-driven campaigns, they are a brand that truly knows how to focus on making sure their audience receives the most positive experience possible. With that, let’s break it down.

Personalization

Spotiy has always been at the forefront of personalization — they even have a dedicated role of a VP of Personalization . Through machine learning, Spotify leverages users’ listening habits and historical behaviors to inform the types of albums and playlists that are shown on a users’ home screen. Reinforcement Learning, or RL, is then used to predict what a user might want to listen to in the future, so as to maximize the ultimate, long-term reward that users get from the platform. Recently, Spotify launched a new AI DJ feature that offers a curated selection of music with spoken commentary about the tracks and artists. This new AI feature marks a shift wherein Spotify turns into more of a lean-back, passive listening experience that’s based more on the platform’s recommendations rather than intentional user selection. Spotify is using a Reinforced Learning with Human Feedback model where users are basically teaching the AI to become better at their job every time they play or skip a song — hence creating the perfect foundation for continual personalization and improved recommendations. 

Spotify DJ

Spotify is a tech platform that really understands the value of tapping into human emotion to build user engagement and loyalty. Emotion can be an incredibly powerful marketing tool — particularly when it comes to music. Spotify really leans into the relationship between music and emotion, and builds their strategy around what music means to people. For example, many people associate music with the idea of memory and nostalgia, so this year Spotify created a “Playlist in a Bottle”, which lets users create a musical time capsule that will be unlocked in January of 2024. Since users have to wait until 2024 to “unlock” their playlist, this nostalgia-steeped feature essentially locks  a user into their Spotify subscription for another year, and provides an opportunity for organic UGC and social sharing when the time eventually comes around. 

Spotify Blend

Music is also often seen as a space for connection and love, which is why they created the “Spotify Blend” feature — a daily-updated playlist that combines the music you and another person listens to based on your shared listening activity. For Valentine’s Day, Spotify took this a step further and allowed users to view their personalized taste match score and compare their music tastes to a partner or significant other. It’s a sweet sentiment that is extremely fitting given the inherently emotional nature of music, but it’s also a genius way for Spotify to spur greater engagement and viral sharing. 

Scoring System for Spotify Blend Feature

Spotify has access to huge amounts of listener data — so why wouldn’t they use it to their advantage? One of Spotify’s most well-known campaigns was all about data, yet it somehow still felt incredibly human and relatable. What Spotify did was they pulled user insights from large amounts of data, and framed those findings in a way that still feels deeply human. The result was a campaign that combined humor with leveraging user data, making users feel like they’re a part of a larger community of listeners. 

Example 1 of how Spotify uses data  in advertising

Who Is The Target Audience of Spotify?

Spotify’s target audience skews towards the younger Gen Z and Millennial generations, with a slight female majority and a geographical focus on the United States, Europe, and Latin America. That being said, Spotify’s audience is still incredibly diverse, with users in over 184 different countries and markets. This diversity calls back to the importance of user personalization, so that Spotify can create a customized experience for each user that is specific to their listening habits and music preferences. 

Spotify's Demographics

What Are The 4 P’s of Marketing For Spotify?

Now that you understand the main pillars of Spotify’s marketing strategy, here are the 4 P’s of Spotify’s marketing. 

Product: A look into a Spotify’s vertical scroll discovery 

One of the biggest features Spotify announced at their 2023 Stream On event was a new mobile interface built for deeper discovery. Much like TikTok or Instagram, there’s a vertical scroll that allows users to explore new album covers, short canvas clips or recommended podcasts. This fundamental change in the product interface reflects an overall shift towards a more discovery-focused model, where users not only listen to music they like but also find new songs and albums that are similar to their listening tastes.

One thing is clear: Spotify is no longer just a music streaming platform. With this new interface, Spotify is borrowing elements from TikTok, Instagram and Youtube, thus turning Spotify into a holistic experience encompassing not only audio, but also short-form video, album art, and more. 

Screenshots form Spotify app

It’s important to note that this more discovery-based approach may be Spotify’s attempt at solving the issue that they’ve been having with podcasts recently. Spotify acquired podcast production house Gimlet Media in 2019 for a reported $230 million, and purchased The Ringer network in 2020; all in all, Spotify spent over $1 billion as an investment into the podcast category. Despite the ambitious investment, Spotify’s podcasts are not yet profitable, and the platform only brought in roughly $215 million in revenue through podcasts in 2021. The benefit of the vertical scroll discovery format is that it gives users a new avenue to discover new content, and empowers creators to share and promote their content within the platform. Will this discovery model solve Spotify’s podcast problem? Only time will tell — but it was definitely a strategic move on their part. 

Spotify Investor Day 2022

Price: The freemium model in action

Spotify’s pricing strategy uses a freemium model that offers a basic service for free and an unlimited, ad-free premium service for a subscription fee of $9.99 a month. The advantage of this freemium business model is that Spotify can attract and acquire a large number of users through the appeal of a free service, and then convert those users to paying subscribers once they have already established a positive relationship with the customer. Evidently, the freemium model has been working for Spotify, as they have a 46% conversion rate to paid services, compared to just 30% for Slack, 4% for Evernote, and 0.5% for Google Drive. 

Spotify freemium conversion rate

The challenge with a freemium model comes later at the retention stage, as Spotify would have to continually retain their paying customers to maintain their stream of subscription revenue. Spotify has maintained an 85% retention rate , even despite their immense new user growth, demonstrating their strength in not only acquiring new users but also keeping them. At the heart of Spotify’s retention strategy is their ability to capitalize on the social and network effect on listening behaviors. Once a user subscribes to Spotify, they become part of a larger network of Spotify users, and they feel connected to that community through following a friend’s playlist, making blended playlists, or comparing their Spotify wrapped top artists. Once Spotify is able to give a user a sense of belonging, they are more likely to continue paying for the platform in order to continue to engage with others through the platform’s social sharing features. 

Promotion: The art of engineered virality 

Since its launch in 2016, Spotify’s viral “Spotify Wrapped” marketing campaign has dominated online conversations and social media platforms come every December. The campaign was so popular that it became some sort of an annual tradition or a rite-of-passage for die-hard Spotify users. In addition to being widely shared on social media, Spotify Wrapped is also the subject of countless memes, satirizations and copycat recreations. It went from marketing campaign to viral social phenomenon, and quickly rose to its status as the prime example of engineered virality and the power of social media trends.

Spotify Wrapped

On the surface level, Spotify Wrapped was created with the goal of giving users an opportunity to better understand their music tastes, and celebrate a year of listening by looking back at their favorite songs, artists and genres; but that’s only the beginning of it. Spotify Wrapped was created with the behaviors of social sharing in mind. Spotify recognized that music is by nature something that people like to share and show off, so they took that natural instinct and turned it into a tool for engineered virality and rapid word of mouth. Every part of the Spotify Wrapped function was designed and optimized for social sharing: 9:16 image dimensions were ready for Instagram Story posts, colors were designed to be eye-catching and attention-grabbing, and “share” buttons were scattered throughout the entire experience. Every time a user shared their Spotify Wrapped on their story, they were directly contributing to the viral loop of social sharing by reminding their own follower network to do the same. 

Spotify virality engineering loop

Genius? Yes. Organic, cost-effective, and sustainable? Yes, yes, and also yes.  

Place: Expanding into the metaverse 

In May of 2022, Spotify expanded their product into the metaverse with the launch of “Spotify Island”, a “paradise of sound” where fans and artists from all over the world can connect and explore a digital world of sounds, quests, and exclusive merch. Spotify is the first music-streaming brand to have a presence on Roblox, marking a significant change in the way we think about how we think about “place” when it comes to music streaming platforms. 

In terms of place, Spotify exists across any device that can access the app — be it a smartphone, laptop, smart speaker or voice-activated home assistant. With their expansion into the metaverse, Spotify pushes the boundaries of physical and digital spaces by creating a virtual universe to foster greater community and brand awareness. With Spotify island, the music streaming platform is no longer limited to its app itself; rather, it becomes a recognizable brand that transcends its functional manifestation. Spotify Island is designed to be incredibly true to its brand, with lots of green, music easter eggs, and shapes and icons that users will recognize from the app’s interface. 

Spotify Island on Roblox

On Spotify Island, users can mingle with artists, complete interactive quests, and unlock exclusive content. By creating a space where artists and listeners can interact with each other and with the brand in a whole new way, Spotify is able to immerse users in the world of their holistic brand identity, no matter how and where they choose to listen to their music. 

How Does Spotify Market Through Social Media?

In addition to Spotify’s now-viral Spotify Wrapped campaign, the tech company is skilled in marketing their platform through social media in a variety of different ways. At the core of their social media strategy is the principle that music can and should be a cross-platform experience, one that is not limited to the confines of the Spotify app itself; we already see this happening in their expansion into the metaverse, but this is apparent in their approach to social media as well. Every single experience and touchpoint on the Spotify app is designed to be easily shared across a variety of social media platforms, a move which is just as strategic as it is convenient. According to Spotify’s internal research data, 42% of Gen Z Spotify users in the U.S. said they’ve heard a song on social media and then searched for it on Spotify. While previous generations of music listeners may have been flipping through CDs at the malls or searching for vinyls at their local record store, today’s modern music listeners are seeking out new tracks and artists through social media. Evidence of this avid behavior of music discovery through social media proves particular importance for Spotify to hone in on their cross-platform experience and enable seamless discovery of their music. 

Spotify is not only marketing through social media, they are also evolving their product to replace behaviors that used to primarily exist on social media. In other words, much like social platforms like TikTok or Instagram, Spotify is broadening its offerings to become a space for eCommerce, music news, and information search in addition to music streaming. In their recent partnership with Shopify , artists can now sell their merch and/or concert tickets directly through the Spotify app. This “retail-ification” of the music streaming app is a win-win for both artists and Spotify, as it gives artists a platform to promote their work in the app itself, and it likely increases the amount of time that Spotify users spend on the app. Hence, in a strange chicken-or-the-egg type of situation, Spotify is simultaneously promoting itself through social media, and evolving to become a social media platform in itself to become less reliant on social media platforms in the future. 

Shopify x Spotify Partnership

What’s Next for Spotify?

There’s no denying that Spotify has been widely successful in their marketing strategy these past years — and they have the numbers to prove it. As of Q4 of 2022, Spotify has 489 million monthly active users . Still, listening habits and user behavior is a rapidly and continuously changing landscape, and in order for Spotify to retain its existing user base and maintain its success, the platform must also evolve to fulfill the diverse needs of today’s modern consumer. 

Will Spotify’s new vertical scroll discovery approach solve their podcast problem? Will Spotify Wrapped continue to go viral year after year? Will their social media strategy change in response to all the changes being implemented across Meta and Twitter? Spotify has many challenges ahead of themselves, but if their history of strategic thinking shows anything, it’s that this is a company that truly knows how to push the boundaries of growth and innovation. 

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Discover the Spotify model

What the most popular music technology company can teach us about scaling agile

Mark Cruth

Spotify is the largest and most popular audio streaming subscription service in the world, with an estimated 286 million users. A key part of Spotify's success is driven by the company’s unique approach to organizing around work to enhance team agility. As Spotify’s engineering teams traveled down the path towards improved agility, they documented their experience, shared it with the world, and ultimately influenced the way many technology companies organize around work. It is now known as the Spotify model.

What is the Spotify model?

The Spotify model is a people-driven, autonomous approach for scaling agile that emphasizes the importance of culture and network. It has helped Spotify and other organizations increase innovation and productivity by focusing on autonomy, communication, accountability, and quality.

The Spotify model isn’t a framework, as Spotify coach Henrik Kniberg noted , since it represents Spotify's view on scaling from both a technical and cultural perspective. It’s one example of organizing multiple teams in a product development organization and stresses the need for culture and networks.

…the Spotify model focuses on how we structure an organization to enable agility.

The Spotify model was first introduced to the world in 2012, when Henrik Kniberg and Anders Ivarsson published the whitepaper Scaling Agile @ Spotify , which introduced the radically simple way Spotify approached agility. Since then, the Spotify model generated a lot of buzz and became popular in the agile transformation space. Part of its appeal is that it focuses on organizing around work rather than following a specific set of practices. In traditional scaling frameworks, specific practices (e.g. daily standups) are how the framework is executed, whereas the Spotify model focuses on how businesses can structure an organization to enable agility.

The Spotify model champions team autonomy, so that each team (or Squad) selects their framework (e.g. Scrum , Kanban , Scrumban, etc.). Squads are organized into Tribes and Guilds to help keep people aligned and cross-pollinate knowledge.

Now, let’s demystify some of these terms…

Key elements of the Spotify model

The Spotify model is centered around simplicity. When Spotify began organizing around their work, they identified a handful of important elements on how people and teams should be structured.

Similar to a scrum team, Squads are cross-functional, autonomous teams (typically 6-12 individuals) that focus on one feature area. Each Squad has a unique mission that guides the work they do, an agile coach for support, and a product owner for guidance. Squads determine which agile methodology/framework will be used.

When multiple Squads coordinate within each other on the same feature area, they form a Tribe. Tribes help build alignment across Squads and typically consist of 40 - 150 people in order to maintain alignment (leveraging what we call Dunbar's Number ). Each Tribe has a Tribe Lead who is responsible for helping coordinate across Squads and for encouraging collaboration.

Even though Squads are autonomous, it’s important that specialists (e.g. Javascript Developer, DBAs) align on best practices. Chapters are the family that each specialist has, helping to keep engineering standards in place across a discipline. Chapters are typically led by a senior technology lead, who may also be the manager for the team members in that Chapter.

Team members who are passionate about a topic can form a Guild, which essentially is a community of interest. Anyone can join a Guild and they are completely voluntary. Whereas Chapters belong to a Tribe, Guilds can cross different Tribes. There is no formal leader of a Guild. Rather, someone raises their hand to be the Guild Coordinator and help bring people together.

The Trio (aka TPD Trio) is a combination of a Tribe Lead, product lead, and design lead. Each Tribe has a Trio in place to ensure there is continuous alignment between these three perspectives when working on features areas.

As organizations scale, sometimes multiple Tribes need to closely work together to accomplish a goal. Alliances are a combination of Tribe Trios (typically three or more) that work together to help their Tribes collaborate on a goal that is bigger than any one Tribe.

Spotify model image

That’s it. There are not a lot of practices that need to be followed or ceremonies that need to happen. Squads may have ceremonies like sprint planning and retrospectives, but the focus of the Spotify model is on how teams organize around work. It’s up to Squads to figure out the best way to get the job done.

The benefits of the Spotify model

When Spotify changed the way they scaled agile they wanted to enable Squads to move fast, ship software quickly, and do so all with minimum pain and overhead. They realized these benefits and more as they took their model and evolved it. The organizational benefits of implementing the Spotify model include:

Less formal process and ceremony

The Spotify model focuses on organizing around work and not necessarily processes and ceremonies. This gives an organization greater flexibility when it comes to how Squads work. Instead of requiring Squads to change how they do their work (“you must do scrum”), it focuses on aligning them with each other and driving towards individual team outcomes.

More self-management and autonomy

The Spotify model encourages autonomy and creativity by trusting people to complete the work they are doing in the way they see fit. Do you need to ship software? That’s up to the Squad. Do you need to change direction? That’s also up to the Squad. The Spotify model focuses on decentralizing decision making and transferring that responsibility to Squads, Tribes, Chapters, and Guilds.

“Control leads to compliance;  autonomy  leads to engagement.”

- Dan Pink, Author, “Drive: The Surprising Truth About What Motivates Us”

The Spotify model can offer increased transparency across the work being done and grow a more experimentation-based approach to problem solving in a high trust environment. All this can lead to things like better products, happier customers, and more engaged employees. However, not everyone will experience these outcomes.

The challenges of the Spotify model

The Spotify model was based on one organization's way of working. Many organizations desire the same benefits of the Spotify model, so they attempt to emulate what Spotify did. Some organizations experienced more success than others, but it’s likely no organization experienced the same success as Spotify. The reason? Like any way of working, an organization's current culture and structure need to be taken into account. The model is simple, but the environment it's implemented in is complex.

Wise executives tailor their approach to fit the  complexity  of the circumstances they face.

- Dave Snowden, Management Consultant

Unfortunately, many organizations try to copy the Spotify model. To some, it may seem like a simple matrix organizational structure where people report to a functional area (Chapter), but work with a cross-functional team (Squad). However, it’s more complex than that. Although it may look like a matrix organization, the key cultural elements of the model need to be in place to allow the structure to thrive, such as trust and autonomy. If an organization doesn’t shift its behaviors (and ultimately its culture), the benefits of the Spotify model will never be realized. If you simply rename teams to Squads, you’re just putting lipstick on a pig.

Spotify model best practices

If you’re looking to enable a culture of trust, autonomy, and rapid learning, you can’t go wrong looking to the Spotify model for inspiration. If your organization is looking at the Spotify model as a means to help you approach agile at scale , the following is a list of best practices to keep in mind.

Don’t copy the model

Seek to understand the structure, practices, and mindset behind Spotify’s approach. With that understanding, tweak the aspects of the model to fit your own environment. Your goal is not to be Spotify, but to leverage their model to improve how your organization works together.

Autonomy and trust is key

Spotify gave as much autonomy as possible to their people in order to help them pivot quickly. Allowing teams to pick their own development tools and modify another team's code are just some examples. Within your organization, determine if there are decisions that can be pushed to the teams instead of being mandated by parts of the organization that are disconnected from the day-to-day work.

Transparency with community

Spotify’s success is credited to their focus on building community and transparency around their work. Establish your first Guild around the Spotify model adoption and encourage participation from everyone in the organization. Build trust by creating transparent, inclusive ways to gather feedback, and gain alignment on how your organization wants to work in the future.

Encourage mistakes

You will fall down and stumble in this journey. But that’s okay. Improvement involves experimenting and learning from both our successes and failures. Spotify went through many iterations before they attained the model we know today, and have since continued to experiment to constantly look for new ways to improve the way they work. Encourage the same within your organization!

If you focus on these practices you’ll see positive impacts on how your organization collaborates and aligns, whether or not you use the Spotify model as a guide.

In conclusion…

The Spotify model is a great source of inspiration if you’re looking to build an organization focused on moving quickly with autonomy and purpose. Even more formal scaling frameworks, such as Scrum@Scale , have gained inspiration from the model (and vice versa). It's important to remember that the Spotify model is not a destination. Ironically enough, Spotify doesn’t leverage the original implementation of the Spotify model anymore; they evolved and adapted the model to fit their changing organization. Trios and Alliances are actually newer elements in Spotify as they were brought about to solve new problems the organization faced as it grew larger. Starting with the key elements of the Spotify model can get you moving, but true agility comes with evolving the model to fit your context.

Taking the next step

Are you hungry to learn more about the Spotify model? Check the two-part video posted on Spotify Labs about the engineering culture at Spotify ( Part I and Part II ). You can also learn how the Spotify model compares with other scaling framework by visiting the agile at scale page on the Agile Coach.

If you’re looking to implement the Spotify model within your organization, it’s important to have the feedback mechanisms and transparency in place to generate and sustain a culture of trust and autonomy. Leveraging Atlassian’s Jira Align , organizations can organize Squads into Tribes, form Guilds and Chapters, and make product decisions transparent across the organization.

Mark Cruth is Atlassian’s resident Modern Work Expert. Focused on practice over theory, Mark spends his days coaching both Atlassian and customer teams on new ways of working, then sharing what he’s learned at events around the world.

Joining Atlassian in 2019, Mark brings over a decade of experience experimenting with work and helping people, teams, and organizations transform at places like Boeing, Nordstrom, TD Ameritrade, and Rocket Mortgage. Mark has made it his mission to inject modern ways of working, a transformation mindset, and the power of expert storytelling into everything he does.

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Spotify Turns 15: What Are Its Most Important Innovations?

As Spotify celebrates its fifteenth birthday, we analyze how the company transformed the music industry.

Spotify celebrated its 15th birthday in April 2021, and it’s been quite the journey for the music streaming platform so far.

Beyond changing how we listen to music, the company has revolutionized the worlds of technology and business in general too.

This article will look at the Stockholm-headquartered music giant’s most significant innovations, along with discussing why they were so important.

Billboard Advertising Driven by User Data

Billboard ads are nothing new. If you’ve driven along a busy highway or spent any length of time in a big city, you’ll be more than aware that they exist.

But how many of these do you remember later? More often than not, probably not many.

Spotify has gained international recognition for its billboard ads driven by user data. Each of them adds a personal and relatable touch while also delivering a healthy dose of humor.

In addition to personalized ads, the company has also done an excellent job joining popular culture trends. These include social media memes and even some of the hottest chart hits.

Beyond using data the right way, Spotify’s ads have also shown that traditional forms of advertising aren’t yet dead—as long as you can add a unique creative touch.

End-Of-Year Reviews Which Encourage Sharing

Spotify’s end-of-year billboard ads have worked wonders in engaging audiences, along with bringing in new customers. But they’ve been just as innovative using data for user retention.

In 2015, the company launched the Year in Music, which allowed listeners to get a clear picture of their music tastes over the year. Later, this feature became known as Wrapped.

spotify wrapped 2020 new artists

Initially, the end-of-year review started as a list of the most popular on Spotify from that year and users’ favorite tunes. Now, however, it has evolved into a more interactive experience. You can discover how many artists you found, your top artists, favorite genres, and more.

Spotify’s end-of-year reviews have helped keep its users engaged, but they have also emphasized the importance of personalization within the tech space. More than that, Wrapped has also pointed out how you can get creative with analytics.

Discover Weekly Lets You Find New Music

Spotify has become the go-to music streaming service for many because of how easy it is to discover new songs, artists, and genres. Since launching in 2015, users have collectively spent over 2.3 billion hours within this feature.

spotify discover weekly

When the company introduced this unique playlist, such a tool was relatively uncommon within music streaming. And even now, Discover Weekly has evolved with users’ tastes—making it a timeless addition.

Related: How to Transfer Spotify Music and Playlists to a New Account

The feature has also helped musicians grow their followings by exposing users to new songs and artists. Examples include the Moroccan-Dutch DJ R3HAB, American singer Halsey, and Detroit-born MK—who has developed a large following in the UK.

The Platform Made Legal Music Listening Seamless

Among all of its innovations since launching, it’s easy to forget that the Spotify platform alone has changed how we listen to music forever.

With music streaming services, users can listen to their favorite tunes wherever they go with more convenience. They don’t need to download songs first, either through buying them on iTunes, purchasing the CD, or illegally adding them to their device.

Related: How to Download Full Albums on the Spotify Desktop App

Before 2006, piracy was a lot more prevalent. While there are various conversations about whether Spotify pays artists enough , one thing it has done well is channel users towards legal music streaming means. As such, those singers are getting more than they would have if listeners illegally downloaded their songs.

spotify innovation case study

Beyond legality, Spotify is also affordable for many listeners—compared to constantly buying songs and albums.

Spotify has also made a big impact on technology in other industries. Alongside music streaming, video streaming has also risen massively. While it had existed for decades before the platform’s launch, the freemium model has also become more widely adopted.

Spotify's 15 Years of Innovation: Here's to Many More

Spotify’s impact on both music and technology is unmistakable. Above all else, the company has shown how to personalize services and build revenue through customer retention.

The platform has also shown that you can still use traditional marketing strategies, such as print media. And even more than that, that you can use them to your advantage.

Spotify has also helped with getting more users to adopt legal ways of listening to and downloading music.

Streaming is a more competitive industry these days, but the company can live safe in the knowledge that it knows how to disrupt effectively.

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Scrum Case Study: Real-world Agile Success

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Table of contents

What is scrum, roles in scrum, scrum events, scrum artifacts, how does scrum impacts organizations, the scenario: challenges faced, the scrum solution, results achieved, the bottom line.

Spotify, the world-renowned music streaming platform, embarked on an Agile transformation journey that has become one of the most famous Scrum case studies. In 2012, Spotify adopted Scrum and Agile principles to revamp its engineering and development processes. This real-life example demonstrates how Scrum can be successfully applied in a large-scale organization, fostering innovation, collaboration, and rapid delivery. Now before that let’s understand what is scrum and what it can do. 

Scrum is a widely recognized and highly effective Agile framework used in project management, particularly in software development. It offers a structured approach to managing complex work, emphasizing collaboration, adaptability, and iterative progress. Here's a closer look at what Scrum entails:

Three Scrum Roles:  

  • Product Owner: The Product Owner is responsible for defining and prioritizing the work to be done, ensuring that the team focuses on delivering the most valuable features to users.
  • Scrum Master : The Scrum Master serves as a servant-leader, facilitating Scrum events, removing obstacles, and ensuring the team adheres to Scrum principles.
  • Development Team: The Development Team consists of professionals who do the work to deliver a potentially shippable product increment during each Sprint.

Initially, it was 4 and then became 5 Scrum Events:

  • Sprint: A Sprint is a time-boxed iteration, typically lasting 2-4 weeks, during which a set of user stories or tasks are completed.
  • Sprint Planning: The team collaboratively selects and commits to a set of work items for the upcoming Sprint.
  • Daily Scrum: A brief daily stand-up meeting where team members share progress, discuss obstacles, and plan the day's work.
  • Sprint Review: A meeting at the end of each Sprint where the team presents the completed work to stakeholders for feedback.
  • Sprint Retrospective: A reflective meeting is held after each Sprint to discuss what went well, what could be improved, and actions for continuous enhancement.

3 most important Scrum Artifacts: 

  • Product Backlog: A prioritized list of features, enhancements, and bug fixes that represent the work to be done.
  • Sprint Backlog: A subset of the Product Backlog items selected for the current Sprint.
  • Increment: The sum of all the work completed during a Sprint, representing a potentially shippable product.

Scrum encourages a mindset of continuous improvement and flexibility, allowing teams to adapt to changing requirements and deliver value incrementally. It promotes transparency, collaboration, and accountability, making it a powerful methodology for project management.

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Scrum's impact on organizations is profound and extends far beyond just project management. Here are some key ways in which Scrum can transform and benefit organizations:

1. Improved Productivity: Scrum's focus on time-boxed Sprints, daily stand-up meetings, and clear goals enhances team productivity. By breaking work into manageable chunks, teams can maintain a steady pace of delivery.

2. Faster Time to Market: Scrum enables organizations to respond rapidly to changing market conditions and customer feedback. Features and improvements are delivered in short iterations, reducing time-to-market for products and services.

3. Enhanced Collaboration: Scrum fosters collaboration within and between teams. Daily stand-ups and regular ceremonies promote communication and transparency, reducing misunderstandings and improving teamwork.

4. Better Risk Management: Scrum encourages teams to identify and address risks early in the project. By conducting regular Sprint Reviews and Retrospectives, teams can adapt and mitigate risks proactively.

5. Customer-Centric Approach: Scrum places a strong emphasis on understanding and delivering value to customers. The Product Owner ensures that the team works on the most valuable items from the Product Backlog , resulting in products that better align with customer needs.

6. Transparency and Accountability: Scrum makes progress and impediments visible to everyone in the organization. This transparency holds teams accountable for their commitments and encourages continuous improvement.

7. Employee Satisfaction: Empowering teams to make decisions and take ownership of their work leads to higher job satisfaction and engagement among employees. Scrum promotes a sense of ownership and responsibility.

8. Scalability: While Scrum is often associated with small teams, it can be scaled to suit large organizations using frameworks like the Scaled Agile Framework (SAFe) or Large-Scale Scrum (LeSS).

9. Continuous Improvement: Scrum encourages a culture of continuous improvement through retrospectives. Teams regularly reflect on their processes and make adjustments to enhance efficiency and effectiveness.

Before its Agile transformation, Spotify faced several challenges typical of large tech companies:

  • Silos and Isolation: Teams were organized by functional areas (e.g., backend, frontend), leading to silos and a lack of cross-functional collaboration.
  • Slow Release Cycles: Traditional development methodologies resulted in slow release cycles, making it challenging to respond quickly to customer feedback and market changes.
  • Lack of Customer Focus: There was a need to become more customer-centric, understanding and delivering what users truly wanted.

To address these challenges, Spotify implemented a modified version of the Scrum framework known as the "Spotify Model" or "Spotify Squad Framework." Here's how they approached it:

Squads: Squads are cross-functional teams, each responsible for specific features or components. Squads operate like small startups within the organization, with autonomy to make decisions about their work.

Tribes: Squads are organized into Tribes based on common goals and areas of focus. Each Tribe is led by a Tribe Lead who provides high-level guidance.

Guilds and Chapters: These are informal communities of practice where employees can share knowledge and expertise, fostering continuous learning and collaboration.

Spotify Playlists: In the Scrum context, Spotify Playlists represent the product backlog. They consist of a prioritized list of user stories and features.

Spotify's Agile transformation yielded impressive results:

Rapid Innovation: The shift to cross-functional squads enabled faster decision-making, leading to quicker innovation and feature delivery.

Improved Collaboration: Cross-team communication and collaboration improved significantly. Squads were encouraged to learn from each other and seek out expertise in Guilds and Chapters.

Enhanced Customer Focus: With squads empowered to make decisions, they became more customer-focused, delivering features that users truly valued.

Scaling Agility: The model allowed Spotify to scale its Agile practices effectively as the company grew. Squads could be added or reorganized as needed.

Spotify's Agile transformation serves as a remarkable Scrum case study, demonstrating how large organisations can leverage Scrum principles to address common challenges and thrive in a rapidly changing market. By embracing cross-functional teams, autonomy, and a customer-centric approach, Spotify reshaped the music streaming industry.

This real Scrum case study example of Spotify underscores the adaptability and scalability of Scrum principles in diverse organizational contexts. It proves that the benefits of Scrum extend beyond software development, driving innovation and success in various industries.

spotify innovation case study

100% Success Rate

The Spotify Agile transformation is not just a case study; it's a testament to the transformative power of Scrum. By adopting Agile principles and fostering a culture of collaboration and innovation, Spotify reshaped the music streaming industry and set a precedent for organizations worldwide.

If you're inspired by Spotify's journey and want to bring Agile excellence to your organization, consider getting your team certified in Scrum. Whether you aim to become a Certified Scrum Master (CSM) or pursue Scrum training, the principles showcased in this real Scrum case study can guide you towards success in your Agile endeavours. Start your Agile transformation today and make your organization the next success story.

Also Read: Scrum Master Challenges

Frequently Asked Questions

1. How did Spotify's Agile transformation impact its market position?

Spotify's Agile transformation allowed the company to respond quickly to market changes and customer feedback, strengthening its position as a market leader in the music streaming industry.

2. Did all teams at Spotify fully adopt Scrum practices?

While Spotify introduced Scrum-inspired practices across the organization, not all teams followed Scrum rigorously. The model allowed flexibility for teams to adapt their processes based on their specific needs.

3. Are there any potential drawbacks to adopting the Spotify Model?

While the model has been highly successful for Spotify, it may not be suitable for all organizations. Some may find it challenging to implement due to its unique organizational structure.

4. Did Spotify continue to evolve its Agile practices after the initial transformation?

Yes, Spotify continued to refine and adapt its Agile practices over the years. The company remains committed to a culture of continuous improvement.

5. What are some key takeaways for organizations considering an Agile transformation?

Organizations should prioritize cross-functional collaboration, autonomy, and a customer-centric approach when adopting Agile practices. Flexibility and adaptability are also essential for success in a rapidly changing business landscape.

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How the Best Leaders Drive Innovation

They learn how to take on three key roles: architect, bridger, and catalyst.

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If you’re leading innovation, you need very specific leadership skills.

Harvard Business School professor Linda Hill has studied leadership and innovation for decades and is the coauthor of Collective Genius: The Art and Practice of Leading Innovation . She says that leaders who shepherd innovation can’t rely on formal authority. Instead, they need to understand how to get people to co-create with them, which requires mastering three key roles —architect, bridger, and catalyst—or the ABCs of innovation.

In this episode, you’ll learn how to fill each of these roles—from how to assemble the right team to how to build real connections and mutual commitment. As Hill says, “You cannot tell people to innovate. You can only invite them.”

Key episode topics include: leadership, innovation, power, commitment, talent management, resources, teams, collaboration.

HBR On Leadership curates the best case studies and conversations with the world’s top business and management experts, to help you unlock the best in those around you. New episodes every week.

  • Watch the original HBR Quick Study episode: What Makes a Great Leader? (2022)
  • Find more episodes of the HBR Quick Study series on YouTube .
  • Discover 100 years of Harvard Business Review articles, case studies, podcasts, and more at HBR.org .

HANNAH BATES: Welcome to HBR on Leadership , case studies and conversations with the world’s top business and management experts, hand-selected to help you unlock the best in those around you. If you’re  , you’ll need some very specific leadership skills. Do you know what they are? Harvard Business School professor Linda Hill says that leaders who shepherd innovation can’t rely on formal authority. Instead, they need to understand how to get people to co-create with them.  Hill studies leadership and innovation, and she says leaders who are great at leading innovative projects understand how to keep their teams committed to a project for the long run. In this episode you’ll learn how to do that using the ABC’s of innovation leadership. That’s A for architect – which is knowing how to assemble the right team. B for bridger – connecting with outside talent and resources. And C for catalyst – getting things done. This episode originally aired as part of the HBR Quick Study video series in September 2022. Here it is.

LINDA A. HILL: We know that one of the key reasons why organizations aren’t able to innovate organizations aren’t as agile as they need to be is they don’t have the kind of leadership they need. If you came to the Harvard Business School 100 years ago, great leadership was really about setting direction and making sure that people went in that direction. How do you come up with strategy?

When I came almost 40 years ago, we moved a bit from strategy to, really, vision. So people like John Kotter and Warren Bennis helped us understand that people needed to have a bigger ambition than just the strategy. What’s the vision? Where are we going and why?

What I’ve come to see as I’ve begun to do research in the 2000s– yes, you still need to be a visionary. But guess what? Because innovation has become ever more important, that means, really, moving from vision to shaping culture and capabilities.

You have to move from focusing on, OK, what’s my vision and how do I communicate and get people to follow me to the future? Instead, leading innovation is about getting people to co-create that future with you. And co-creation requires a different kind of leadership.

If you want to lead an organization and build an organization that can innovate at scale with speed, really, leaders have three functions they have to fulfill. The ABCs of leadership– A, you must be an architect, B, you must be a bridger, and C, you must be a catalyst.

The first role is the role of architect– building the culture and capabilities necessary for a group of people to be able to collaborate, experiment, and learn. Innovative work is not about an individual having an aha moment. It’s really about a collaboration of individuals with diverse expertise, diverse points of view and experiences, who figure out, again, how to collaborate, how to experiment and learn together with some speed– what we call collective genius.

The idea here is that everyone in your organization has a slice of genius. Everyone has talents, everyone has passions. Your role as a leader is to unleash the diverse slices of genius in your organization and then leverage and harness them for the collective good. How do you get everyone in the organization to understand that they need to work on not just what they should be doing, but what they could be doing?

The second is B, or bridger. We have to go outside the organization to get access to talent and tools. You need to be able to bridge, because you do not have the talent and tools you need inside your organization to innovate at speed or at scale. Just don’t. Particularly now that digital is such a big piece of it, you are always, you and your organizations, are really embedded in a web of interdependencies.

And that means trying to innovate across boundaries. So we see many organizations building

out new units or asking leaders to lead units in which they really are serving as the bridge between the outside of the organization and the inside.

We’ve been studying leaders who run innovation labs, corporate accelerators– even organizations that were digital first are finding that they need to partner with other digital first companies to get access to the cloud, right? Because other organizations might be better at it than they are better at it, and they need to focus on other things that are their core capabilities.

And then the third is catalyst. And this is when you’re trying to accelerate co-creation throughout the entire ecosystem. And there can be a couple of reasons for why you want to do that. One may be that for you to do what you want to do inside your organization, you need other people, other organizations to be able to innovate, because they got to create something that you need to fulfill your purpose.

The other is, fundamentally, because you’re trying to just create more capability in the whole ecosystem. Because when you lift the whole, everyone gets lifted. It’s when your ambition is much, much greater than your organization and you’re maybe trying to change a country, or the prospects of a whole continent. So you have to get the whole ecosystem active and co-creating if you want to do that kind of thing.

An example would be if you want to be as secure yourself in your own internet service, then if you can help your clients be more secure, have more cybersecurity, that helps you as well. So that’s an instance of being a catalyst. But when you’re actually doing the act of working across, that is where you’re being a bridger. So these three roles are very interconnected.

We’ve been studying the leader who runs the trials for Pfizer. It turns out that Pfizer can only innovate and be as agile as it needs to be if, in fact, their vendors are agile and able to innovate. So we have leaders there who are working across with vendors and turning those vendors into partners, where, in fact, we have a real connection.

We do trust each other. We do know how to influence each other. We are willing to make mutual commitments. Because only when we have that deep connection are we willing to do the hard work together necessary to actually do something like run those trials in 266 days and make the impossible, possible.

Now, what you see– again, the catalyst role of that same leader– is working to put together consortia of people who are in the pharmaceutical industries to go back and think about, what are some new standards we want to set? And talk with regulators about now that we know what’s possible, will allow us to bring hope to patients even faster if we work across the industry to raise all of our capacity to do more innovative work. So what we see is organizations have to go outside to get what they need.

What they’re really all about is learning how to exercise influence when you don’t have formal authority. We’ve got to let go of formal authority as our source of influence and power. Instead, we’re using, if you will, being able to shape culture and capabilities, being able to forge connections between diverse parties, real connections where we actually have mutual trust, mutual influence, and mutual commitment.

Don’t rely so much on your formal authority as a way of influencing people. It’s not very useful, because with formal authority, if you’re using that as your source of power, maybe you can control people, but you’re not building their commitment. And you need commitment if you want to have people take the risks associated with trying to do something new and useful, particularly a breakthrough kind of innovation.

You don’t use formal authority as a way to get things done, because you cannot tell people to innovate. You can only invite them. It is a voluntary act.

HANNAH BATES: That was Harvard Business School professor Linda Hill on the HBR Quick Study video series. Hill is the author of the book Collective Genius: The Art and Practice of Leading Innovation . We’ll be back next Wednesday with another hand-picked conversation about leadership from the Harvard Business Review. If you found this episode helpful, share it with your friends and colleagues, and follow our show on Apple Podcasts, Spotify, or wherever you get your podcasts. While you’re there, be sure to leave us a review. We’re a production of the Harvard Business Review. If you want more podcasts, articles, case studies, books, and videos like this, find it all at HBR dot org. This episode was produced by Scott LaPierre, Anne Saini, and me, Hannah Bates. Ian Fox is our editor. Video by Dave DiIulio, and Elie Honein, Animation by Alex Belser. Music by Coma Media. Special thanks to Maureen Hoch, Adi Ignatius, Ramsey Khabbaz, Nicole Smith, Anne Bartholomew, and you – our listener. See you next week.

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Embracing AI Transformation: How customers and partners are driving pragmatic innovation to achieve business outcomes with the Microsoft Cloud

Jan 29, 2024 | Judson Althoff - Executive Vice President and Chief Commercial Officer

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This past year was one of technology’s most exciting with the emergence of generative AI, as leaders everywhere considered the possibilities it represented for their organizations. Many recognized its value and are eager to continue innovating, while others are inspired by what it has unlocked and are seeking ways to adopt it. At Microsoft, we are focused on developing responsible AI strategies grounded in pragmatic innovation and enabling AI Transformation for our customers. As I talk to customers and partners about the outcomes they are seeing — and rationalize those against Microsoft’s generative AI capabilities — we have identified four areas of opportunity for organizations to empower their AI Transformation: enriching employee experiences, reinventing customer engagement, reshaping business processes and bending the curve on innovation . With these as a foundation, it becomes easier to see how to bring pragmatic AI innovation to life, and I am proud of the impact we have made with customers and partners around the world. From developing customer-focused AI and cloud services for millions across Europe and Africa with Vodafone , to empowering customers and employees with generative AI capabilities with Walmart , I look forward to what we will help you achieve in the year ahead.

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Enriching employee experiences and shaping the future of work with copilot technology

Bayer employees are collaborating better on worldwide research projects and saving time on daily tasks with Copilot for Microsoft 365, while Finnish company Elisa is helping knowledge workers across finance, sales and customer service streamline routine tasks. Banreservas is driving employee productivity and enhancing decision-making, and Hong Kong’s largest transportation companies — Cathay and MTR — are streamlining workflows, improving communications, and reducing time-consuming administrative tasks. Across professional services, KPMG has seen a 50% jump in employee productivity, Dentsu is saving hundreds of employees up to 30 minutes per day on creative visualization processes, and EY is making it easier to generate reports and access insights in near real-time with Copilot for Microsoft 365. In Malaysia, financial services organization PNB is saving employees time searching through documents and emails and AmBank employees are enhancing the quality and impact of their work. At Hargreaves Lansdown , financial advisers are using Copilot for Microsoft 365 and Teams to drive productivity and make meetings more inclusive. Avanade is helping sellers save time updating contact records and summarizing email threads with Copilot for Dynamics 365, while HSO Group, Vixxo, and 9altitudes are streamlining work for field and service teams.

Employee and customer in store

Reinventing customer engagement with generative AI to deliver greater value and increased satisfaction

MECOMS is making it possible for utility customers to ask questions and get suggestions about how to reduce power consumption using Microsoft Fabric and copilot on their Power Pages portal. Schneider Electric has built a Resource Advisor copilot to equip customers with enhanced data analysis, visualization, decision support and performance optimization. California State University San Marcos is finding ways to better understand and personalize the student journey while driving engagement with parents and alumni using Dynamics 365 Customer Insights and Copilot for Dynamics 365. With Azure OpenAI Service, Adecco Group is bolstering its services and solutions to enable worker preparedness as generative AI reshapes the workforce, UiPath has already helped one of its insurance customers save over 90,000 hours through more efficient operations, and Providence has developed a solution for clinicians to respond to patient messages up to 35% faster. Organizations are building generative AI assistants to help employees save time, improve customer service and focus on more complex work, including Domino’s , LAQO and OCBC . Within a few weeks of introducing its copilot to personalize customer service, Atento has increased customer satisfaction by 30% while reducing operational errors by nearly 20%, and Turkey-based Setur is personalizing travel planning with a chatbot to customize responses in multiple languages for its 60,000 daily users. In the fashion industry, Coats Digital launched an AI assistant in six weeks to make customer onboarding easier. Greece-based ERGO Insurance partnered with EBO to provide 24/7 personalized assistance with its virtual agent, and H&R Block introduced AI Tax Assist to help individuals and small business owners file and manage their taxes confidently while saving costs.

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Reshaping business processes to uncover efficiencies, improve developer creativity and spur AI innovation

Siemens built its own industrial copilot to simplify virtual collaboration of design engineers and front-line workers, accelerate simulation times and reduce tasks from weeks to minutes. With help from Neudesic , Hanover Research designed a custom AI-powered research tool to streamline workflows and identify insights up to 10 times faster. With Microsoft Fabric, organizations like the London Stock Exchange Group and Milliman are reshaping how teams create more value from data insights, while Zeiss is streamlining analytics workflows to help teams make more customer-centric decisions. Volvo Group has saved more than 10,000 manual hours by launching a custom solution built with Azure AI to simplify document processing. By integrating GitHub Copilot, Carlsber g has significantly enhanced productivity across its development team; and Hover , SPH Media , Doctolib and CloudZero have improved their workflows within an agile and secure environment. Mastery Logistics Systems and Novo Nordisk are using GitHub Copilot to automate repetitive coding tasks for developers, while Intertech is pairing it with Azure OpenAI Service to enhance coding accuracy and reduce daily emails by 50%. Swiss AI-driven company Unique AG is helping financial industry clients reduce administrative work, speed up existing processes and improve IT support; and PwC is simplifying its audit process and increasing transparency for clients with Azure OpenAI Service.  By leveraging Power Platform, including AI and Copilot features, Epiq has automated employee processes, saving over $500,000 in annual costs and 2,000 hours of work each month, PG&E is addressing up to 40% of help desk demands to save more than $1 million annually, and Nsure is building automations that reduce manual processing times by over 60% and costs by 50%. With security top of mind, WTW is using Microsoft Copilot for Security to accelerate its threat-hunting capabilities by making it possible for cyber teams to ask questions in natural language, while LTIMindtree is planning on using it to reduce training time and strengthen security analyst expertise.

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Bending the curve on innovation across industries with differentiated AI offerings

To make disaster response more efficient, nonprofit Team Rubicon is quickly identifying and engaging the right volunteers in the right locations with the help of Copilot for Dynamics 365. Netherlands-based TomTom is bringing the benefits of generative AI to the global automotive industry by developing an advanced AI-powered voice assistant to help drivers with tasks like navigation and temperature control. In Vietnam, VinBrain has developed one of the country’s first comprehensive AI-powered copilots to support medical professionals with enhanced screening and detection processes and encourage more meaningful doctor-patient interactions. Rockwell Automation is delivering industry-first capabilities with Azure OpenAI Service to accelerate time-to-market for customers building industrial automation systems. With a vision to democratize AI and reach millions of users, Perplexity.AI has brought its conversational answer engine to market in six months using Azure AI Studio. India’s biggest online fashion retailer, Myntra , is solving the open-ended search problem facing the industry by using generative AI to help shoppers figure out what they should wear based on occasion. In Japan, Aisin Corp has developed a generative AI app to empower people who are deaf or hard of hearing with tasks like navigation, communication and translation; and Canada-based startup Natural Reader is making education more accessible on-the-go for students with learning differences by improving AI voice quality with Azure AI. To solve one of the most complex engineering challenges — the design process for semiconductors — Synopsys is bringing in the power of generative AI to help engineering teams accelerate time-to-market.

As organizations continue to embrace AI Transformation, it is critical they develop clarity on how best to apply AI to meet their most pressing business needs. Microsoft is committed to helping our customers and partners accelerate pragmatic AI innovation and I am excited by the opportunities before us to enrich employee experiences, reinvent customer engagement, reshape business processes and bend the curve on innovation. As a technology partner of choice — from our differentiated copilot capabilities to our unparalleled partner ecosystem and unique co-innovation efforts with customers — we remain in service to your successful outcomes. We are also dedicated to preserving the trust we have built through our partnership approach, responsible AI solutions and commitments to protecting your data, privacy and IP. We believe this era of AI innovation allows us to live truer to our mission than ever before, and I look forward to continuing on this journey with you to help you achieve more.

Tags: AI , Azure , Azure AI , Azure OpenAI Service , Copilot for Dynamics 365 , Copilot for Microsoft 365 , Innovation , Microsoft AI , Microsoft Cloud , Microsoft Copilot for Security , Microsoft Partners , Microsoft Power Platform

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Fake and Explicit Images of Taylor Swift Started on 4chan, Study Says

The people on 4chan who created the images of Ms. Swift thought of it as a sort of game, the researchers said.

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Taylor Swift, wearing a white knit cap and a red jacket with the number 87 in white.

By Tiffany Hsu

Images of Taylor Swift that had been generated by artificial intelligence and had spread widely across social media in late January probably originated as part of a recurring challenge on one of the internet’s most notorious message boards , according to a new report.

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Open this article in the New York Times Audio app on iOS.

Graphika, a research firm that studies disinformation, traced the images back to one community on 4chan, a message board known for sharing hate speech, conspiracy theories and, increasingly, racist and offensive content created using A.I.

The people on 4chan who created the images of the singer did so in a sort of game, the researchers said — a test to see whether they could create lewd (and sometimes violent) images of famous female figures.

The synthetic Swift images spilled out onto other platforms and were viewed millions of times . Fans rallied to Ms. Swift’s defense, and lawmakers demanded stronger protections against A.I.-created images.

Graphika found a thread of messages on 4chan that encouraged people to try to evade safeguards set up by image generator tools, including OpenAI’s DALL-E, Microsoft Designer and Bing Image Creator. Users were instructed to share “tips and tricks to find new ways to bypass filters” and were told, “Good luck, be creative.”

Sharing unsavory content via games allows people to feel connected to a wider community, and they are motivated by the cachet they receive for participating, experts said. Ahead of the midterm elections in 2022, groups on platforms like Telegram, WhatsApp and Truth Social engaged in a hunt for election fraud, winning points or honorary titles for producing supposed evidence of voter malfeasance. (True proof of ballot fraud is exceptionally rare .)

In the 4chan thread that led to the fake images of Ms. Swift, several users received compliments — “beautiful gen anon,” one wrote — and were asked to share the prompt language used to create the images. One user lamented that a prompt produced an image of a celebrity who was clad in a swimsuit rather than nude.

Rules posted by 4chan that apply sitewide do not specifically prohibit sexually explicit A.I.-generated images of real adults.

“These images originated from a community of people motivated by the ‘challenge’ of circumventing the safeguards of generative A.I. products, and new restrictions are seen as just another obstacle to ‘defeat,’” Cristina López G., a senior analyst at Graphika, said in a statement. “It’s important to understand the gamified nature of this malicious activity in order to prevent further abuse at the source.”

Ms. Swift is “far from the only victim,” Ms. López G. said. In the 4chan community that manipulated her likeness, many actresses, singers and politicians were featured more frequently than Ms. Swift.

OpenAI said in a statement that the explicit images of Ms. Swift were not generated using its tools, noting that it filters out the most explicit content when training its DALL-E model. The company also said it uses other safety guardrails, such as denying requests that ask for a public figure by name or seek explicit content.

Microsoft said that it was “continuing to investigate these images” and added that it had “strengthened our existing safety systems to further prevent our services from being misused to help generate images like them.” The company prohibits users from using its tools to create adult or intimate content without consent and warns repeat offenders that they may be blocked.

Fake pornography generated with software has been a blight since at least 2017, affecting unwilling celebrities , government figures , Twitch streamers , students and others. Patchy regulation leaves few victims with legal recourse; even fewer have a devoted fan base to drown out fake images with coordinated “Protect Taylor Swift” posts.

After the fake images of Ms. Swift went viral, Karine Jean-Pierre, the White House press secretary, called the situation “alarming” and said lax enforcement by social media companies of their own rules disproportionately affected women and girls. She said the Justice Department had recently funded the first national helpline for people targeted by image-based sexual abuse, which the department described as meeting a “rising need for services” related to the distribution of intimate images without consent. SAG-AFTRA , the union representing tens of thousands of actors, called the fake images of Ms. Swift and others a “theft of their privacy and right to autonomy.”

Artificially generated versions of Ms. Swift have also been used to promote scams involving Le Creuset cookware . A.I. was used to impersonate President Biden’s voice in robocalls dissuading voters from participating in the New Hampshire primary election. Tech experts say that as A.I. tools become more accessible and easier to use, audio spoofs and videos with realistic avatars could be created in mere minutes.

Researchers said the first sexually explicit A.I. image of Ms. Swift on the 4chan thread appeared on Jan. 6, 11 days before they were said to have appeared on Telegram and 12 days before they emerged on X. 404 Media reported on Jan. 25 that the viral Swift images had jumped into mainstream social media platforms from 4chan and a Telegram group dedicated to abusive images of women. The British news organization Daily Mail reported that week that a website known for sharing sexualized images of celebrities posted the Swift images on Jan. 15.

For several days, X blocked searches for Taylor Swift “with an abundance of caution so we can make sure that we were cleaning up and removing all imagery,” said Joe Benarroch, the company’s head of business operations.

Audio produced by Tally Abecassis .

Tiffany Hsu reports on misinformation and disinformation and its origins, movement and consequences. She has been a journalist for more than two decades. More about Tiffany Hsu

Explore Our Coverage of Artificial Intelligence

News  and Analysis

OpenAI announced that it was releasing a new version of ChatGPT that would remember all prior conversations with users  so it could use that information in future chats. The start-up also unveiled technology that creates videos that look like they were lifted from a Hollywood movie .

The F.T.C. outlawed unwanted robocalls generated by A.I. , amid growing concerns over election disinformation and consumer fraud facilitated by the technology.

Google has released Gemini, a smartphone app that behaves like a talking digital assistant as well as a conversational chatbot .

The Age of A.I.

A year ago, a rogue A.I. tried to break up our columnist’s marriage. Did the backlash that ensued help make chatbots too boring? Here’s how we tame d the chatbots.

Amid an intractable real estate crisis, fake luxury houses offer a delusion of one’s own. Here’s how A.I. is remodeling the fantasy home .

New technology has made it easier to insert digital, realistic-looking versions of soda cans and shampoo on videos on social media. A growing group of creators and advertisers is jumping at the chance for an additional revenue stream .

A start-up called Perplexity shows what’s possible for a search engine built from scratch with A.I. Are the days of turning to Google for answers numbered ?

Chafing at their dependence on the chipmaker Nvidia, Amazon, Google, Meta and Microsoft are racing to build A.I. chips of their own .

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spotify innovation case study

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Growth through innovation: the Principle One ACE supplier story

Principle One has been with ACE since our earliest days. We speak to CEO Maggie Scott about how this has helped the company develop and grow.

spotify innovation case study

Principle One has come a long way in just a few years. An early partner on the Accelerated Capability Environment ( ACE ) journey, the technical consultancy was founded by a small team in 2018 and now has over 60 staff working on a diverse range of projects.

With a heritage in secure law enforcement, the company – which has always had a strong focus on agile delivery – was founded to create an environment where staff could help customers solve their core mission problems in a supportive environment. And ACE provided an early opportunity to do just that.

Changing the game

CEO Maggie Scott said: “ ACE was one of the routes to market that was open to us and a very important customer to us in that first year because its procurement process, and the focus on smaller discovery pieces of work or proof of concept innovation, levels the playing field for SMEs such as ourselves.

“We were able to bid from day one against much larger organisations and demonstrate new ideas and value for money to customers that in many cases we already knew. In terms of removing barriers to entry in what is quite a closed market in secure public sector, ACE really did change the game.”

Even in that first year, Principle One worked across a range of different commissions for ACE , including as design authority on a twelve-week discovery commission for a new national data management system for law enforcement, supporting technical experimentation to understand the art of the possible around using internet data in investigations and as part of ACE ’s core team of technical enablers.

An early success story for the company was their work on the Access Pass Holder Information Distribution System ( APHIDS ) secure airports system. Here, they supported stakeholder engagement with regional airports to pull together an understanding of existing systems and processes, and what would be needed to create a unified approach across the UK. Working with other suppliers from ACE ’s Vivace industry and academic community they led integration between the two suppliers working remotely on delivering different components of the solution, providing engineering management, business analysis and software integration skills.

Working as part of a multi supplier team is a common theme to Principle One’s work with ACE and, over the last five years their consultants have supported delivery of commissions in areas as diverse as maritime security, the NHS and in the design and mobilisation of a new UK Telecoms Lab to promote research around a new capability.

However, Maggie says, law enforcement remains at the centre of their focus: “Our staff want to focus on work where they can actually make a difference and it’s been exciting to see the range of new commissions this year across our core customers where we have the opportunity to do just that.

“Supporting ACE in tackling Violence against Women and Girls and in driving change across the UK has been a highlight of this year to date and has led to our funding our own innovation work to develop an app that could help frontline officers identify the right protective measure to support domestic abuse victims.”

A springboard for long term customer relationships

Overall, Maggie estimates that ACE remains the contracting route for around 20% of Principle One’s customer-facing work. ACE has also been an important gateway into new areas – such as health – that had not previously been a target. Working with ACE has shown how transferrable their experience and skills are, particularly around managing data in complex and sensitive environments.

Maggie added: “While we have adopted ACE ’s ways of working from the outset, I think we have also brought our own methods to ACE . The techniques we bring as consultants, and our know-how and tradecraft, are built on our collective experience of tackling complex systems problems.”

Another big focus for Principle One is social value, with a strong focus on engagement across the team. Principle One supports the Police Care charity, which is focused on mental health and wider support for officers and staff, and their work covers both fundraising and consulting support. The company also has a partnership with Police Now and hosts secondees each year, promoting diversity in neighbourhood policing. This has led to ACE also supporting the charity, offering several placements for officers.  

Principle One’s graduate programme, meanwhile, is going from strength to strength, with an intake of around six graduates each year from a diverse range of degree backgrounds and universities. It also offers internships and work placements, with up to four interns completing a ten-week placement each summer. It has also hired its first apprentice last year as part of a careers partnership with a local school and is committed to the London living wage for these pre-graduate roles. And having opened a new office in Vauxhall at the end of 2023, Principle One expects its relationship with ACE to grow and diversify, with stronger collaboration with its customers and community of suppliers.

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