If you've been reading this blog lately, you will notice my interest with Spotify. It's a relatively young company, and not much data is available online about it. For the past week, I have been trying to figure out the growth rate of paying Spotify subscribers, which I have finally calculated. It has been difficult mainly because Spotify doesn't announce growth numbers every month. Fortunately, I found data online to have enough numbers to work with. Below is a table I have created listing the date and and paying subscribers that Spotify has publicly announced. I calculated the number of days and the growth percentage between the dates, and then multiplied them by 30 (number of days per month). This gives us the a very rough growth rate of paying subscribers per month, which we can use to predict future subscribers.
As you can see, the growth rate per month (from now on just growth rate, since it's shorter to type) varies from a high of 18% in November 2011 to a low of 4% in November 2014. These numbers are deceiving, as they calculate the growth between two unequally distant periods, divided by the days between those periods. Some months may have had higher rates of growth due to well-placed advertisements, entering new markets, or just fortunate word of mouth. What these calculated growth rates did was give us a ballpark figure, since no other data was available online. So now I knew the approximate rate of growth, and now I needed to check if I was on the right track. I did just that. I had the data Spotify announced in March 2013, as well as the number of subscribers in May and November 2014. If my rate of growth from March 2013 was correct, I would be able to multiply the paying subscribers by the growth rate and come up with the actual data Spotify announced.
The first growth rate I tried was the one from May 2014, or 4.69% per month. If this was the correct rate, I could calculate 10,000 paying subscribers for March 2014 and 12,500 in November 2014. Here is what the 4.69% growth rate got me.
10,400 users in March and a whopping 15,000 in November - Spotify wishes! This told me that my calculated 4.69% rate was too high, and I had to adjust it down. Next, I tried the most recent rate from November 2014, which was 4.08%. Again, here's the calculation.
9,695 users in March, and 13,350 in November. Again, I knew I was off. The rate per month was actually higher leading up to March, and much lower from March to November. My goal wasn't to calculate the growth for each month (that is impossible, since I don't have enough data to work with), but rather, it was to calculate the approximate growth rate per month between the periods of March 2013 and November 2014. Since 4.08% was too high, I knew I had to adjust it further. I kept adjusting the rate until I came up with 3.738%. That is the average growth rate that the Spotify paying subscriber count kept growing at every month. Again, it's worth reiterating that this is an approximate rate, and some months grew much faster than others. As you can see below, my calculations almost perfectly matched the data provided by Spotify for March and November 2014. For March, I got 10,030, when the actual number was 10,000 (Spotify likely rounded this number, so my calculation may be perfectly precise). And for November, my calculation was precisely right - 12,500 - just what Spotify announced.
This rate of 3.738% is useful for many reasons. Foremost, it will allow me to predict subscriber counts in the future with a reasonable accuracy. With that, I can finally begin to put a value on Spotify as a whole. This analysis was mostly numerical. With the calculated data, I'll be able to dig into the real meat of the story, which is how Spotify can grow, strategies to do so, the operations underlying those strategies.