Spotify is closing in on 30 million paying users, but there is one market that has remained underserved by its ascendance in music streaming: businesses.
"Two-thirds of businesses play CDs still," explains Ola Sars, cofounder of streaming service Beats Music, which sold to Apple as part of the blockbuster Beats deal in 2014.
In 2013, Spotify quietly cofounded a startup to tackle the business market, and since then the company has been developing its Spotify Business and Spotify Enterprise products in Scandinavia.
But the company — Soundtrack Your Brand — has its sights set on the US market, according to Sars, who cofounded the startup with Andreas Liffgarden, who used to head business development for Spotify.
The market
With Spotify Business, "we stumbled on an area that hadn't been digitized," Sars told Business Insider.
That type of market is increasingly rare, especially in music, and has helped the startup secure deals with the likes of Starbucks and McDonald's in Sweden.
When Spotify began exploring a business component as far back as 2011, it was because the team had begun to see its service crop up in place like bars — without a license. But while these "one-store" users are still a part of the plan, Liffgarden says that his thinking has expanded since then.
For big businesses like McDonald's, a main draw of a Spotify business product is centralization, Liffgarden says. The ability for a partner like McDonald's to personalize the music for a particular store and have control of it from a central location using the cloud is a good selling point, he continues.
Expanding the pie
If Soundtrack Your Brand is successful at converting these businesses to subscribers, then the royalty rates paid to artists stand to be higher — likely as much as three to four times higher in the US, Sars says.
And Sars argues that this isn't just revenue being reshuffled from "low-tech" competitors. He says that 21% of the new businesses the company has signed up didn't play music at all, and 41% came from "other streaming platforms," which includes those that didn't have licenses.
A potential competitor to Soundtrack Your Brand is Pandora for Business, which has taken a different approach by partnering with established B2B music powerhouse Mood Media. Pandora is in the process of simplifying its offerings, which require some specialized equipment and setup.
Sars says that the ultimate goal of a Spotify business product is to make music more than just a utility for these retailers.
"For now, we can be background music 2.0," he says.
But eventually the company envisions a dynamic system that senses what is going on in the store and how the music can help.
