Spotify’s Layoffs and the Quest for Consistent Growth

By Laura Marsden

3 mins read


Spotify’s Layoffs and the Quest for Consistent Growth

By Laura Marsden

3 mins read


This week Spotify added its name to the list of tech giants making more layoffs, with the music streaming service planning to axe 1,500 members of staff (17% of the company) in its third round of redundancies this year. These cuts, especially given their scale, have surprised us and many others since only recently it felt like things were improving for the business with the company celebrating a profit in the third quarter of this year. Also unlike other entertainment subscription services, Spotify has impressively managed to sustain consistent subscription growth, with its subscriber numbers currently sitting at 601 million users up from 345 million at the end of 2020. 

 

So why then is Spotify laying off so much of its staff base?

 

Spotify’s goal is to be “the world’s leading audio company and one that will consistently drive profitability and growth into the future”. The key element to the statement is “consistent”, and although Spotify turned a profit in Q3 of this year, Spotify’s profits have been far from smooth – in the first 9 months of 2023 they lost $462 million, more than double the loss in the same period in 2022. 

 

Over-ambition has been Spotify’s downfall to so far achieving this consistent growth. Like the other big tech companies when capital was low in 2020/21 they got swept up with scaling quickly – they hired lots and made big investments in podcasts and now in audiobooks. Their investments in podcasts were vast with their strategy targeting exclusive deals with celebrities including Michelle and Barack Obama, and also with the Duke and Duchess of Sussex, which reportedly cost Spotify $25m for 12 episodes. With the cost of capital now higher, these investments in people and strategic ventures have left the company with skyrocketing operating costs. Unfortunately, these costs whilst fueling some growth for the business, have far exceeded expectations with several podcast series cancelled – and only time will tell how the audiobook venture fairs.

 

What’s Spotify’s plan for consistent growth?

 

Although Spotify recognises that their productivity has increased with these investments, it also feels that their efficiency has vastly decreased with too many people in supporting roles “doing work around the work” vs. delivering a direct impact to key stakeholders. By removing this portion of roles, they see a return to the lean operating model they had when they were an early-stage start-up, which forced people to think creatively and differently. In essence, they see their path to consistent growth through being “relentlessly resourceful in the ways they (we) operate, innovate and tackle problems”. However, being leaner will not necessarily motivate their staff and have this result. Removing much of the foundational support staff, it may mean that the staff delivering direct impact to stakeholders have less space to focus on their work and are distracted with the additional tasks they’re forced to take on. 

 

Apart from improving efficiencies, are there other ways Spotify could fuel growth?

 

Whilst Spotify is investing vast sums in different ventures which aren’t achieving the results they dreamed of, they have a steadily growing subscriber base – i.e. people like their basic proposition! So is there a way that Spotify can boost their acquisition speed and better convert customers from free to premium (they get 85% of their revenue from premium memberships) with just their basic proposition? I believe yes and that the answer lies in access. Although Spotify has a number of different membership offers to make membership cheaper – such as the family and duo pricing model – these are still expensive and also reliant on individuals signing up with their household, neglecting swathes of people who don’t live in households. To make the service more accessible for this segment of people they could look at discount models for individuals, such as time-limited ad-free listening or allowing members to pay for access to bundles of genres like Sky does. These pricing models targeted at individuals would be a differentiating factor for the service and allow it to capture new market share from competitors. 

 

How can Manifesto help?

Manifesto are experts in helping leading organisations grow customer lifetime value through crafting and implementing compelling loyalty and membership propositions. Complementing this, we have worked with organisations to identify the winning formula for their pricing and packaging (see our recent work with the online learning platform Skillshare here). Contact us to find out more.


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