For 70 days at the beginning of this year, Daniel Ek and a group of friends competed to see who could cut their body-fat percentage the most. Ek, the 35-year-old cofounder and CEO of the streaming service Spotify, went on a special regimen, which included twice-a-day workouts and a single meal—specially configured for him—eaten at a set time each afternoon. “You look great,” teased music impresario Scooter Braun, a participant in the contest, who texted his friend after noting Ek’s slimmed-down physique during Spotify’s web-broadcast Investor Day presentation in late March. “Too bad you lost.”
When I see Ek a few days later, on the eve of Spotify’s listing as a public company on the New York Stock Exchange, he acknowledges that he’d been bested in the body-fat battle by several competitors. “I made a strategic error,” he says. In an analytical fashion that is typical of Ek, he then deconstructs both the limitations of the contest (“some folks were heavier to begin with,” he says) and the missteps that he made (“I lost too much muscle mass too early”). Somehow, he doesn’t sound like he’s making excuses; he’s focused on learning, on improving—a trait that has defined him, and Spotify, from the very beginning.
As for the next day’s stock market debut, Ek willfully downplays its importance. “I keep forgetting it’s tomorrow,” he says at one point.
Spotify’s IPO in early April, like Ek’s body-fat obsession, was unconventional. The company didn’t offer any new shares to raise money, instead listing ones already available. There was no bell ringing at the exchange, no public media blitz. Despite the lack of fanfare, though, it was a breakthrough success: Spotify ended its first day with a $26 billion valuation, making it one of the biggest tech IPOs in history. It quickly inspired speculation that other mega-unicorns, like Airbnb and Uber, might come to market via Spotify’s nontraditional method.
Ek is Swedish, and like the Swedish word lagom—which means “in moderation” and is often used to describe that country’s character—he has a proclivity for understatement. He deflects attention (“It’s never one person,” he told me at the outset of our first interview. “It’s the team”) and describes himself as an introvert (“I don’t really do social calls. I tell my friends that I like to be invited, but I probably won’t come”). But Ek isn’t shy about his ambitions: “What motivates me is impacting culture.”
Since its 2008 launch, Spotify has realigned the global music industry toward streaming, popularizing the idea of music as a service rather than goods that consumers own. As the company has grown—it now has 170 million users in more than 60 countries and 75 million of them are paying subscribers—it’s turned around the fortunes of what had been a declining industry. After global music revenues slumped from 2001 to 2014, streaming has put the recording business on an upward trajectory again, growing more than $3 billion in the past three years. Spotify reported $1.3 billion in revenue for the first quarter of 2018, and analysts expect it to generate more than $6 billion this year, 90% of it from subscriptions and 10% from advertising.
What emerged over my many hours of discussion with Ek in New York and Stockholm over five months, and was reinforced by interviews with more than three dozen key Spotify leaders, partners, artists, and competitors, is how unlikely Spotify’s rise has been and how central Ek’s character has been to the company’s evolution. The CEO is patient yet fueled by an internal intensity that can border on ruthlessness. He is a staunch believer in transparency (that Investor Day presentation went on a mind-numbing four-plus hours) yet personally reserved. Prior to this article, Ek had not participated in a major media profile in more than three years.
[Photo: Tim Richardson; Set designer: Lauren Bahr at Kate Ryan Inc,; groomer: Alex LaMarsh]
Title: Curator, Rock MusicEmployee since: 2016First album: Steve Miller Band’s Greatest HitsFirst concert: Green Day, Dookie TourFirst music business job: Recruited bands and made records for Sony, coordinated album production for David Bowie and Cypress HillPre-Spotify brush with fame: “I hosted the CW’s music competition show, The Next, alongside celebrity judges Gloria Estefan, Joe Jonas, Nelly, and John Rich.”Artist she hipped listeners to early: Greta Van FleetArtists she’s listening to on repeat: Grandson and the Fever 333
Spotify is as contradiction-laden as its leader. Despite its influence and growing fan base, the company’s future is hardly secure. It has yet to earn a penny, racking up a lifetime operating loss of $1.7 billion, and its deficits have only accelerated as revenue has grown. Meanwhile, it is being stalked by the world’s most voracious competitors. Although Apple launched its music subscription service just three years ago, some analysts predict it could pass Spotify in U.S. subscribers this year, thanks to the power of the iPhone user base. Amazon, which has a hit in its Echo smart speakers, now claims “tens of millions” of Amazon Prime Music Unlimited customers. Google already has the globe’s most popular digital music-listening destination in YouTube, and in an effort to make more money from it, the company recently introduced a Spotify-like YouTube Music subscription service.
To vanquish these rivals and make good on the promise of its high market cap, all Spotify has to do is continuously improve its best-in-class product, mollify music artists and labels who are still skeptical about the shift to streaming (despite the fact that the company has distributed almost $10 billion in licensing fees across the industry), and attract enough new customers to turn around its negative economics. Bulls, such as NYU professor Scott Galloway, argue that Spotify will do this and be the next tech giant. Bears believe the company is simply “not a good business,” as venture capitalist and former digital music entrepreneur David Pakman described Spotify to the Guardian.
As for Ek, he feels the precarious nature of Spotify’s success. He’s happy being underestimated—and just as unhappy losing.
When Ek came to save the music industry, he did so with a premise that evokes the charlatan Harold Hill in The Music Man. Hill contended that anyone could learn to play an instrument if they just believed enough. Ek was convinced that if you give music away for free and make it easy and pleasant for people to listen, then they will become regular listeners. As a habit formed, these users would—almost magically—be willing to pay for what they had been getting for free. (As Ek puts it: “The more you play, the more you’ll pay.”) This counterintuitive idea continues to form the basis of Spotify’s business model, even as it has confounded music labels and artists.
I ask Ek about this, wondering if he could build a playlist for me of Spotify’s history. “The first song would have to be something from ABBA,” he says, because “the roots of Sweden have influenced a lot of the decisions that we make.” In fact, the only reason Ek got a chance to prove out his original theory was that in his home country, record companies basically had nothing to lose in licensing their libraries for streaming. Piracy had obliterated CD sales and decimated revenues. File-sharing services like Pirate Bay were so popular in the country that citizens formed an actual Pirate Party, which won 7% of the vote in one parliamentary election.
Ek, however, stood out as the true renegade: He believed that artists were being taken advantage of. “I had a friend, a bassist, who complained to me at a party about how he had to take a second day job to make ends meet,” he recalls. Ek—a guitarist himself who at 18 had dedicated a year to becoming a professional rocker, unsuccessfully—recruited a class of engineers from Stockholm’s Royal Institute of Technology in 2006 to help him build a free desktop application that could offer a better experience than file sharing, with revenue generated via ads. As Spotify’s chief R&D officer, Gustav Soderstrom, recalls, the group figured out how to cut the delay time between pushing play and hearing a song from 3 or 4 seconds to 400 milliseconds.
From the beginning, Ek’s plan was to compete with Apple, which in the mid- to late-2000s dominated the digital-download business through iTunes. In essence, he wanted to replace the iPod by offering on-demand music via mobile phones. “Daniel was pretty adamant that he wanted to be the music solution,” says Soderstrom. Ek was so convinced, in fact, that he was willing to brazenly disregard the company’s own internal data. He knew that he’d never get the music labels to license their catalogs for a free mobile service, so he decided to offer mobile access only via subscription. “We did user research, and everyone said, ‘I’m never going to pay for this,’ ” recalls Soderstrom. Ek went ahead anyway.
He was right. When Spotify debuted in October 2008, people loved the experience, and the company signed up millions of users in its first year and 250,000 paying subscribers. Even before it launched in the United States in 2011, it developed a cult of American fans, including Napster cofounder Sean Parker and Facebook CEO Mark Zuckerberg. “It turned out that people weren’t paying for access to music,” Soderstrom explains. “They were paying for convenience.” The free, ad-supported desktop version effectively became a feeder for the $9.99-a-month mobile subscription.
[Photo: Tim Richardson; set designer: Lauren Bahr at Kate Ryan, Inc,; groomer: Alex LaMarsh]