The seat was taken by Barry McCarthy, a seasoned American media executive who, two years prior, had left his position as Chief Financial Officer of Netflix. The outspoken sixty-year-old would come to play an influential role at Spotify over the coming years.
Once again, Spotify had convinced an investor to take a leap of faith. Apart from their Facebook partnership in 2011, Spotify hadn’t been able to dazzle venture capitalists with its growth figures. Success always seemed just a few quarters away. Daniel was running out of time to convince the market that Spotify would win the battle over digital music.
Call Me Maybe
During 2013, Beats Music’s CTO, Fredric Vinnå, found himself in a meeting with Jimmy Iovine and Eddy Cue, who had been one of Steve Jobs’s most trusted executives. Among countless other projects, Cue had helped create the iTunes Music Store in 2003 and the App Store in 2008. Given Apple’s size, both innovations had helped spawn entirely new sectors in the digital economy.
Fredric Vinnå was still hard at work creating Beats Music with Trent Reznor and their team. But it had become clear to him that Iovine wanted to sell the company as soon as he could. The Swede found the negotiations stressful. His job was to build a strong product, and he still wasn’t sure he would succeed. Once ready and launched, the app needed to find traction among digital consumers in the United States, who were spoiled for choice. The launch date, which had been set to January 2014, loomed ever closer.
Daniel Ek kept in touch with Vinnå throughout 2013, hoping to recruit him to a top position in Spotify’s product division. Vinnå politely declined, preferring to stay at Beats Music at least until the launch, and braced himself for an intense push to finish the project. The final three months became a whirlwind of meetings, video conferences, and technological meltdowns.
That Don’t Impress Me Much
On a cloudy Tuesday morning in San Francisco, Fredric Vinnå and Ian Rogers, the CEO of Beats Music, woke up in a conference room. They had been sleeping on the floor of what had served as the company’s war room. A couple of hours must have gone by. The pair looked at each other, smiling wearily. It was January 21, 2014. Beats Music was live, but they both knew it wasn’t really ready. The thought of how much work remained made Vinnå feel nauseous. An endless series of minor catastrophes had preceded the launch, but Jimmy Iovine had finally gotten what he wanted. Beats Music was out on time, and the app was more or less functioning.
Music journals such as Rolling Stone reported that Beats Music had succeeded in differentiating itself from Spotify, Pandora, and YouTube with its playlists by tastemakers and artists. At the core of the product was “the sentence,” a feature designed to serve up the right music at the right time.
“I’m in a den and I feel like dancing to pop music,” talk show host Ellen DeGeneres said in a commercial that aired during the Super Bowl halftime show.
New users began to trickle in, tempted by the free trial period. After that, the app cost ten dollars a month. Like all other streaming services, Beats Music lacked the unlimited free tier that was the key to Spotify’s growth.
“Image is everything: Beats Music bets on style and celebrity to take on iTunes,” the headline on the tech site The Verge read after the launch.
The staff at Spotify’s offices in New York downloaded the Beats Music app immediately, but few were impressed by its features. The verdict from the engineers—the very technicians Jimmy Iovine had taken aim at—was that Beats Music was a disaster. They couldn’t understand why Beats had acquired MOG instead of Rdio, a service they thought had far superior technology. As his colleagues roasted their new competitor, the designer Christian Wilsson was impressed by the Beats playlists. He joked that Dr. Dre’s hip-hop picks felt considerably cooler than whatever was coming out of the Tunigo team back home.
A few days later, the Beats Music team celebrated their launch with a star-studded show at the Belasco Theatre, a historic building with a Gothic façade in downtown Los Angeles. On stage, Dr. Dre, Eminem, Diddy, Ma$e, Busta Rhymes, and Nas performed classic hip-hop tunes in a formation that was intended to resemble a human playlist. Drake, Selena Gomez, Macklemore, and Paris Hilton all made cameo appearances.
Beat It
A few weeks after the launch of Beats Music, Fredric Vinnå had had enough of the near-constant glitches, the many meetings, his duties as manager, and all the endless hours. His relationship with his girlfriend was in dire straits, one of his two brothers had recently passed away, and all he wanted was to spend time with his family in Sweden. Daniel Ek got in touch again, tempting him with a top job at Spotify, in a professional environment, with reasonable working hours. Martin Lorentzon jumped in to seal the deal.
“Listen, it’ll be summer soon. We’ll go out in the archipelago, eat pickled herring, and drink shots of schnapps,” the Spotify Chairman said.
Something snapped inside of Vinnå. He wrote an email describing how he needed to resign “for personal reasons,” and sent it to Jimmy Iovine, Luke Wood, and Trent Reznor. His deal with Spotify wasn’t finalized, and he didn’t mention his new job in the email. Regardless, his decision rocked the Beats leadership team.
“No one has ever done this to me before,” Iovine shouted over the phone.
Vinnå’s departure hit Trent Reznor the hardest. He took it as a personal betrayal. Vinnå eased his own guilty conscience by giving up his shares in the company, saying he wanted to move on with a “clean slate.” It would become the worst financial decision of his life. But when the airplane rose over San Francisco, he felt relieved. His cell phone was off, his laptop tucked away. All he could hear were the engines roaring. For the first time in over a year, he felt free.
Come As You Are
As the Beats Music team was busy converting its trial subscribers to paid customers, it was crunch time over at Spotify. In April 2014, the product team presented a comprehensive redesign that had gone by the codename “Cat,” after Catwoman. A uniform, black background served to highlight album covers and song titles, and the overhaul received praise in the tech journals.
“We have this metaphor of stepping into a theatre—when you dim the lights, the content comes forward,” Michelle Kadir told Wired after the unveiling.
The product developer with the unparalleled sneaker collection conducted a dozen interviews with foreign journalists. She had led the redesign with Rochelle King, who had arrived at Spotify from the product division at Netflix.
Underneath the hood, Spotify had shed additional weight. For several years, the company had spent millions of dollars upgrading the back end infrastructure. Now, Spotify featured nimble, web-based code, an area where its technology had lagged behind European competitors such as WiMP and Deezer. The new back end allowed Spotify’s engineers to work in an iterative process of constant updates. The time from idea to deployable code had been shortened from six months to just a few weeks. Finally, Spotify’s back end was snappy again.
Fredric Vinnå had joined the company, with an office right next to Daniel Ek’s. News of his arrival did not reach the product division until Beats Music’s former product head suddenly stood in front of them, ready to start working.
The new recruit, whose title was VP of Product, struck his coworkers as calm and empathetic. But, as two people would recall, his expectations did not sit right with the head of product, Gustav Söderström.
Some tech CEOs are hands on with the product themselves; others allow their deputies a high degree of autonomy. For the most part, Spotify fell into the latter category. Gustav had carved out a powerful position for himself that spanned from strategist to evangelist. His long, prophetic emails about where Spotify was headed could arrive at any time of day. Of the handful of members of Spotify’s executive team, he appeared to be closest to Daniel. Spotify was a product-driven company.
On stage, Gustav was a natural communicator, often outshining Daniel with his enthusiastic delivery, articulate storytelling, and a few jokes. At thirty-ei
ght, his once-blond hair had started to gray, but he’d started working out more frequently and his diet was healthier than before. Privately, he’d just moved with his family from central Stockholm to the suburban island of Ekerö. From there, he rode his Ducati motorcycle to work whenever he could. Outside of Spotify, he continued to invest in startup companies. He owned shares in the Swedish e-commerce platform Tictail, a competitor of Etsy, and in the visual technology company 13th Lab, which would soon be bought by the Facebook subsidiary Oculus VR.
At the Spotify head office, Gustav Söderström now began to work closely with Fredric Vinnå, developing new song charts, artist pages, and a new home screen for Spotify’s mobile app. The Beats Music veteran had a high degree of respect for his new boss, but the process at Spotify failed to inspire him. He missed hanging out with Trent Reznor and talking about a music service with “heart and soul.”
By 2014, Spotify had turned the entire product division into “squads” consisting of up to twelve people. The idea was that every unit would work independently of each other, like a small startup within a big company. Squad members could mix with others to form chapters, tribes, or even guilds, with the latter consisting of individual members from any number of squads. It was a radical reorganization, outlined later in an ambitious white paper that praised the agile method of software development. The document would quickly spread among management professionals online.
Yet in practice, Spotify was not the agile utopia it wanted to be. Many employees found the model chaotic, hard to follow, and overly focused on team autonomy. Cross-team collaboration may have been the intention, but it rarely succeeded. Some felt that the blog posts and white papers explaining the “Spotify model” of management were misleading.
“Ironically, the posts were thought to be great for recruiting,” one employee who joined Spotify in 2017 would recall after leaving the company. With time, the former employee noted, the Spotify leadership began to revert to more traditional and hierarchical modes of decision making.
Fredric may have been a casualty of this management experiment. He struggled to form a team that was loyal to him and his ideas. Some departed Spotify staffers would claim that Gustav could have done more to empower his second-in-command. A few months after joining Spotify, Fredric Vinnå felt like he needed a longer break from work. He had, after all, only taken a few weeks off after abruptly quitting his job at Beats in California.
The Masterplan
Beats Music was now gaining considerable traction among influencers and tastemakers in the music business. Spotify’s playlists did not have the same air of exclusivity, except for Sean Parker’s popular list, Hipster International.
The contrast between Beats’ celebrity-laden approach and Spotify’s curation style was partly by design. Daniel Ek believed he could find a more scalable way, centered around technology, to bring users the right songs at the right time. The Swede wanted to use machine learning to automate music recommendation at scale, and he had his eyes on a small company outside of Boston that was on the same quest.
Starting in 2005, engineers at Echo Nest had analyzed several decades of recorded music and sorted it into microgenres such as “Basque rock” and “more contemporary country.” The company, which had its roots at the Massachusetts Institute of Technology (MIT), had also developed a tool that would come to be known as “Truffle Pig” for its ability to sniff out gems in a vast music catalogue. Users looking for “angry” music from the 1980s with a low level of “acousticness” might be served a selection of aggressive synth tracks.
In March 2014, Spotify made its largest acquisition to date, buying Echo Nest for around $70 million in cash and stock options in Spotify. As part of the deal, the roughly sixty Echo Nest employees, including the three founders, would now start working for Spotify.
“You’ll start noticing improvements pretty much instantly,” Daniel told a reporter after the deal was announced.
But the integration would turn out to be challenging. Echo Nest’s technology relied on comprehensive data scrapes of blogs, song charts, and a wide range of other online sources. Spotify’s recommendations team, meanwhile, had built their work largely on data from actual listeners: whether they skipped songs, saved them to a playlist, or started perusing releases from similar artists. The methodologies clashed, and it took a year or two for the recommendations teams to get up to full speed again.
A few years after the acquisition, most of Echo Nest’s sixty-odd staff had stopped working at Spotify. Daniel’s biggest acquisition to date appeared to have been his worst.
Tears Dry On Their Own
A few weeks after the Echo Nest acquisition, Tim Cook looked poised to steal the limelight with a music deal of his own. In early May, the Financial Times reported that Apple was in talks to buy Beats for $3.2 billion. The news—and the price tag—sent ripples through the music world.
As soon as he saw the headline, Fredric Vinnå sent a text to his former Beats partner, Ola Sars. Three months had passed since Vinnå had given up his shares in the company. He couldn’t bear to calculate the millions he might have earned on Jimmy Iovine’s dream deal. At one point, Vinnå had owned 0.5 percent of the company.
The former Beats product developer started to think about Trent Reznor, who wasn’t returning his calls, and had unfriended him on Facebook.
Two days after the Financial Times broke the still unconfirmed news, Nine Inch Nails held a concert at Hovet, an arena just south of central Stockholm. Vinnå stood alone, in a sea of fans watching his friend perform. During the last song—the ballad “Hurt”—tears rolled down his cheeks.
Big Ego’s
Around the time of Trent Reznor’s performance in Stockholm, explosive details surrounding the Beats deal appeared online.
One evening in May, with the Financial Times story still unconfirmed, actor and R&B star Tyrese Gibson began filming himself while hanging out at a music studio in Los Angeles. Sporting a large pair of Beats headphones, he spoke directly into the camera.
“Oh shit, that mix is crazy!” he yelled into it, shaking the phone to simulate a heavy bassline.
By his side was Dr. Dre in a long-sleeved black t-shirt, laughing along. It could have been yet another product placement for the Beats by Dre headphones. But about a minute into the video, Gibson blurted out a few words that would make Jimmy Iovine very nervous.
“Billionaire boys club for real, homie. Fix your face, fix your face. The Forbes list just changed,” Gibson hollered into the camera.
“You know that, you know that,” Dr. Dre filled in.
Then he said it himself.
“The first billionaire in hip-hop, right here from the motherfuckin’ West Coast.”
After a few celebratory dance steps, Gibson shut the camera off. Neither he nor Dr. Dre had mentioned Apple. But once the video appeared on Gibson’s Facebook page, the rest of the world began to see it as confirmation that the deal was done.
Later, Iovine would reveal how the short clip could have ended the whole arrangement. A landmark acquisition was something that neither Tim Cook nor Eddy Cue wanted to—or could—announce in an impromptu online video.
Three weeks later, Apple finally confirmed that they had purchased Beats for $3 billion. Iovine and Dr. Dre would now join Apple to work on their music offering. They posed for the cameras alongside Cook and Cue.
Jimmy Iovine would rake in around $800 million on the deal, according to Bloomberg’s initial calculations. That figure would push him narrowly past the billion-dollar mark, in terms of personal wealth.
Dr. Dre didn’t quite make it. The following year, Forbes estimated his net worth to be around $700 million. Trent Reznor and Luke Wood also cashed in. A few months later, Luke would buy the most expensive home in the Los Angeles neighborhood of Silver Lake.
Back in Stockholm, Fredric Vinnå continued to text his former colleagues, congratulating them on their achievement. But most of them didn’t bother reply
ing.
For a time, Apple’s foray into streaming felt like the only conversation topic at Spotify headquarters. According to the trade journals, Beats Music had only acquired just over one hundred thousand users. Yet the price tag had made the company Apple’s largest acquisition ever. The question was: had they paid for the headphones or the streaming service?
Ola Sars developed his own theory. He believed Apple had primarily bought Beats because of Iovine’s unique position in the music industry.
Tim Cook appeared to offer a similar explanation, stressing that the company now had several new recruits with a deep understanding of music. He also said that Beats Music was the first subscription service that had really gotten it right.
“They had the insight early on to know how important human curation is,” Apple’s CEO said, having just raised the stakes in the war over digital music.
Death Valley
DURING THE TWO YEARS LEADING up to the launch of Beats Music, Daniel Ek and his team had endured a prolonged existential crisis. Throughout the negotiations with Google, and the attempts to build Spotify TV, his startup had been scrambling to future-proof its business. It was urgent. The “mobile revolution” was already underway, and Spotify appeared to be on the wrong side of history.
The most promising technology company in the music space had entered the app era with what was essentially a desktop product. Spotify’s mobile apps had launched as early as 2009, but mobile access was a perk reserved for paying customers. That meant that on the smartphone, Spotify could not deploy its most effective growth engine: recruiting young listeners through its endlessly free tier.
For the second time in Spotify’s brief history, the service stopped growing. Daniel would describe this period as a near-death experience for his company.
The crisis originated in 2012, five years after Steve Jobs introduced the iPhone. Young people started viewing smartphones as a full-fledged alternative to the desktop computer. Mobile data was cheaper than ever, the phones had become faster, the screens bigger, and companies like Uber were able to build groundbreaking services that worked exclusively as apps. The “mobile first” era had begun, and investors were throwing themselves at yet another area of explosive growth.
The Spotify Play Page 19