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Essay Principles of Economics And Business 2- Digital Firm (8.8/10)
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Individual essay for the track: Digital Firm. This essay was awarded: 8.8/10.
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By: Jzpark • 9 months ago
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Assessing Spotify’s success in value creation, value proposition and value capturing1. Introduction
Digitalization has brought radical transformation from a traditional way of listening to music,
MP3 to now Spotify. CDs and LPs were removed and has transformed its distribution channels to
online channels. As a result, suppliers, songwriters and artists have easier access to the market
(Richardson, 2014). Currently, it is described to be at the process of fourth industrial revolution or
also known as industry 4.0 where there is an integration of cyber physical systems (CPS) and services
in the industrial process (Wisskirchen et al 2017). Artificial intelligence has also been taking an
important role on the labor market and the distribution process in Spotify (Furman & Seamans, 2019).
For example, Spotify has been utilizing algorithms and artificial intelligence in giving a personalized
music experience to its users. However, there are negative consequences in utilizing artificial
intelligence as there is a chance of resulting in biased algorithms (Furman & Seamans, 2019). With
this speed, it is estimated that within the next 5 years, 50 billion connected machines will exist in the
society. Alongside, there has been multiple assumptions in estimating the future of digital formation
and transformation such as that according to Moore’s law, machines on computers and their
computing power will become smaller, faster, and cheaper over time becoming more efficient in use
(Schaller, 1997).
There are several elements in the industry 4.0 involves production controlled by machines,
decentralisation of production such as a network of the manufacturing units and machines being able
to respond within certain limits or to customer request (Wisskirchen et al 2017). One example of a
model in industry 4.0 is Spotify and such radical transformation has brought some challenges to the
music industry is Spotify. In consequence, there were issues that arises from digitalization in the
music industry such as privacy issue and illegal downloading of music (Viogt et al, 2018). As a result,
major record companies suffered from losses due to an increase in illegal downloading and file
sharing websites.
Another challenge that Spotify suffered was the annual loss. Although streaming services
attempt to charge the willingness to pay for music, it still wire money out of the music that users listen
per song. A medium-sized record label recipes around 0.27p while Spotify suffers from an annual loss
of approximately £420m (Harris, 2018). There has been prior criticism over unfair royalty payouts by
failing to fairly compensate artists which led to Taylor Swift removing her entire music catalog from
Spotify (Harris, 2018). Therefore, the question arises to discuss the extent can Spotify maintain and
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