It's not out of the kindness of its own heart that music streaming service Spotify has opted not to follow through on its threat to kick off all its freeloaders. With all its success, the company just doesn't have to charge all of its subscribers. When it launched in the U.S. last July, alongside its for-money options, it offered a "free" streaming service, which, for the price of a few ads, allowed users unlimited streaming of Spotify's 11 million song library sans an hour or music cap. Spotify had planned to let that deal expire after six-months, capping the music at 10 hours-per-month. But here we are more than six months out and Spotify has announced it will keep this free-unlimited music set-up going.
The idea behind promotion was get people addicted to what Spotify has called "the best music service on the planet." Then, like good drug dealers, it would hit them up for money. That getting users hooked thing has worked. The company has an apparent 20 percent conversion rate from freeloader to paying customer.* The company now realizes the free-option can continue to provide value to the service. "An unrivalled free music tier is fundamental to that," explained Spotify in a statement via Music Ally. A streamer fed up with ads or looking for a mobile app might upgrade their account for $4.99 or $9.99 a month.
Basically, Spotify has done a fine job growing without forcing everyone to pay. The latest round of funding could have Spotify valued somewhere around $3.5 billion. The company justifies that fat valuation citing "extraordinary and unprecedented" growth, as it launches premium services in new markets, and the social network effect, it told Business Insider's Nicholas Carlson. "The best possible social sharing experience will occur on the largest social music platform, currently Spotify," an unnamed Spotify executive said. "Until that changes (and Apple of course could be a threat in this regard) then by most new digital music users will gravitate towards Spotify where their friends' have chosen to share their music collections."
Though we find its frictionless sharing deal with Facebook a bit invasive, the "private sharing" option makes it less scary. And not everyone agrees with that assessment. Our own Adam Clark Estes wrote that he liked discovering and sharing his jams via the service's Facebook integration. Spotify might have what it thinks is a better service, with better social integration and a better library, but if it got rid of its gratis offering, it might have a harder time competing, in the U.S. market at least. Its streaming music service nemeses, Pandora, RDio, Mog and Grooveshark, all offer some sort of free deal. Certainly this Spotify listener isn't the only one who would migrate to another one of these budget options, if Spotify got rid of the free option. At least now it's getting ad-dollars from the mooching types.
This post originally stated that Spotify has a 15 percent conversion rate.