It’s a typically damp, dark November afternoon in Stockholm, and Daniel Ek is ill. Over the past month, the 28-year-old chief executive of Spotify has worn himself down jetting from his Swedish base to San Francisco, New York, Denmark, the Netherlands and France to visit his expanding sales force and launch his music service in one or another of the dozen countries it now operates in.
But there’s no rest for the weary. Next week he’s scheduled to return to New York to unveil Spotify’s new platform in front of his first-ever press conference—a platform that he admits still isn’t ready for a public debut. “I should be home in bed,” sighs Ek, his voice weak and scratchy, “but we need to get this thing perfect.” So the bald, barrel-chested Ek zips his white hoodie to his chin, swaps tea for his morning cup of coffee—the first of six he throws down in a typical day—and heads into an office that resembles a university library during finals. The pool table has been traded for more IKEA desks, and gray daybeds offer a place to nap between all-nighters. Forgoing his large office, which he mostly uses as a meeting room, Ek plops himself down at an open desk. Around him, a dozen engineers from nearly as many countries, united by their geek-chic uniforms—skinny jeans, printed T-shirts and cardigans—frantically bang out code on their silver MacBooks.
All this frenetic energy reflects the strange new reality of the music business. More than New York or L.A. or Nashville, this rented office space along Stockholm’s Birger Jarlsgatan has become the most important place in music, with Ek now standing as the industry’s most important player. Superstar bands like the Red Hot Chili Peppers—formed the year Ek was born—now trek to Sweden to kiss the ring; he sits shotgun in vintage cars with Neil Young (his iPhone boasts a picture of them cruising in a white 1959 Lincoln Continental); he texts breezily with Bono. “Both my [maternal] grandparents were in the music industry,” shrugs Ek, “so I’m fairly grounded about the whole thing.”
The music industry has been waiting more than a decade for Ek. Or more specifically, someone—anyone—who could build something (a) more enticing to consumers than piracy while (b) providing a sustainable revenue model. In the 1990s Shawn Fanning and Sean Parker essentially broke the recording industry with their short-lived illegal download site, Napster, which Ek describes as “the Internet experience that changed me the most.”
In building his iTunes juggernaut out of the wreckage, Steve Jobs subsequently proved that the cure could be almost as destructive as the disease. By training consumers to buy singles, rather than the CDs that had been the industry’s lifeblood, and taking an outsize cut of the action, Apple stoked the continuing spiral. Recording industry revenue, a healthy $56.7 billion in 1999, according to IbisWorld, clocked in at about $30 billion in 2011.
Enter a third disrupter, Ek. In the current tech landscape, where Google provides the search, Facebook the identity and Amazon the retail, Ek wants Spotify to supply the soundtrack. As he describes it: “We’re bringing music to the party.” Which explains what’s keeping his sleep-addled engineers on a 24-hour cycle: Rather than a mere music player—albeit one with a revolutionary model that allows legal access to almost every song you’ve ever heard of, on demand, for free—Spotify aims to create an entire music ecosystem.
For a consumer, Spotify is an easy sell: The service’s 10 million active users (people who have listened in the past month) have access to 15 million songs on their desktops, all for the cost of hearing an occasional advertisement. It has the speed and ease of iTunes, the flexibility and breadth of Napster and the attractive pricing of online radio service Pandora. And unlike those predecessors, Spotify was social from the start, with tools that let you share playlists with pals—more than 1.5 billion songs have been swapped on Facebook so far.
After he was bounced as Facebook’s first president, Sean Parker begged Ek to let him invest: “Ever since Napster I’ve dreamt of building a product similar to Spotify,” his introductory e-mail read. The service impressed Mark Zuckerberg, too. “I checked it out and I thought, This is pretty amazing,” the Facebook founder tells me. “They internalised a lot of what we’ve talked about in terms of social design of apps.” That means turning the core product—in Ek’s case, a hard-fought song library—loose on third party app developers to help Spotify evolve, making it even more tempting to potential customers.
Here’s how that social stickiness translates into revenue: You explore your friends’ playlists, discover new music with apps from Rolling Stone, Billboard and Last.fm, and build your own jukebox. Eventually you want to take it everywhere. That’s where Ek has you trapped. With Spotify you pay for portability—$ 10 a month buys you access to your collection on your mobile device.
This model has proven it can save the music business—in Sweden. One-third of Ek’s home country has signed up, and about one-quarter of those pay for premium access. According to Mark Dennis, who runs Sony Music in Sweden, Spotify single-handedly stemmed a decade of nonstop revenue drop when it launched in 2008; in 2011 Sweden’s music industry will likely see its first growth since the Clinton Administration, with Spotify accounting for 50 percent of all sales (up from 25 percent last year). This in a country that has long been a hotbed of piracy.
Ek doubted Lorentzon would leave Tradedoubler, so later in 2006 he set a one-week deadline. Before they committed to partnering, Lorentzon would have to publicly resign as chairman and transfer a million euros of seed money into Ek’s account. The next Monday, Tradedoubler sent out a press release announcing Martin Lorentzon’s resignation. Later that day he told Ek to check his bank account. The money was there. The two men had yet to decide the type of business they would start.
Ek bounds up the sleek white stage in Greenwich Village’s Stephan Weiss Studio on November 30, as dozens of typing journalists and rows of live TV cameras stand ready. Though thrilled that the new platform is set for launch, he can’t wait for the press conference to end. When Ek operated just in Europe, he could lie low. But now that Spotify has made it to America—home to the cults of Bezos, Gates, Zuckerberg and Jobs—Ek must switch from programmer to preacher. For Spotify to scale, he needs to hype his platform, generate buzz and get labels, artists and now developers to be excited to partner up.
(This story appears in the 03 February, 2012 issue of Forbes India. To visit our Archives, click here.)