Case Study Description of Spotify's Direct-Listing IPO
In early April 2018, Spotify Technology SA (Spotify) had planned a rare direct listing on the New York Stock Exchange. Unlike typical initial public offerings (IPOs), which used investment banks as underwriters to help set an IPO price, Spotify's direct listing would allow market participants to determine the initial price. In a typical IPO, investment banks shopped the potential offer to various clients and, in the process of book building, determined a range for the offer when it started trading. They also often provided support for the issue on the day it started to trade, limiting the downside for shareholders if demand was low. In Spotify's case, the investment banks were only being paid a nominal fee, and Spotify was not raising capital in the offering. The stock simply started trading on the prescribed day. A portfolio manager with a hedge fund that focused on growing technology companies was considering investing in the firm, but faced a challenge: how could she estimate Spotify's value when it started to trade?
Authors :: Craig Dunbar, Stephen R. Foerster, Ken Mark
Swot Analysis of "Spotify's Direct-Listing IPO" written by Craig Dunbar, Stephen R. Foerster, Ken Mark includes – strengths weakness that are internal strategic factors of the organization, and opportunities and threats that Spotify's Spotify facing as an external strategic factors. Some of the topics covered in Spotify's Direct-Listing IPO case study are - Strategic Management Strategies, IPO and Finance & Accounting.
Some of the macro environment factors that can be used to understand the Spotify's Direct-Listing IPO casestudy better are - – increasing transportation and logistics costs, banking and financial system is disrupted by Bitcoin and other crypto currencies, central banks are concerned over increasing inflation, increasing household debt because of falling income levels, talent flight as more people leaving formal jobs, customer relationship management is fast transforming because of increasing concerns over data privacy, wage bills are increasing,
increasing government debt because of Covid-19 spendings, cloud computing is disrupting traditional business models, etc
Introduction to SWOT Analysis of Spotify's Direct-Listing IPO
SWOT stands for an organization’s Strengths, Weaknesses, Opportunities and Threats . At Oak Spring University , we believe that protagonist in Spotify's Direct-Listing IPO case study can use SWOT analysis as a strategic management tool to assess the current internal strengths and weaknesses of the Spotify's Spotify, and to figure out the opportunities and threats in the macro environment – technological, environmental, political, economic, social, demographic, etc in which Spotify's Spotify operates in.
According to Harvard Business Review, 75% of the managers use SWOT analysis for various purposes such as – evaluating current scenario, strategic planning, new venture feasibility, personal growth goals, new market entry, Go To market strategies, portfolio management and strategic trade-off assessment, organizational restructuring, etc.
SWOT Objectives / Importance of SWOT Analysis and SWOT Matrix
SWOT analysis of Spotify's Direct-Listing IPO can be done for the following purposes –
1. Strategic planning using facts provided in Spotify's Direct-Listing IPO case study
2. Improving business portfolio management of Spotify's Spotify
3. Assessing feasibility of the new initiative in Finance & Accounting field.
4. Making a Finance & Accounting topic specific business decision
5. Set goals for the organization
6. Organizational restructuring of Spotify's Spotify
Strengths Spotify's Direct-Listing IPO | Internal Strategic Factors
What are Strengths in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The strengths of Spotify's Spotify in Spotify's Direct-Listing IPO Harvard Business Review case study are -
Organizational Resilience of Spotify's Spotify
– The covid-19 pandemic has put organizational resilience at the centre of everthing that Spotify's Spotify does. Organizational resilience comprises - Financial Resilience, Operational Resilience, Technological Resilience, Organizational Resilience, Business Model Resilience, and Reputation Resilience.
Cross disciplinary teams
– Horizontal connected teams at the Spotify's Spotify are driving operational speed, building greater agility, and keeping the organization nimble to compete with new competitors. It helps are organization to ideate new ideas, and execute them swiftly in the marketplace.
Strong track record of project management
– Spotify's Spotify is known for sticking to its project targets. This enables the firm to manage – time, project costs, and have sustainable margins on the projects.
Operational resilience
– The operational resilience strategy in the Spotify's Direct-Listing IPO Harvard Business Review case study comprises – understanding the underlying the factors in the industry, building diversified operations across different geographies so that disruption in one part of the world doesn’t impact the overall performance of the firm, and integrating the various business operations and processes through its digital transformation drive.
Diverse revenue streams
– Spotify's Spotify is present in almost all the verticals within the industry. This has provided firm in Spotify's Direct-Listing IPO case study a diverse revenue stream that has helped it to survive disruptions such as global pandemic in Covid-19, financial disruption of 2008, and supply chain disruption of 2021.
High switching costs
– The high switching costs that Spotify's Spotify has built up over years in its products and services combo offer has resulted in high retention of customers, lower marketing costs, and greater ability of the firm to focus on its customers.
Ability to lead change in Finance & Accounting field
– Spotify's Spotify is one of the leading players in its industry. Over the years it has not only transformed the business landscape in its segment but also across the whole industry. The ability to lead change has enabled Spotify's Spotify in – penetrating new markets, reaching out to new customers, and providing different value propositions to different customers in the international markets.
Analytics focus
– Spotify's Spotify is putting a lot of focus on utilizing the power of analytics in business decision making. This has put it among the leading players in the industry. The technology infrastructure suggested by Craig Dunbar, Stephen R. Foerster, Ken Mark can also help it to harness the power of analytics for – marketing optimization, demand forecasting, customer relationship management, inventory management, information sharing across the value chain etc.
Digital Transformation in Finance & Accounting segment
- digital transformation varies from industry to industry. For Spotify's Spotify digital transformation journey comprises differing goals based on market maturity, customer technology acceptance, and organizational culture. Spotify's Spotify has successfully integrated the four key components of digital transformation – digital integration in processes, digital integration in marketing and customer relationship management, digital integration into the value chain, and using technology to explore new products and market opportunities.
Sustainable margins compare to other players in Finance & Accounting industry
– Spotify's Direct-Listing IPO firm has clearly differentiated products in the market place. This has enabled Spotify's Spotify to fetch slight price premium compare to the competitors in the Finance & Accounting industry. The sustainable margins have also helped Spotify's Spotify to invest into research and development (R&D) and innovation.
Ability to recruit top talent
– Spotify's Spotify is one of the leading recruiters in the industry. Managers in the Spotify's Direct-Listing IPO are in a position to attract the best talent available. The firm has a robust talent identification program that helps in identifying the brightest.
Effective Research and Development (R&D)
– Spotify's Spotify has innovation driven culture where significant part of the revenues are spent on the research and development activities. This has resulted in, as mentioned in case study Spotify's Direct-Listing IPO - staying ahead in the industry in terms of – new product launches, superior customer experience, highly competitive pricing strategies, and great returns to the shareholders.
Weaknesses Spotify's Direct-Listing IPO | Internal Strategic Factors
What are Weaknesses in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The weaknesses of Spotify's Direct-Listing IPO are -
Compensation and incentives
– The revenue per employee as mentioned in the HBR case study Spotify's Direct-Listing IPO, is just above the industry average. Spotify's Spotify needs to redesign the compensation structure and incentives to increase the revenue per employees. Some of the steps that it can take are – hiring more specialists on project basis, etc.
Low market penetration in new markets
– Outside its home market of Spotify's Spotify, firm in the HBR case study Spotify's Direct-Listing IPO needs to spend more promotional, marketing, and advertising efforts to penetrate international markets.
Ability to respond to the competition
– As the decision making is very deliberative, highlighted in the case study Spotify's Direct-Listing IPO, in the dynamic environment Spotify's Spotify has struggled to respond to the nimble upstart competition. Spotify's Spotify has reasonably good record with similar level competitors but it has struggled with new entrants taking away niches of its business.
Slow to harness new channels of communication
– Even though competitors are using new communication channels such as Instagram, Tiktok, and Snap, Spotify's Spotify is slow explore the new channels of communication. These new channels of communication mentioned in marketing section of case study Spotify's Direct-Listing IPO can help to provide better information regarding products and services. It can also build an online community to further reach out to potential customers.
Workers concerns about automation
– As automation is fast increasing in the segment, Spotify's Spotify needs to come up with a strategy to reduce the workers concern regarding automation. Without a clear strategy, it could lead to disruption and uncertainty within the organization.
No frontier risks strategy
– After analyzing the HBR case study Spotify's Direct-Listing IPO, it seems that company is thinking about the frontier risks that can impact Finance & Accounting strategy. But it has very little resources allocation to manage the risks emerging from events such as natural disasters, climate change, melting of permafrost, tacking the rise of artificial intelligence, opportunities and threats emerging from commercialization of space etc.
High dependence on star products
– The top 2 products and services of the firm as mentioned in the Spotify's Direct-Listing IPO HBR case study still accounts for major business revenue. This dependence on star products in has resulted into insufficient focus on developing new products, even though Spotify's Spotify has relatively successful track record of launching new products.
Interest costs
– Compare to the competition, Spotify's Spotify has borrowed money from the capital market at higher rates. It needs to restructure the interest payment and costs so that it can compete better and improve profitability.
High cash cycle compare to competitors
Spotify's Spotify has a high cash cycle compare to other players in the industry. It needs to shorten the cash cycle by 12% to be more competitive in the marketplace, reduce inventory costs, and be more profitable.
High bargaining power of channel partners
– Because of the regulatory requirements, Craig Dunbar, Stephen R. Foerster, Ken Mark suggests that, Spotify's Spotify is facing high bargaining power of the channel partners. So far it has not able to streamline the operations to reduce the bargaining power of the value chain partners in the industry.
Aligning sales with marketing
– It come across in the case study Spotify's Direct-Listing IPO that the firm needs to have more collaboration between its sales team and marketing team. Sales professionals in the industry have deep experience in developing customer relationships. Marketing department in the case Spotify's Direct-Listing IPO can leverage the sales team experience to cultivate customer relationships as Spotify's Spotify is planning to shift buying processes online.
Opportunities Spotify's Direct-Listing IPO | External Strategic Factors
What are Opportunities in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The opportunities highlighted in the Harvard Business Review case study Spotify's Direct-Listing IPO are -
Manufacturing automation
– Spotify's Spotify can use the latest technology developments to improve its manufacturing and designing process in Finance & Accounting segment. It can use CAD and 3D printing to build a quick prototype and pilot testing products. It can leverage automation using machine learning and artificial intelligence to do faster production at lowers costs, and it can leverage the growth in satellite and tracking technologies to improve inventory management, transportation, and shipping.
Reconfiguring business model
– The expansion of digital payment system, the bringing down of international transactions costs using Bitcoin and other blockchain based currencies, etc can help Spotify's Spotify to reconfigure its entire business model. For example it can used blockchain based technologies to reduce piracy of its products in the big markets such as China. Secondly it can use the popularity of e-commerce in various developing markets to build a Direct to Customer business model rather than the current Channel Heavy distribution network.
Finding new ways to collaborate
– Covid-19 has not only transformed business models of companies in Finance & Accounting industry, but it has also influenced the consumer preferences. Spotify's Spotify can tie-up with other value chain partners to explore new opportunities regarding meeting customer demands and building a rewarding and engaging relationship.
Using analytics as competitive advantage
– Spotify's Spotify has spent a significant amount of money and effort to integrate analytics and machine learning into its operations in the sector. This continuous investment in analytics has enabled, as illustrated in the Harvard case study Spotify's Direct-Listing IPO - to build a competitive advantage using analytics. The analytics driven competitive advantage can help Spotify's Spotify to build faster Go To Market strategies, better consumer insights, developing relevant product features, and building a highly efficient supply chain.
Redefining models of collaboration and team work
– As explained in the weaknesses section, Spotify's Spotify is facing challenges because of the dominance of functional experts in the organization. Spotify's Direct-Listing IPO case study suggests that firm can utilize new technology to build more coordinated teams and streamline operations and communications using tools such as CAD, Zoom, etc.
Harnessing reconfiguration of the global supply chains
– As the trade war between US and China heats up in the coming years, Spotify's Spotify can build a diversified supply chain model across various countries in - South East Asia, India, and other parts of the world. This reconfiguration of global supply chain can help, as suggested in case study, Spotify's Direct-Listing IPO, to buy more products closer to the markets, and it can leverage its size and influence to get better deal from the local markets.
Use of Bitcoin and other crypto currencies for transactions
– The popularity of Bitcoin and other crypto currencies as asset class and medium of transaction has opened new opportunities for Spotify's Spotify in the consumer business. Now Spotify's Spotify can target international markets with far fewer capital restrictions requirements than the existing system.
Changes in consumer behavior post Covid-19
– Consumer behavior has changed in the Finance & Accounting industry because of Covid-19 restrictions. Some of this behavior will stay once things get back to normal. Spotify's Spotify can take advantage of these changes in consumer behavior to build a far more efficient business model. For example consumer regular ordering of products can reduce both last mile delivery costs and market penetration costs. Spotify's Spotify can further use this consumer data to build better customer loyalty, provide better products and service collection, and improve the value proposition in inflationary times.
Learning at scale
– Online learning technologies has now opened space for Spotify's Spotify to conduct training and development for its employees across the world. This will result in not only reducing the cost of training but also help employees in different part of the world to integrate with the headquarter work culture, ethos, and standards.
Loyalty marketing
– Spotify's Spotify has focused on building a highly responsive customer relationship management platform. This platform is built on in-house data and driven by analytics and artificial intelligence. The customer analytics can help the organization to fine tune its loyalty marketing efforts, increase the wallet share of the organization, reduce wastage on mainstream advertising spending, build better pricing strategies using personalization, etc.
Remote work and new talent hiring opportunities
– The widespread usage of remote working technologies during Covid-19 has opened opportunities for Spotify's Spotify to expand its talent hiring zone. According to McKinsey Global Institute, 20% of the high end workforce in fields such as finance, information technology, can continously work from remote local post Covid-19. This presents a really great opportunity for Spotify's Spotify to hire the very best people irrespective of their geographical location.
Identify volunteer opportunities
– Covid-19 has impacted working population in two ways – it has led to people soul searching about their professional choices, resulting in mass resignation. Secondly it has encouraged people to do things that they are passionate about. This has opened opportunities for businesses to build volunteer oriented socially driven projects. Spotify's Spotify can explore opportunities that can attract volunteers and are consistent with its mission and vision.
Low interest rates
– Even though inflation is raising its head in most developed economies, Spotify's Spotify can still utilize the low interest rates to borrow money for capital investment. Secondly it can also use the increase of government spending in infrastructure projects to get new business.
Threats Spotify's Direct-Listing IPO External Strategic Factors
What are Threats in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The threats mentioned in the HBR case study Spotify's Direct-Listing IPO are -
Easy access to finance
– Easy access to finance in Finance & Accounting field will also reduce the barriers to entry in the industry, thus putting downward pressure on the prices because of increasing competition. Spotify's Spotify can utilize it by borrowing at lower rates and invest it into research and development, capital expenditure to fortify its core competitive advantage.
Aging population
– As the populations of most advanced economies are aging, it will lead to high social security costs, higher savings among population, and lower demand for goods and services in the economy. The household savings in US, France, UK, Germany, and Japan are growing faster than predicted because of uncertainty caused by pandemic.
Capital market disruption
– During the Covid-19, Dow Jones has touched record high. The valuations of a number of companies are way beyond their existing business model potential. This can lead to capital market correction which can put a number of suppliers, collaborators, value chain partners in great financial difficulty. It will directly impact the business of Spotify's Spotify.
Shortening product life cycle
– it is one of the major threat that Spotify's Spotify is facing in Finance & Accounting sector. It can lead to higher research and development costs, higher marketing expenses, lower customer loyalty, etc.
Backlash against dominant players
– US Congress and other legislative arms of the government are getting tough on big business especially technology companies. The digital arm of Spotify's Spotify business can come under increasing regulations regarding data privacy, data security, etc.
New competition
– After the dotcom bust of 2001, financial crisis of 2008-09, the business formation in US economy had declined. But in 2020 alone, there are more than 1.5 million new business applications in United States. This can lead to greater competition for Spotify's Spotify in the Finance & Accounting sector and impact the bottomline of the organization.
High dependence on third party suppliers
– Spotify's Spotify high dependence on third party suppliers can disrupt its processes and delivery mechanism. For example -the current troubles of car makers because of chip shortage is because the chip companies started producing chips for electronic companies rather than car manufacturers.
Barriers of entry lowering
– As technology is more democratized, the barriers to entry in the industry are lowering. It can presents Spotify's Spotify with greater competitive threats in the near to medium future. Secondly it will also put downward pressure on pricing throughout the sector.
Technology disruption because of hacks, piracy etc
– The colonial pipeline illustrated, how vulnerable modern organization are to international hackers, miscreants, and disruptors. The cyber security interruption, data leaks, etc can seriously jeopardize the future growth of the organization.
Learning curve for new practices
– As the technology based on artificial intelligence and machine learning platform is getting complex, as highlighted in case study Spotify's Direct-Listing IPO, Spotify's Spotify may face longer learning curve for training and development of existing employees. This can open space for more nimble competitors in the field of Finance & Accounting .
Trade war between China and United States
– The trade war between two of the biggest economies can hugely impact the opportunities for Spotify's Spotify in the Finance & Accounting industry. The Finance & Accounting industry is already at various protected from local competition in China, with the rise of trade war the protection levels may go up. This presents a clear threat of current business model in Chinese market.
Increasing international competition and downward pressure on margins
– Apart from technology driven competitive advantage dilution, Spotify's Spotify can face downward pressure on margins from increasing competition from international players. The international players have stable revenue in their home market and can use those resources to penetrate prominent markets illustrated in HBR case study Spotify's Direct-Listing IPO .
Instability in the European markets
– European Union markets are facing three big challenges post Covid – expanded balance sheets, Brexit related business disruption, and aggressive Russia looking to distract the existing security mechanism. Spotify's Spotify will face different problems in different parts of Europe. For example it will face inflationary pressures in UK, France, and Germany, balance sheet expansion and demand challenges in Southern European countries, and geopolitical instability in the Eastern Europe.
Weighted SWOT Analysis of Spotify's Direct-Listing IPO Template, Example
Not all factors mentioned under the Strengths, Weakness, Opportunities, and Threats quadrants in the SWOT Analysis are equal. Managers in the HBR case study Spotify's Direct-Listing IPO needs to zero down on the relative importance of each factor mentioned in the Strengths, Weakness, Opportunities, and Threats quadrants.
We can provide the relative importance to each factor by assigning relative weights. Weighted SWOT analysis process is a three stage process –
First stage for doing weighted SWOT analysis of the case study Spotify's Direct-Listing IPO is to rank the strengths and weaknesses of the organization. This will help you to assess the most important strengths and weaknesses of the firm and which one of the strengths and weaknesses mentioned in the initial lists are marginal and can be left out.
Second stage for conducting weighted SWOT analysis of the Harvard case study Spotify's Direct-Listing IPO is to give probabilities to the external strategic factors thus better understanding the opportunities and threats arising out of macro environment changes and developments.
Third stage of constructing weighted SWOT analysis of Spotify's Direct-Listing IPO is to provide strategic recommendations includes – joining likelihood of external strategic factors such as opportunities and threats to the internal strategic factors – strengths and weaknesses. You should start with external factors as they will provide the direction of the overall industry. Secondly by joining probabilities with internal strategic factors can help the company not only strategic fit but also the most probably strategic trade-off that Spotify's Spotify needs to make to build a sustainable competitive advantage.