April 17, 2024

It’s a question as old as the tech industry itself: can Europe compete with Silicon Valley?

This reared up again in my mind for two main reasons. The first is the recent(-ish) shift of Big Tech into being media entities. And the second? That’s Spotify’s struggles as a European stalwart in this field.

Let’s consider the first point.

Over the past few years, we’ve seen Silicon Valley shift its strategy and start investing heavily in media. You only need to look at Apple’s launch of the Apple TV+ and Apple Music streaming services, or Amazon’s foray into movies and TV series. I mean, the latter was behind The Rings Of Power, the most expensive television show ever made.

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There are, of course, a myriad of reasons why Big Tech is investing in media, but one of the biggest is using it as a tool to hook people into their ecosystems.

“In the case of Amazon, due to its various revenue channels and methods of connecting with customers, it has a greater understanding of its users and their preferences through data,” Stephen Hateley says. He’s the head of product and partner marketing at DigitalRoute, a business that helps streaming companies understand their customer data.

He tells me that because Amazon “is not primarily or solely a media company, it can combine its customer accounts and upsell to them via its ecommerce, TV, film and music streaming, consumer electronics, and grocery delivery channels.”

For example, the company is able to spend money on shows and encourage people to subscribe to Amazon Prime Video. This comes bundled with Amazon Prime itself, meaning users have an incentive to use the platform to shop on.

Apple takes a similar approach.

In recent years, the company has realised that it’s close to hitting the ceiling of how many devices it can sell. From this point, growth will be tougher. Knowing this, it has shifted focus to services, effectively aiming to upsell software to its existing customers — and it’s working.

Apple not only gives customers free trials of its streaming services with new hardware purchases, but also bundles them together in its Apple One package. And again, like Amazon, it spends big on shows in order to attract people to enter its services ecosystem — with Ted Lasso being a prime example of this working successfully.

“This provides it with more opportunities to monetise its customers as well as collect a great amount of data on their preferences,” Hateley says. 

Spotify’s struggles: An industry signpost

The thing is, all of the above isn’t particularly profitable — and especially not when it comes to the media side of things. In many ways, US tech companies are using streaming as a loss leader. They’re pumping billions into shows and movies with the aim of making money elsewhere, not through the media itself.

This is a huge problem to both media companies in general and European businesses in the same field. And guess who sits in both these categories? Yep, you guessed it: Spotify.

The Swedish company, which is broadly independent, is struggling to keep up with Big Tech. It pays its artists less than its biggest competitors, yet still hasn’t made a profit: 

Chart of Spotify's earnings