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Apple doesn't need Spotify - and Spotify doesn't need Apple

Acquisition Impossible

Internet Security Threat Report 2014

Apple buying Spotify makes as much sense as Apple buying Nokia. And that makes no sense at all.

The rumour that the two were in discussions about an acquisition emanated from TechCrunch's maximum leader, Michael Arrington. Spotify was not impressed.

"We wouldn't normally comment on this kind of speculation, but we want to make it clear that we have absolutely no intention of selling Spotify," the music startup responded.

Spotify is a well-run company that has the opportunity to be a far more significant player than it is today. For now, it has its plate full with music. For its part, Apple isn't in the habit of making blockbuster acquisitions, the largest being the $275m for ad network Quattro. Apple paid peanuts for streaming site LaLa, incorporating the technology and throwing away the rest.

There are also regulatory aspects to Apple acquiring its biggest potential rival. Just as Microsoft was keen to keep Apple in business, Apple will be keen to keep Spotify in business too. Spotify's shareholders - mostly major record labels but also including Hutchison - may be tempted to cash out. But they'd be wiser to stay in the game.

Spotify looks set to be a major media distribution system - and a viable alternative to Apple. Now there's more to Spotify than streaming, contrary to what many people think. It's also a P2P network, hence its appeal to ISPs. If everybody is fetching packets from other users on the same network, rather than Stockholm, the ISPs costs are much lower. This may not matter much yet, but it may do when HD video is part of the offering.

Last June, founder Daniel Ek said he would like to move into video distribution – but that music would be the company's preoccupation for the next two years. Spotify still hasn't reached agreement with all the parties needed to launch in the world's biggest music market, the USA. With the IPTV business receiving significant investment - the BBC creation YouView may well turn out to be a global standard, or the basis for such a standard - and that allows Spotify as the default music player in the home. The stakes are very high, and it's worth staying beyond the orbit of Cupertino.

Ek also said he would be keen on a public flotation for Spotify. This isn't somebody who needs or wants to be assimilated.

It now seems likely that Spotify will be pay-to-play in the US from the start – with no free ad-supported offering. But that's been the de facto practice for some time here in the UK. You can apply to join, and then wait a very long time. That also suits Apple just nicely. Research conducted back in July suggested that 15 million Apple fanbois would sign up to pay for iTunes streaming. Spotify looks the most formidable music rival to Apple, and vice versa.

Finally let's remember who owns Spotify. The largest equity owners are the labels, and they want a strong competitor to Apple, rather than to cement its monopoly. It desperately needs new experiments, too. So the labels stand more to gain in the long-term by not selling. You just have to bet that the music business will occasionally do something with an eye on the long term. ®

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