Daniel Ek – The Future of Audio - [Invest Like the Best, EP.147]
At a Glance
Daniel Ek (founder and CEO of Spotify) discusses the future of the audio industry with host Patrick O'Shaughnessy. The central theme of this episode: how Spotify achieves scalable growth through a "constellation" rather than a "star" business strategy in a business landscape reshaped by globalization, automation, and digitalization. Daniel Ek argues that the size of the audio market is severely underestimated—Spotify's target market is "audio" rather than "music," a market that will ultimately accommodate 2–3 billion users, and Spotify needs to capture at least one-third of that, implying the company still has 10–15 times room for growth.
Theme 1: Three Macro Trends Reshaping the Business Landscape — "Be a Giant or Be a Niche"
Daniel Ek argues that the three trends of globalization, automation, and digitalization are creating extreme business polarization.
- Historical Context: Globalization has been underway for 50–60 years, digitalization for about 40 years, and automation, while not yet fully realized, is inevitable. The net effect of these three forces is that large companies grow even larger through globalization and digitalization, niche markets become viable due to efficiency gains, but the middle ground is "completely evaporating."
- Mechanism Breakdown: Companies must choose one of two paths — either pursue a niche (which can be highly profitable) or pursue scale (though the definition of scale has been fundamentally rewritten). Ek uses H&M as an example: this Swedish apparel giant operates a vertically integrated model (producing and selling its own products), yet the global "everyday shopper" market is worth trillions of dollars, and H&M covers less than 1% of it. He believes H&M must abandon its vertically integrated "produce and sell" model and either focus on creation (giving up exclusive distribution) or focus on distribution (bringing in other suppliers).
- Comparative Data:
| Company |
Strategy |
Market Size |
Current Share |
Scale Potential |
| H&M |
Vertical integration (produce and sell) |
Trillions of dollars (everyday shopping) |
<1% |
Could reach 20%+ if focused on distribution |
| Nike |
Niche focus (athletic apparel) |
Approximately 1/3 of the market |
Approximately 1/3 |
Could become "sub-scale" if market boundaries blur |
- Extrapolation: Ek suggests that defining market boundaries is itself a strategic choice — if Nike defines its market as "athletic apparel," it is already near its scale ceiling. But if Adidas defines "streetwear + athletic apparel" as the true market, Nike immediately becomes "sub-scale."
Theme 2: Audio's "Intimacy" Is a Unique Moat; Podcasts and Music Are the Same Market
Daniel Ek argues that the intimacy of audio makes it the medium closest to a "real experience," and that podcasts and music are essentially the same market—"audio"—only market consensus has yet to catch up.
- Historical Context: Ek experienced the remixing process of The Beatles' White Album at Abbey Road Studios, hearing John and Paul's conversation between takes—"like they were in the room." He believes audio's fidelity brings it infinitely close to reality, whereas video "we know is filtered."
- Mechanism Breakdown: Ek points out that most people view podcasts and music as "completely different" things, citing "you'd listen to a podcast at 1.2x speed but not music." However, he argues this is merely a software-solvable issue. The core is that consumers' "job to be done" is the same—entertainment, education, companionship. A single service can satisfy all.
- Data Chain: Spotify currently hosts over 500,000 podcast shows, but most are not exclusive. Ek believes podcasts are still in the "RSS phase"—analogous to the "pre-Facebook, pre-YouTube" era of text-based internet—where the audio format itself will be reimagined.
- Extrapolation: If Ek's judgment is correct, Spotify's competitive moat will stem from the scale effects of an "audio platform"—where music and podcasts share the same discovery algorithms, player, recommendation system, and advertising infrastructure. This is more efficient than a dual-track approach of "music platform + podcast platform."
Theme 3: The "Constellation" Business Strategy — When to Spin Off, When to Integrate
Daniel Ek proposes a "star vs. constellation" business strategy framework: only spin off into standalone apps when the user base and "jobs to be done" undergo fundamental changes.
- Mechanism Breakdown: Ek argues that the developer community once widely advocated "splitting into multiple apps," but successful cases are rare (Apple, Google, and Facebook's Messenger being exceptions). The core contradiction is that users download only one new app per year on average, making distribution for new apps extremely difficult.
- Decision Principle: A spin-off is worthwhile only when both the "jobs to be done" and the "user base" undergo fundamental changes. Ek provides two Spotify examples:
- Spotify Kids: Although it also involves "listening to content," the users are children — no ads, no collection of sensitive data, no free user-generated content, and a 100% curated experience is required. Hence, it was spun off as a standalone app.
- Spotify for Artists: The users are creators rather than consumers, and the functionality involves marketing and editing tools rather than content consumption. Hence, it was spun off.
- Comparative Data:
| Product |
User Base |
Jobs to Be Done |
Strategy |
| Main App |
General consumers |
Listen to music/podcasts |
Integration |
| Spotify Kids |
Children |
Safely listen to content |
Spin-off (constellation) |
| Spotify for Artists |
Creators |
Market/edit content |
Spin-off (constellation) |
- Inference: Ek implies that the key to the spin-off decision is not "functional differences" but differences in "user identity and trust relationships" — children's products require a completely different trust model.
Theme 4: Competing with "Free" — Beating Piracy Through Experience
Daniel Ek recounts how Spotify competed with "free" (piracy) in its early days: not through legal action or moral persuasion, but by creating an experience "better than free."
- Historical Context: Around 2008 in Sweden, the Pirate Party won 10% of the vote, and the Prime Minister publicly stated that "copying music for personal use can ignore copyright." Ek faced a market where "piracy was the default option."
- Mechanism Breakdown: Ek worked backward from the "ultimate experience" — "What would it feel like if all the music were on your hard drive?" — and then reverse-engineered the path to achieve it. Key techniques included:
- Streaming startup latency was around 500 milliseconds, but by making the progress bar move before playback began, users perceived it as "instant."
- This "psychological trick" gave early users the illusion that "all the music was on their hard drive."
- Data Chain: The piracy rate in the Swedish music market was as high as 60–70%, leaving record labels with "nothing to lose." Ek guaranteed Swedish record labels one year of revenue in exchange for permission to experiment. After the experiment succeeded, it took three years (validated in 11–12 countries) before entering the U.S. market.
- Inference: Ek believes this strategy of "first finding the weakest supplier as a wedge, then gradually expanding" is repeatable — the key is "not to try solving the biggest problem from the start."
Theme 5: Platform Health — From "Discovery" to "Enabling a Million People to Make a Living from Art"
Daniel Ek believes that the key to measuring platform health is not average metrics, but the "discovery" frequency of segmented groups and the viability of creators.
- Mechanism Breakdown: Ek points out that Spotify does not have "one user," but rather "many different users." Health metrics must be segmented:
- User Side: If a user can "discover one piece of new content each month that makes you think 'that's amazing,'" they will retain long-term. This can be new content or "nostalgic content from 10 years ago" — but it depends on age (an 18-year-old does not want to feel nostalgic about being 8, while a 30-year-old might want to feel nostalgic about being 18).
- Creator Side: Spotify's mission is "to enable more than one million people to make a living from art." Ek believes that creativity is "the last job that machines will replace."
- Implication: Ek suggests that the future form of work will undergo a fundamental shift — many people will no longer hold their current jobs, and creativity will become a "future option." Spotify's goal is to provide the infrastructure for this option.
Theme 6: The CEO’s Role — From “Jack-of-All-Trades” to “Pace Setter”
Daniel Ek believes that as a company grows from a startup to 5,000 employees, the CEO’s role undergoes a fundamental transformation — it is now about “keeping the company at a ‘scary’ pace.”
- Historical Context: Ek has implemented a “missions” system at Spotify, where roles automatically change every two years (even if the title remains the same). He himself is now in his “sixth or seventh role.”
- Mechanism Breakdown: The evolution of the CEO role:
- Phase 1: Product designer + product manager + “general handyman”
- Phase 2: HR (the function he should have hired for first but did not)
- Phase 3: Finance (fundraising)
- Current phase (5,000 employees): Pace setter — “Spotify runs well without me most of the time, but my job is to say ‘we need to accelerate’ when people start to slack off.”
- Analogy: Ek cites the philosophy of a Finnish rally driver — “If the co-driver isn’t scared, you aren’t driving fast enough.” A company should be “on the edge of discomfort,” but not “pulled too far.”
- Inference: Ek implies that the CEO’s core capability is not “knowing all the answers,” but “knowing when to push and when to brake” — and acquiring “ways of thinking” rather than direct answers from different perspectives (e.g., Brian Chesky’s design thinking, Padmasree Warrior’s cultural integration experience).
Mentioned Positions
| Position |
Analyst View |
Key Data |
| Spotify |
Bullish (Long-term growth) |
Target market of 2-3 billion users, needs to capture 1/3; currently ~250 million users, still has 10-15x upside |
| H&M |
Risk warning (Sub-scale) |
Global daily shopping market worth trillions of dollars, H&M covers <1%; vertical integration model unsustainable |
| Nike |
Neutral (Niche positioning) |
If market defined as "athletic apparel," holds ~1/3 share; if market boundaries are blurred, could be sub-scale |
| Adidas |
Neutral (Competitive perspective) |
Hybrid "streetwear + athletic apparel" strategy may redefine market boundaries |
| Luminary |
Risk warning (Business model) |
Raised $100M+ to be "Netflix for podcasts"; requires creators to give up 99% of the market, unlikely to succeed |
| Uber |
Neutral (Analogy) |
China's Uber Eats revenue already exceeds Uber rides; "job to be done" shifted from "ride-hailing" to "transportation" |
| BTS |
Bullish (Cultural phenomenon) |
Korean band sells out venues in the US, fans sing Korean lyrics |
| Reggaeton |
Bullish (Global trend) |
Spotify predicted 5 years ago it would become a global phenomenon |
Judgments Worth Remembering
1. "Either be a giant, or be a niche — the middle ground is evaporating" (Daniel Ek)
- Globalization, digitalization, and automation are making big companies bigger and small niches more viable, while mid-sized enterprises are squeezed. H&M (<1% market share) is a typical case of "sub-scale."
2. "Podcasts and music are the same market — audio" (Daniel Ek)
- Market consensus holds that they are different (e.g., listening to podcasts at 1.2x speed), but Ek argues this is merely a software-solvable issue. Consumers' "jobs to be done" are the same — entertainment, education, companionship.
3. "Audio's intimacy makes it the closest to real experience" (Daniel Ek)
- His experience at Abbey Road Studios listening to the Beatles' conversations between takes convinced him: audio's fidelity makes listeners "feel like they're in the room," whereas with video, "we know it's filtered."
4. "The premise for spinning off an app is that both the user base and the job to be done have fundamentally changed" (Daniel Ek)
- Spotify Kids (for children) and Spotify for Artists (for creators) are reasonable cases for spin-offs; ordinary functional differences are insufficient to justify a standalone app.
5. "The only way to compete with free is to create an experience better than free" (Daniel Ek)
- Early Spotify defeated piracy by creating an experience where "all music feels like it's on your hard drive," with key tricks including moving the progress bar before playback to mask a 500ms delay.
6. "The key to network health is not average metrics, but the 'discovery' frequency of segmented groups" (Daniel Ek)
- Users who discover one "amazing" new piece of content per month will retain long-term; on the creator side, the goal is "to enable 1 million people to make a living from art."
7. "The CEO's role evolves from 'knowing everything' to 'setting the pace'" (Daniel Ek)
- At a company of 5,000 people, the CEO's core job is to keep the company at a speed that is "uncomfortable but not excessive" — citing a Finnish rally driver: "If the co-driver isn't scared, you're not driving fast enough."
8. "Don't be afraid of struggle — it will turn into enjoyment" (Daniel Ek, a lesson from his grandfather)
- His grandfather forced him to learn classical music, and after years of pain, he suddenly "crossed the hill" and began to enjoy it. This taught him: actively place yourself in a position of "knowing nothing," endure the discomfort, until you break through.