Visionary pursuit of a billion-dollar jukebox

Daniel Ek looks older than his 28 years. It’s partly a function of his close-cropped, receding hair; it’s partly the fact that he’s running one of the hottest technology start-ups in the world, with Spotify this week becoming the largest digital music service by subscribers in the US and Europe.

But it’s also due to the scale of the mission he’s set himself: to persuade millions more people to pay for music on the internet, and to beat Apple at its own game.

Spotify, which Mr Ek co-founded in 2006 before becoming its chief executive, offers unlimited access to more than 10m songs, for free. A million people like the service enough to pay a monthly subscription for extra features such as listening on a smartphone and removing the ads, it revealed this week.

Mr Ek believes that offers proof that Spotify can become a sustainable business, in spite of heavy losses to date (£16.6m in the UK, its headquarters, in 2009).

But he has many people to convince that Spotify can be a long-term success and that its purported $1bn valuation is more than only a return to dotcom froth.

Spotify is a testament to Mr Ek’s programming skills. People who have worked with him say that he’s a serious, smart engineer, whose focus on product over PR contrasts with the caricature of an extravert entrepreneur.

That demeanour has helped other heavyweights to take him seriously, including investors Li Ka-shing, the Hong Kong billionaire, and Sean Parker, former president of Facebook and a driving force behind Napster.

Mr Ek wasn’t always so low-key. After promising too much, too fast in Spotify’s early days – a US launch was mooted by the end of 2009 but has yet to materialise – Mr Ek has retreated ever further from the limelight, rarely giving interviews. Often jet-lagged from 200 days a year travelling back and forth to New York and California, signing up investors and labels, no wonder he has grown up fast.

It’s all a long way from the Stockholm suburb where Mr Ek and Martin Lorentzon, a fellow Swede, had the idea for Spotify in 2006. A fan of Radiohead and Daft Punk who started to play guitar aged 4, Mr Ek felt neither Apple’s dominant iTunes nor illegal filesharing, its largest rival, was a user-friendly experience. He wanted to make listening to music online as simple as turning on a tap.

After registering the company on April 1 2006, the pair knuckled down and quickly put together a product. Like many entrepreneurs, Mr Ek has the quiet confidence, at times bordering on arrogance, to believe he can find solutions others have missed and a perfectionist’s dedication to ironing out kinks. That focus on product and media-aversion (he rarely reads his own press) recalls Facebook creator Mark Zuckerberg, with whom Mr Ek has a sporadic, transatlantic friendship.

Mr Ek’s 764 Facebook friends also include web-browser pioneer Mark Andreessen and Sean Lennon, son of John and Yoko – but only a handful of record label managers.

Spotify’s relationship with the music industry is complex. Negotiating with labels for European rights took three times longer than Mr Ek expected. Exactly how much Spotify had to pay upfront he refuses to discuss – but at the very least it meant giving the four important labels a slice of the company.

Mr Ek’s hope that once Europeans were convinced, their American cousins would swiftly follow was not realised. Popularity of Spotify’s free service in Europe only intensified US labels’ concerns about it cannibalising revenue.

Mr Ek may now regret telling the Observer in July 2009 that he spoke to US label people “on a weekly basis . . . I know them, I know their numbers, I know their wives’ names”.

But his forecast then that Spotify would become a billion-dollar company is coming true faster than even Mr Ek could have expected. He is negotiating a $100m round of funding by investors including Digital Sky Technologies Global and Kleiner Perkins Caufield & Byers that could value Spotify at $1bn.

After much of 2010 spent on the defensive, it all helps to put the wind back in Spotify’s sails. An American launch is in prospect. The fact that 15 per cent of its 6.7m active users now pay £5 to £10 a month has gone some way to assuaging labels’ concerns.

But a fresh challenge looms – Apple. Since its acquisition of Lala in 2009, Apple watchers have forecast the Californian company would launch a Spotify like “cloud” jukebox service. Apple is also to introduce a new 30 per cent levy on subscriptions sold through mobile applications on the iPhone and iPad, which analysts say could eliminate Spotify’s slim margin altogether.

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