A different tune

The free music website Spotify has taken Europe by storm and now has its sights set on the US.

The Spotify website sees the smartphone market as an area for future growth.

The free music website Spotify has taken Europe by storm and has its sights on the US. But can it take a bite out of Apple? Any Pemberton reports "Are we going to kill iTunes? We get asked this a lot," sighs Andres Sehr. "Music is a huge market. There is room for everybody." Sitting in his gleaming office in Stockholm, Sehr sounds confident. That is understandable. He is the communications manager of Spotify, this summer's most talked-about tech start-up. It is a music service that allows users to choose from six million songs (iTunes has 10 million) and stream them for free on to their Macs or PCs. And because Spotify pays record companies to license their music, it's all legal.

After launching a little less than a year ago, Spotify's slick, intuitive interface has attracted two million users in the UK and four million in Europe. It is currently not available in the UAE. Now the company has its sights on the US, where it plans to launch early next year. Free music that is legal? It sounds too good to be true. Bloggers have called Spotify "the best desktop music player we've ever used". Silicon Valley insiders, meanwhile, have branded the site "Apple's worst nightmare". Apple, which charges for each music download and currently accounts for a quarter of all music sold in the US (more than the mega retail brand Walmart), must be nervous?

"You'd have to ask them that," says Sehr, coolly. "We have a great relationship with Apple. They have just approved our iPhone application, so I don't think they are too worried." Really? Even though Spotify's vast library of music is free and iTunes's isn't? "Our audiences are different," says Sehr. "A lot of our users are younger people who would never buy off iTunes. They've never paid for music; they may not even have a credit card. iTunes is for older, wealthier users."

For Sehr, Spotify's competition isn't iTunes, but illegal downloading. "Ninety-five per cent of digital music is downloaded illegally," he says. "We want to bring people back into a model that generates fair revenue for artists." It's a safe bet that iTunes must be concerned, though, especially after hearing the rumour that the uncrowned king of the web and modern day folk hero Mark Zuckerberg is a fan of the Spotify service. It's understood the man behind Facebook wants to partner with the UK company.

"Mark Zuckerberg is a fan of our product and we are fans of Facebook. There is nothing there to comment on, really," says Sehr. Spotify plans to pay for its limitless supply of free music with advertising. Users must listen to short ads that play once every half an hour. If you pay to subscribe - at a cost of around $15 (Dh55) a month - you can get a deluxe version that omits the ads and soon will allow users to download songs on to their smart phones. It sounds straightforward enough, but critics say Spotify's numbers just don't add up.

"There's just no way to make any money," Michael Robertson, who founded MP3.com and is the chief executive of the music start-up MP3tunes, said recently. "Any time you have to pay a per-stream fee, the economics don't work out for an advertising model. They're going to go bankrupt, like all the other streaming companies." Spotify's subscription model has also been challenged, because, it is believed by insiders, people won't pay monthly fees. "The subscription model has failed so far," Apple's Steve Jobs has said. "People want to own their music."

There are other problems too. The site does not yet host heavy hitters such as AC/DC, Led Zeppelin or The Beatles, and many of the adverts appear to be of the in-house variety. "In the current climate it is a challenge," admits Sehr. "But we are seeing steady growth in ads and subscriptions month on month. We are confident we can make it work." As well as the US, Spotify sees the hand-held, smartphone market - where users are more inclined to pay for services - as an area for further growth. While the nature of Spotify's deals with record companies are secret, it is believed the big four labels own equity in the service. The Hong Kong billionaire Li Ka-shing has also recently invested in Spotify. The company is now estimated to be valued at $244 million (Dh896m).

But even with that kind of war chest, can plucky Spotify really take on the explosively successful iTunes? It's hard to say, but as one American publication has put it: "Apple may find it difficult to compete with 'free'."