Spotify - where great product meets great business model

Gustav Söderström

Company

Spotify

Education

Royal Institute of Technology, MSc

Work History

CEO & Founder at Kenet Works,

Director of BD & PM at Yahoo

Job Title

CPO & CTO

DOB

1980

Location

Sweden

Expertise

Product, OBHR

Socials

🔗 LinkedIn

🐥 Twitter


UPSHOT

Optimising organisational behaviour & human resources

  • Emphasise the value of discussion

    • While execution is important, it's also valuable to have open discussions and debates

    • This leads to better ideas and more informed decisions, saving time and resources

  • Foster a culture of open communication

    • Encourage constructive disagreement but balance this with active accountability & ownership to avoid slowing down the decision-making process

    • Successful implementation depends on how well senior management embody this behaviour

  • Striking a good balance between speed and accuracy

    • What’s the cost of being wrong? Should speed come at the expense of accuracy?

    • Consider the reversibility of strategic decisions

  • Prioritise collaboration over specialisation within the organisation

    • Focus on creating a seamless user experience

    • Teams working in silos may manifest in product inconsistencies down the line

Great innovations are the result of combining innovative technology with innovative business models

  • A better business model means higher quality margins

  • This affords the company better resources and more robust financing to build better products

Leadership lessons

  • Leading by example is an effective way to motivate your team

    • By demonstrating your own commitment and dedication, you can inspire others to do the same

    • Leadership styles must adapt as teams grow

    • Leaders may need to shift their style to focus more on coaching and mentoring other leaders

  • Re-education and continuous learning is difficult but necessary

    • New technologies & concepts often spark fundamental changes throughout the tech industry

    • Leaders should have a deep understanding of what they are responsible for to make informed decisions

Life lessons

  • Shared values are of utmost importance in a relationship

  • Learn to appreciate each other's strengths

  • Complementary skills can strengthen a relationship

    • Partners with different skills and strengths can complement each other well and help each other succeed

  • Spending time with family is not negotiable

    • Despite the demands of work and other obligations, it's important to make time for family and prioritise spending time together

Change is the only constant, embrace it!

  • Dig deep to identify/anticipate macro winds

    • Be on the lookout for fundamental societal changes or trends e.g. rise in smartphone usage, lower data cost

    • Accept & acknowledge the disruption, reposition yourself to take advantage of them

    • The courage to take risk and scale new learning curves are essential for companies to remain nimble

  • Manage risk with the help of models

    • Models reduces the complexity of reality

    • Models are never perfect, utilise multiple models with varying dimensions

    • Models unlock the ability to share, predict and explain business problems clearly

  • Technology at the centre of business strategy

    • Let technology be a function of your business strategy

    • Take advantage of the dynamic nature of technology

    • Ask the question, “What’s next for us as a result of technology X?”

Customer-led roadmaps

  • Separate metrics for new and existing users when evaluating new features

    • Helps determine if features are truly better or simply a matter of habit

    • What’s the marginal benefit of retraining current customers in the long term?

  • Exercise caution when adding features

    • The endowment effect (bias to overvalue objects/goods one owns) makes it hard to reverse these decisions

    • Be clear of what you’d like to achieve with these features

    • Adding new features can overcomplicate the user experience

David’s blue ocean strategy vs Goliath

  • No competitive edge for smaller firms to pursue similar strategies as incumbents with scale and resources

  • Attack the whitespaces or adopt a strategy that’s completely different

    • Identify viable metrics to evaluate your contrarian strategies

  • Embrace constraints

    • Constraints can be a source of creativity and innovation

    • Success hinges on a startup’s ability to find superior solutions within these narrow constraints

  • Small businesses have the freedom to experiment and innovate without significant risks

    • Take advantage of your size and constantly explore new ideas

Product is more science than art

  • Pattern recognition is often mistaken for great instinct and experience

  • By reducing product thinking to pattern recognition, it becomes a science that can be understood and analysed

  • The best product leaders have the ability to explain their thinking and share it with others


QUOTES

By definition, all models are wrong. That's why they're called models. If they weren't wrong, they're actually reality. But the whole point with the model is it simplifies reality because reality is too complex.

It's better to be lower on a taller mountain than higher on a smaller mountain

You know how they say that ignorance is bliss. I had no idea about the music industry. If someone had told me, there's no chance I would have started. Statistically, it would have made no sense to join a music startup

We're not doing competitive swimming we're doing synchronized swimming it's much harder but it's also much more beautiful to watch

There is a beauty in being small enough that people don't care and that's actually a problem with being big. We can't really just try things.

The greatest innovations are when you find a new technology and you change not just the product and how you use it but you change the business model


Show Notes

From Selling Companies to Yahoo and Meta to Leading Spotify’s Product:

  • How did Gustav first make his way into the world of tech and startups?

    • Due to the IT crash, Gustav was unable to find a job and was forced to become an entrepreneur. He teamed up with some friends to create a messaging platform, which caught the attention of Yahoo and was eventually acquired by the company.

    • Gustav worked at Yahoo for a period of time before crossing paths with Daniel Ek, who had plans to make Spotify available on mobile devices - which was a unique skillset Gustav had back then

  • What was it that made Gustav so compelled to join Daniel Ek and build Spotify?

    • Gustav was extremely impressed with the talent pool Spotify had and the incredible product that they had built

    • They had also fostered a culture that was non-hierarchical, technology-centric, meritocratic and idea-based where only the best ideas won

    • Naivety - Gustav had no idea how tough it was to scale a business in the music industry

  • What does Gustav know now that he wishes he had known when he started?

“Never Fight a Macro Wind”:

  • What does Gustav mean when he says “never fight a macro wind”?

  • What can product leaders do to change the macro wind and have it blowing in their back and not their face?

    • Macro winds are fundamental societal changes that disrupt the way in which we conduct our lives or experience the world - e.g. cheaper broadband, machine learning, smartphones

    • The presence of macro winds presents an opportunity for companies to strategically reposition themselves in order to take advantage of these forces, rather than attempting to resist or go against them. By quickly recognising and adapting to macroeconomic trends, companies can position themselves to thrive in changing market conditions and gain a competitive advantage. This requires a willingness to adapt and innovate, as well as a thorough understanding of the macroeconomic landscape and how it affects the industry in question

  • What models can product leaders construct to measure the size, importance and timing of a macro wind?

    • Models are inherently multidimensional and can never be perfect, but it is crucial to attempt to reduce and simplify reality by focusing on its main dimensions

    • Models are constructed based on current information and expectations of the future, so it is up to product leaders to use their discretion in determining what changes are likely to be temporary and what changes are more fundamental and long-lasting

    • One way around it is to have 3 vastly different models that derive at different conclusion of how things pan out

  • When did Gustav experience this? What did he change to have the wind blow in his back? How did this alter his mindset and mentality?

    • Gustav cited the time when they had compelling data showing the shift from desktop to mobile usage

    • Spotify had an established business model, charging premiums for mobile usage and freemium for desktop users but had to figure out a way to run a freemium model for mobile users, risking churn from the existing pool of paying premium users on mobile

“Do Something Completely Different to the Competition”:

  • Why does Gustav believe startups should do the complete opposite to the competition? Does this change if your competition is other startups vs incumbents?

    • Startups should do the opposite of incumbents because larger companies are likely playing to their strengths and leveraging their assets, which may not be feasible for smaller players to replicate

    • Instead, smaller companies should identify areas where the larger player is not currently competing and find a counterposition that goes against the larger player's business model. By taking a contrarian approach, startups can carve out a unique niche and compete effectively against the larger player

  • What is the story of how Spotify did the complete opposite to Youtube? Why did it work?

    • YouTube was competing for foreground music discovery (and was extremely successful) whilst Spotify chose to compete in background music listening which worked out really well for Spotify since most of the listening was done in the background

  • On the flip side, when did Spotify do the complete opposite and it did not work out?

    • Not entirely contrarian but Gustav admits that Spotify could have been a lot faster in rolling out lyrics features

Mastering the Learning Process:

  • How does Gustav approach the learning process for all new skills and disciplines?

  • Why does Gustav believe that all technology leaders have to be the master of their domain? How did this lead to Gustav going back to University to study machine learning?

    • Gustav thinks that leaders should have a deep understanding of what they are responsible for and make informed decisions especially when operating in a technical environment when fundamental changes are taking place

  • What are the single biggest mistakes people make in the learning process?

Gustav: The Product Leader:

  • Why does Gustav believe that product is 100% science and not art?

    • Gustav thinks that product managers pass science off as art simply because they are not able articulate to or do not want to share their thinking

    • He shares that many product leaders share that product is more of an art for self-preservation purposes, protecting their own profession by making it seem hard

  • What does Gustav mean when he says, “talk is cheap and so we should do more of it”?

    • According to Gustav, engaging in meaningful reasoning and debate around the problems people want to solve can significantly reduce the iteration process. Rather than relying on repeated trial and error, which can be costly and time-consuming, having thoughtful discussions and debates can lead to more efficient problem-solving. By actively engaging in critical thinking and open dialogue, teams can identify potential issues and solutions more quickly, ultimately saving time and resources

  • How does Gustav structure internal debates? Who sets the agenda? Who is invited? What makes a good vs a bad internal debate?

    • Debates should involve teams instead of individuals, should be in-depth and collaborative with an open feedback loop

  • How does Gustav make everyone feel safe? What can leaders do to ensure an environment where everyone feels they can debate with the boss?

    • The best way to set a positive example and encourage open communication is by leading through action. When leaders demonstrate a willingness to speak up and engage in open, honest debate, they create an environment where others feel comfortable doing the same. By fostering a culture of open communication and constructive debate, organizations can encourage innovation and growth, while creating a more inclusive and collaborative workplace.

Spotify: The Crucible Moments:

  • What is Gustav’s favourite near-death experience in the Spotify journey?

    • Gustav remembers an episode in Spotify's history that nearly cost the company its entire business. One of the music labels that Spotify partnered with did not believe in the freemium model and threatened to revoke Spotify's intellectual property rights. This was a critical situation with severe consequences for Spotify, but ultimately the music label backed down at the very last minute, allowing Spotify to continue operating as before

  • Why did Spotify decide to make the move into podcasting and video? How does that additional complexity change the product paradigm of an audio-only platform?

    • There was no differentiation in licensing for Podcasts, hence, adding video into the mix was not capital intensive but time consuming to achieve feature parity with the other podcast players

  • How do the single most impactful platforms in the world approach market expansion and when to add new products?

  • What are the best companies in the world not merely technology innovations but also business model innovations?

Transcript

[Harry] Gustav, this is an incredibly challenging show for me to do with like a serious face because I know you socially. I think the world of you socially. And so now I get to put on a professional face and welcome you to 20VC. So thank you so much for joining me today.

[Gustav] Thank you for having me. It's an honor. And likewise.

[Harry] That is very kind. I've also been stalking the shit out of you for the last few days professionally. And so this has been great fun. But I want to start with a little bit on you, Gustav. So tell me, how did you make your way into the world of startups and then come to lead the product org at one of the generational defining companies of our time with Spotify?

[Gustav] So I'll try to do the brief version of the history of my life.

[Harry] You've got three to four minutes, so just take your time. And then we cut.

[Gustav] So I'm sort of actually this involuntary entrepreneur. I graduated from the Royal Institute of Technology in Stockholm. Sort of electrical engineering, computer science. That was the tail end of the IT crash. So there were literally no jobs to be had. And so I found a group of friends. I wanted to work upon these big boring Swedish companies like Ericsson or something. But I couldn't get a job. So I decided with a bunch of friends to start a company because all these investments had been made during the IT era in 3G and smartphones and so forth. It was all there, but no one believed in it. So we started this company where you could send text messages over data instead of SMS. And already back then, even though you paid per kilobit, it was still one one thousandth the cost of sending the same 160 characters over text message. So that took off in a little bit in Sweden and in the Nordics. The problem was that the carriers back then controlled the world and they were selling SMS bundles. They didn't like that. We ended up selling this company to Yahoo because they had the biggest messenger application in the world, but it was desktop only. And they wanted to go big in mobile because mobile was starting to happen here. And they had all these relationships with the global carriers. I ended up working at Yahoo in Sunnyvale for a bit. And I can tell you it was a troubled company already back then. So fast forward about two and a half, three years later and I think four or five CEOs later, I was back in Stockholm trying to figure out what to do. And through a mutual friend, I met Daniel Ek, the co-founder and CEO of Spotify. And he showed me this amazing application because Spotify already existed as an application on desktop. But he wanted someone to head up what Spotify mobile was going to be because this was 2008. And the iPhone had just come out, but there was no app store yet. I got lucky. I had a moment in time where I knew something, how to develop for lots of different mobile phones that many other people didn't know. So that's how I came into Spotify, starting to head up product development for mobile.

[Harry] Can I interrupt you there? Because there's just two things I want to pick up on first. Number one is like Shak actually told me about your entrepreneurial early days. One thing I've very much seen in the best product leaders is really kind of the founder mindset and that accountability and ownership mindset that they bring to product. How do you think being a previous founder makes you a better product owner and product leader?

[Gustav] Well, I do think it is the ownership aspect. I can't help but think as a CEO, even when I'm at Spotify, which can be annoying for maybe for the CEO, for my peers, because you think about everyone else's shit as well. But I think it's important to have an holistic perspective. I kind of have to believe in the whole thing. If I don't feel I understand why Spotify should succeed, I can't help myself but asking like, why are we doing it this way? So I have that mindset and I think it's more helpful than not, but I can't really help it.

[Harry] I've known Daniel for the last few years, but Daniel 2008. Can you just take me back? What was it about Daniel and Spotify that convinced you that this was going to be what was now a 14-year journey that you were going to commit to? What specifically was it?

[Gustav] It was two factors. It was the people, Daniel and many of the engineers, who worked at Spotify and built this amazing product. It really was the product. When I tried it like everyone else, I just couldn't believe that it was true. I thought it was a fake. I thought they had a file server standing somewhere nearby because it was too fast. So it's obviously the product.

[Harry] Shak was running in the background with CD-ROMs.

[Gustav] Exactly. And then it was a very technology-centric and sort of meritocratic, idea-based culture. It was like fierce debating and the best idea won out. And I really liked that. So those were two other factors. And Daniel was very humble. I said was. He actually still is a very humble person. He claims himself that he's an introvert, even though I think he's actually very skilled these days. But just a very mellow person, the kind of personality I really like. Non-hierarchical. You can debate intensely with him. So those were some of the factors. The other factor was simply naivety. You know how they say that ignorance is bliss. I had no idea about the music industry. If someone had told me, there's no chance I would have started. Statistically, it would have made no sense to join a music startup. But luckily for me, I had no idea, so I joined anyway.

[Harry] You're clearly not a VC because there's no such thing as naivety. It's just insight and wisdom that made you choose Spotify.

[Gustav] I forgot to phrase it the correct way.

[Harry] I want to split the show today into two kind of separate parts. One is you have this incredible podcast series. And there's a couple of cool themes there that I love and I want to unpack. And then the second is really unpacking lessons from the Spotify journey. If we start with your amazing podcast series, which I love. I actually listen to it on my runs, which I wish it was shorter because I'm getting less and less fit. But my question to you is, you say in it, never fight a macro wind, you will lose. What did you mean by this? And can you explain that to me?

[Gustav] Sure. So macro winds are these big societal changes that are sort of bigger than any one individual or any one company. So what is a macro wind? Typical macro wind would be cheap broadband. It's happening. You're not going to stop it. It's going to disrupt things. You should just accept it. Another one was smartphones, machine learning. It's another such macro wind. These things happen. I still see a lot of companies and product people who try to fight these things as if you can stop them. This has been true for us as well. We've lived through some of these. I've literally had to learn this lesson. And what you should do instead of fighting is obviously to rethink your position, try to reposition yourself so that instead of having this wind blow in your face and slowing you down, you somehow get it at your back. But the lesson is that the quicker you accept it and reposition, the better. You're just not going to stop these things.

[Harry] Can you give me an example of a macro wind that you went in the face of and then pivoted and decided that it was better to have it behind your back, just so I get a feeling for it?

[Gustav] Of course, there are two good examples. One is when I joined Spotify. We had what was then a very profitable business model, which was you give the application away for free on desktop computers because people didn't think they wanted to pay for music. Then they started investing in music, play listing and building libraries. And then they realized that actually wanted to listen to those playlists on the go, on their mobile phones. We charge for the mobile application. So simply put, we charge for mobility. And that worked beautifully for several years. And we loved it. VCs loved it. They invested a lot of money. Then all of a sudden it turned out that this macro wind was blowing called smartphones. And we started seeing people that not only use their mobile phones more than their desktop and were mobile first, but many users that were mobile only. There was no desktop. So we didn't have a free tier at all for these users. So our business model broke. Now, we were not incentivized to want to see that in the short term. And we could see our user growth actually starting to slow down. But when we accepted this and we took the pain and the risk of repositioning all of Spotify, figuring out a way to give away the mobile experience for free, even though that was what we're charging for. So we literally changed the entire business model. We instead got this wind at our back and we started growing literally exponentially, actually. Very clear example. If you look at the growth curve, you can see the macro wind blowing in our faces. Then you can see when we figure it out that we got it at our backs.

[Harry] Take me inside the room there. How did you get over the fear of the cannibalization of an existing business model that was also working? You make it free. You could have a lot of the premium users churn and just be ad supported users, but free. And actually you saw the cannibalization of existing user bases. How did you get over that concern? And what did the internal discussions look like there?

[Gustav] So I know precisely when we realized this, it was a deck from Mary Meeker. That showed the projections of smartphone growth, overtaking desktop growth. And we looked at that and we said, holy crap. So we discussed that a lot. We kind of found the confidence ourselves to do this. But the big problem we had was actually that we have other stakeholders in the labels. And the labels didn't see it. They were not looking at Mary Meeker's slides. And they were not so keen to risk the entire business model that they had just figured out. So that was actually the bigger problem. And we had to wait all up until we had stopped growing and actually started losing users before they agreed to give us the licenses we wanted. But by then we had prototyped and researched and A-B tested a bunch of different concepts. So when we got the licenses, we actually knew what we wanted to do and had already built the experience and we launched it almost overnight when we signed the contracts.

[Harry] How do you know whether it's a sustainable fundamental shift that you're fighting against or a unsustainable one? Point being that a lot of consumer behaviors were changed in Covid that have now come back and actually we've gone back to original behavior patterns. How much data do you need to know whether something is ongoing and continuous versus actually time bounded and temporary?

[Gustav] It's a great question. And I think Covid is the perfect example because you knew that this would actually end. The question was this a fundamental shift in behavior or a temporary shift? And we had exactly this discussion when Covid started. It was much easier with something like the shift to mobile. There was no real model where you saw people going back to desktop computers. Another sub macro shift is from curation to recommendation, whereas Mike Mignano puts it from social media to recommendation media. That's not going to reverse. So those are quite easy. But Covid was hard. So we literally had the discussion. Should we model this as a temporary anomaly? Keep investing, for example, in the car, even though we saw car usage dip completely during Covid. Or should we just say no one is ever going to drive again? Let's reposition for the home use case. We chose the former. We're going to model this as an anomaly. And we kept investing in the world going back to normal. And I can tell you that was incredibly painful because we thought it would be over in six months. Then in 12 months and 18 months later, it didn't look like it was going to go back. It's actually only now that we clearly see it going back to the normal behaviors. Home usage going down, car usage and mobile usage going up. So it's hard. But we had that discussion. We try to model the world and make predictions about how the world is going to work. I love models, basically. It's a structured way of thinking that gives you both predictability, explainability, but also shareability. If you explain your models, then others can use the same model and you can sort of distribute the way you think about the world.

[Harry] What I love doing about these shows is the flexibility I have with the schedules. I'm with you. I love models, too. But I'm also aware that you can't predict markets. And sometimes your model is wrong. And don't try and be smarter than the market. I guess my question to you is, how do you know when your model is wrong and you actually just need to change? 12 months into your investing in the post-Covid, we will go back to normal. Should you wait six months more? Especially as a public company, it's even tougher. How do you know when your model is broken and how do you know when to change?

[Gustav] Very tricky question. First of all, regarding models, there is this famous saying that, by definition, all models are wrong. That's why they're called models. If they weren't wrong, they're actually reality. But the whole point with the model is it simplifies reality because reality is too complex. They are wrong. You're always taking a risk. In data and machine learning terms, you're doing dimensionality reduction. Reality has infinite dimensions and you're reducing it to maybe five. If you pick the wrong dimensions, you didn't model the spread of a disease. It's going to be wrong because that was not a dimension you had. In the real world, it's multidimensional. That's the risk. One way to try to avoid it that comes from Berkshire Hathaway and how they think about the world is you should use at least three models with different dimensions. If they all agree, chances are you're completely wrong or much lower. But using one model, and I've done this mistake early in my career, you think you figure out how something works. You're like, that's how it works. And then you just do the same thing again and again. You're using a single model and you're mistaking the world for being simple. It's just that you manage the model like a small moment in time and then it breaks completely. So I've gotten better at using multiple models. There is no way to catch all of it.

[Harry] One of my favorite features in Spotify is the GoToRadio. It is also buried like three clicks in and I didn't know about it until someone told me about it on Twitter. And when I think about the shift from curation to recommendation being so central to the future of content discovery and content platforms, why is it so buried and is that a product mistake? I would love to say that someone else's question, but it's mine.

[Gustav] It's a perfect question for me. So one answer is stay tuned. You will be happy. Another more telling answer is we made choices between what the main paradigm is. The main paradigm of Spotify was playlisting. That's what Spotify was and what we grew up around, the user curation. And then we started playlisting for you and we had to decide, should we have the radio channel as the analogy or should we have the personalized playlist as the analogy? And they kind of do the same job. A personalized playlist within a certain genre like chill. It is very similar to starting a chill radio. You will get the same songs actually. We've struggled a little bit with which user paradigm to use. Older people, they like radio paradigms and younger people maybe not so much. Not calling you older, but you know.

[Harry] That is fine. I'm fine. I'm wearing a Panama hat.

[Gustav] You are wearing a Panama hat and listening to radio. You're an old young person. So we're trying to figure out how we can combine these things. Fundamentally, it's a problem of many parts of the application sort of performing the same job for the user, if that makes sense.

[Harry] Is that not a product mistake?

[Gustav] I think it's a product mistake. It's very easy to add features and everyone is going to ask for many features. It is incredibly hard to remove features. And this is like scientifically proven by I think Daniel Kahneman and Adam Tversky where they gave Harvard students a cup. First they asked what they would pay for the cup. Then to the other half of the class, they gave the cup and asked what they would sell it for. And it turns out people value something they own 1.5 times as much as they value never having had it. That I think is a good product lesson. Like it's going to be 1.5 times more painful to remove something than it was valuable to give it in the first place. So we're very careful with that. And that's the reason why we have many of those features in the app that kind of duplicate the same use case. And we're always trying to streamline it and simplify it because there is this invisible cost of the application becoming more and more complex. As you said, it's really hard to find that feature. That's because even though it works really well for some people, it competes with the other features. And if we put that on front, we would get another cost somewhere else. So this is the trick of like serving enough use cases but not over complicating the experience.

[Harry] The hard thing with Spotify like Twitter where users love it and it is such a part of their daily life. You have very visceral feedback and opinions as you said that people request a lot. How do you determine between the customer data that you listen to and engage with ingested into product roadmaps versus those where you say, I get it, Harry's moaning from London about GoToRadio being a couple of layers deep, but it's not a priority. How do you determine between the two?

[Gustav] There are a couple of common tricks. One is you separate new users from existing users. You're going to get very different metrics. Existing users will have a habit. Your metrics may go down for a feature. And then if you tried on new users and never had that habit, you may see that if you're not taught the old paradigm, this is actually better. It's just that you train your user base on another paradigm. So that's one trick to figure out sort of what the truth is if it's actually better in some global sense. And then you can make the choice. Should we take the pain of retraining the existing audience? Because we know that if you just change the behavior, you will be more happy. Because if you never knew this old behavior, we can see that that's one trick. The other way is to back to radio to try to figure out what it is you want to achieve. Do you really want a radio or are you looking for a session that you can tune more easily that can go across genre? What is it that you really want to do? And see if you can present that in a way that doesn't complicate the application, but just adding more features.

[Harry] I totally get it. I find that fascinating between new and existing users. I do want to touch on competition. We spoke about kind of product decision making that sometimes in many cases, often for startups, competition's roadmap drives a lot of bad roadmap. You've said before in your show, which is look at the competition and then do something completely different. I always love a contrarian opinion, so this is great. But why do you believe this? Can you explain it to me a little bit on why it's better to do something completely different?

[Gustav] I think this is especially important for a smaller company going up against a bigger company. If you assume that the people in the bigger company are smart and competent people, which I think you should assume, what they're doing, their strategy probably makes a lot of sense to them. They're doing it because it plays to their strengths. Maybe they're leveraging their distribution, their hardware, their user base, their payment method. If you think about it, should you as a smaller player go up and try to do their strategy with less people, less budget, and less assets? You're just going to become a lesser version. That's a likely outcome. Especially as a smaller player, I think you should do the opposite. Try to figure out if there is a position where that bigger player isn't playing right now and ideally doesn't even want to play because it's contrary to their business model. There is some sort of collateral damage, or what in strategy terms is called a counterposition. If you're a bigger player, it's a credible strategy to say we see some new behavior, feature, user interface really working. Let's implement it and give it to our user base before they find it in this other user base. And you've seen this play out in the world. That's a reasonable strategy if you're a much, much bigger player. But Spotify has always been and still is a much smaller player than our competitors. So we tend to try to think about contrarian strategies.

[Harry] Can you walk me through an example where you decided to do something completely different as Spotify to your competitors where it worked or didn't work, but where you chose to do something completely different with this mindset?

[Gustav] Back to mobile. I described earlier this macro wind of smartphones started really blowing hard and we needed to figure out a free tier for the mobile phone. It was paid only at the time. If you looked around then and you said who are our biggest competitors on mobile free music listening? It was and still is YouTube. And so what was the YouTube experience? Music is one of the biggest use cases for YouTube. They have a fantastic experience. That experience is foreground on demand playing with video. That's what you can do on YouTube. So it is amazing for discovering new music. But then when you put the phone in your pocket, the free application doesn't play in the background. So it stops playing. We looked at this and one strategy would be that is what the market wants. That's the biggest player. We should go and get those same foreground on demand video licenses that YouTube has. But the contrarian approach which we chose in this case was to say what if we did the complete opposite? What if we licensed a functionality that would work exactly where YouTube stops working? So we actually did the opposite. We licensed a background shuffled here where you can play any playlist you want in shuffle mode in the background forever but you actually can't play on demand in the foreground. So it turns out that Spotify mobile works exactly where YouTube mobile doesn't work. So we kind of said okay let them keep the foreground discovery that they're really good at as long as we get all the background listening. And for us that's been very effective because it turns out that most of the listening is actually in the background. So that was an example of trying to be as contrarian as possible.

[Harry] Can I ask you a bold question? How does that thinking change when Spotify now has video? I listen to all of my podcasts on Spotify. I love it as a podcast player now but actually there's now video. And often I'm listening to it like walking and I'm kind of looking at it and I'm in London and I'm kind of about to get run over and that would worry Shak. How does that change your product paradigm thinking when suddenly you do actually have to worry about user engagement and video not just background play?

[Gustav] So back to the contrarian view Spotify is the vast majority background application and so that's what we optimize our music licenses for. First of all in podcasts we don't have to license so we are allowed to play video on demand in the foreground as well. But if you look at what use cases we're going after because we're mostly a background application the use cases we're going after are these long mostly backgrounded sessions right? Podcasts typically. We're not going after the foreground sort of silent jiu-jitsu videos that make no sense when you background them because it's just a lot of panting. We're going after the traditional podcasts and so what we did starting actually with the Joe Rogan podcast was we built video into Spotify. We didn't know what the usage would look like but without saying exact metrics what happened was exactly what you said. People consume the majority of these shows in the background but they do bring it up every now and then. We are using video mostly for the talking heads format if that makes sense. There are these famous moments of Elon Musk smoking weed for example on Joe Rogan podcast. It turned out to fit very well with us.

[Harry] You disappointed me. I thought we could do the same. You've got some nice garden plants in the background.

[Gustav] I'm in Sweden Harry it doesn't work that way.

[Harry] I'm in London it doesn't work that way either but no I get you totally. Can I ask is there a time when actually you sat around the table and you went oh shit we should have copied them. It could be YouTube it could be any of the other competitors. Where actually doing the different didn't work out.

[Gustav] There are certainly tons of things which should have been faster. I think lyrics is an example of that which we now have is very engaging that was obvious. So we've certainly been super slow for various reasons on these things. In that case it wasn't really because we had a contrarian view. It was actually which is often the case because of how the music industry works. So if you work normally at Twitter or Google or Facebook or something you're as a product person what you do is you try to figure out what the best possible thing is that you could build and then you try to build that. What you do when you work in the music industry is you try to figure out what the best possible thing is. Then you go to the labels and you try to license the lowest common denominator of what is licensable and that often means that you can't build the best possible product. You have to build with much much narrow constraints and often actually the cost is a constraint because the job of a music label is to take a piece of IP and try to sell it to you as many times as possible. Foreground rights, background rights, video rights, sync rights, all of these rights. You can see that as very annoying as a product person or you can do what I do and see it as constraints are what makes the world interesting. Can you do something really good even within these narrow constraints? That's actually been the biggest problem I would say for that reason if you think about it there hasn't been that much innovation in music listening. It is search, play listing, and so forth. I mean we're working really hard but it's not like other mediums where things change completely. I think the biggest innovation clearly in the last six, seven years has been TikTok who found like a new format of using music for something completely different.

[Harry] How do you think TikTok did that? Sorry, help me understand that.

[Gustav] So it started in 2014 as Musical.ly. There was a lot of trial and error. I've spoken to both the founders and there was a lot of trial and error and they sort of happened on this use case and they didn't start by going on licensing stuff. There is a beauty in being small enough that people don't care and that's actually a problem with being big. We can't really just try things. We have to license them first which means we take the cost up front. So back then they were small enough to try this and they tried to do something different actually but they found Product Market Fit. They kind of saw in the data what people were actually doing with these clips was recording dance videos and they leaned into that and then later they started licensing and then they got acquired by dance and got more distribution and so forth.

[Harry] Final thing on your shows I want to touch on before we dive into basically a free-for-all from Daniel Schack. Alex Nordstrom who finally actually responds.

[Gustav] Thank you Alex.

[Harry] Thanks Alex. Is a crucial one but it's better to be lower on a taller mountain than higher on a smaller mountain. Sounds wonderfully poetic. What did you mean by this and why is that?

[Gustav] When you worked with something for a very long time, whether it's a certain type of machine learning algorithm or maybe a certain user interface or a business model, by definition it's going to be very well optimized because you spend so much time on it. It's going to be very efficient but that also means that there isn't that much potential left in it because you've optimized and you're close to the summit of that mountain and so that's a problem and most companies get there if they're good they get there. So when you're at that peak the problem is to get somewhere you have to sort of change something fundamental which in this analogy is you have to jump to a different mountain and that may sound a mountain that has a higher summit has more potential. The problem with that is when you jump from the peak of that first mountain you're actually very likely to land somewhere at the base of the new mountain so you're actually going to lose altitude which means in product terms your core metrics may go down and in many cases you might end up spending millions of dollars in a year just to get to where you were in the old paradigm and as you can imagine this is tricky in a public company. Wall Street pressure and many employees and boards and so forth. I've literally had this problem where speaking to C-levels and boards where you explain that we spent millions of dollars in a year to get to exactly where we were 12 months ago and people ask so exactly why is that a success right but then 12 months later you may have lowered your churn by 30 percent or something because you've iterated for another month. This notion of first having the guts to move from one mountain to another and then having the patience to iterate your way back up to even control is very tricky but it happens inevitably and you can't avoid it because you're going to die if you don't.

[Harry] Was this the case with the introduction of podcasts? Obviously we made the shift purely away from just music to obviously podcasts and then also kind of video podcasts as well. Was that the case where actually it took a year to invest to reach feature parity with podcast players? I'm intrigued on that one.

[Gustav] For sure actually podcast was mostly additional so we didn't go down in metrics. Those cases have been when we change user interface for example completely or you change the different recommendation algorithm or you change something fundamental your metrics may go down. Podcast was different because it was mostly additional but it is true that it took a long time. Our internal goal was get the podcast catalog on the service and build best in class podcast player feature parity. That was the first stage and then obviously the idea was to pull away. To your point that took over a year. It was painful to spend that time but it wasn't the problem of actually losing altitude in the meantime.

[Harry] Where did you lose altitude? If you think back where was it like oh god we're back in the bottom of this mountain. Fuck.

[Gustav] So let's take the same example that we discussed because there's context around it. When we finally launched this mobile free tier that was contrarian to YouTube and that risked our business model. What happened was leading up to that because fewer and fewer people used the desktop free tier actually from the outside what happened was our conversion metrics looked better and better. Looks like a larger and larger percentage were becoming premium but that's not because more were converting that's because the free user intake was going down right. So from the industry point of view the conversion was at an all-time high and what do you think happened when we launched this massive free tier it just dropped. Everyone downloaded the free app no one converted for months right. The MAU metrics the growth was very inspiring that was an exponential curve but premium conversion was an exponential curve in the other direction and as you can imagine many people labels and investors were wondering if that was going to catch up or if this was if we were down to like single percentage point premium conversion instead of like 30 40 it did catch up. First we also needed to invest in ads monetization so basically the analogy here is user metrics went up but monetization both free ad monetization and paid conversion that dropped severely in altitude.

[Harry] Are you shitting yourself in this moment you have your board like putting pressure on you you see single digits conversion your investors are putting pressure on you are you nervous as a product leader?

[Gustav] I think you should always be somewhat nervous and paranoid and yes I would say this I had a lot of faith that conversion would go up because we had seen so many years that the core correlation was the more you use the free product the more likely you are to convert to paid we call it the more you play the more you pay which always made sense to me you're going to start paying for a product you use and love you're not going to pay for something you don't use right so getting you to use it more means you do not want the ads you're going to want offline you’re going to want speed so I was pretty certain of that that wasn't my worry the worry when we launched this free tier was if it was actually good enough this contrarian hypothesis that we had it could have been BS it turned out to be true but that we couldn't test at scale really so I was very nervous about that I think investors and labels were much more nervous about the conversion metrics and the ads metrics and also to be quite honest I wasn't responsible for the conversion of the ad metrics so maybe other people were very nervous about that but they did a great job and they caught up

[Harry] It's wonderful when you don't have responsibility for certain things in the pressure zone it's funny speaking of kind of other people within the org I spoke to Daniel before the show the number one thing that he said that I had to ask you was he said ask him about talk is cheap I want to dive into this what is talk is cheap what do you mean by this and how does that come out in how you communicate bleed are

[Gustav] It's sort of play on words I believe deeply in this notion of Socratic debate and I love debating with smart people and I fundamentally believe that if we pay these high salaries that we pay in the tech industry for what are supposedly the best brains in the world we should really maximize the value of that sort of rented brain power and yet I find that most specifically most US companies are quite hierarchical and very smart people often don't really understand what they're doing or why and they're underutilized and if you think about it that means they're actually overpaid for what they're doing not because they're not smart enough because they're not leveraged enough in the tech world for a long time there's been this notion of talk is cheap and that code decides arguments so what I decided in order to sort of poke fun at that is to say talk is cheap so we should do much more of it in fact just talking and debating with really smart people who are not afraid of you importantly which I think is also sort of a Swedish societal trait that you're not so afraid of authority is way cheaper than writing code writing code is one of the most expensive things you can do so this thing of code decides arguments I never really bought that you should only do when you're quite sure writing and shipping code to millions of people and waiting weeks for AB test is not cheap and my favorite example of this is the Greeks and I guess it was Democritus basically reasoned his way into the atom in fifth century bc that shows how far you can get with just reasoning and debate so it's very powerful I think if you do it right in structured ways with the right people sometimes you can sort of reason your way all the way to the end of something and literally save years by not doing something and so that's what I mean with talk is cheap instead of having only one-ones in my teams I tend to have a lot of quite long meetings with the entire team where we debate something even if it's like one person quote unquote owns it input and the pushback from the rest of the team makes that person and that idea much better and this is not new this is what NASA has done forever but for some reason it's not that practiced I feel people talk more about the opposite of separate swim lanes rather than how to work together

[Harry] I'm going to dive in here and put my size 10s in and you're going to tell me I'm a moron I think talk is very expensive especially in early stage companies it's about speed of execution it's about getting shit done and I'm invested in a couple of companies where oh we want to talk we want to debate yes let's theorize on the future of privacy no just ship it learn it's right go go go why am I wrong

[Gustav] The way to think about it is there's a difference between being fast and being right you can go very fast to nowhere you ship code every day but if you're fundamentally wrong you're just going to get to nowhere extremely efficiently and fast I've found especially if you're doing more complex thing and maybe this is actually because I come from the music industry where building product had to be licensed as the lowest common denominator between three four majors the impact of being wrong being three four years because that's a term of one of these licenses and maybe we've been trained as a company to be more careful because the cost of being wrong was incredibly high but I actually think that cost of being wrong forced us to model the world better and longer maybe because we were afraid of mistakes but I actually think that grew into skill at Spotify of course you can debate endlessly you need ownership you need to make decisions and Spotify has certainly been guilty of being too unclear in who owns something and it can slow the organization down but fundamentally I think now we have a really good balance where quite a lot of people actually have a fundamental strategic view and this debate builds a lot of alignment that actually makes you faster especially if you need to do something that is bigger than your own team

[Harry] My final one on this is I do like it in many ways especially for larger companies often more junior people or even middle-tier people will not feel the security to express their true opinions against Gustav you say something and you say it with energy and charisma and conviction it takes quite a lot if you're new or junior to say Gustav I totally disagree with you how do you think about creating environments of safety where more junior people can have debate and disagreement in a productive way

[Gustav] I saw that shift pretty clearly when we started hiring more and U.S. people were just used to hierarchy there were a lot of misunderstandings between Swedish people and Americans in many ways Swedish people are better at some things but they're much worse at other things they do this Swedes do this form of silent disagreement that Americans interpret as actual agreement but it's not you're just silent and you disagree so lots of cultural challenges there but I think the way to do it is to model the behavior back to what I liked about Daniel is he models that behavior so in his team you can debate quite fiercely you can tell the CEO in a pretty heated voice that you disagree you don't like that and you're not going to get fired I think it starts there I try to do the same thing having heated debates with my direct reports often in front of their direct reports and sometimes it's a little bit shocking maybe for them their figure like oh now my boss is going to get fired and then he or she isn't and it's fine and then they learn that okay it's apparently okay to disagree that doesn't mean to your point of efficiency that you don't need to make decisions you need to sometimes disagree and commit but I try to call people out in a positive way in the meeting and say like what do you think about this and obviously the first time someone might be nervous but if the rest of the people in the room said what they actually think other people tend to as well

[Harry] Does zoom and covid change the way that you do these sessions and these like debates and do you feel that there is a change in the quality of the debates in a virtual versus a in-person world I've been trying to figure this out

[Gustav] I actually think some of them have gotten better the notion of seeing everyone on screen and having to sort of mute it's given a bit more structure because you have the obvious problem that some people would dominate a discussion when it's live and I have actually seen less of that problem over zoom the other thing I've done which is interesting during covid is I've simply put my AirPods in and then had like remote walking talks with individuals or with groups of people where you walk for a few hours and sort of group talk so I thought when covid happened that what would really suffer was strategy discussions and that kind of ideation but it hasn't so I would say one of the things I also tell my teams that I think is quite different from what many other companies do is I find that a lot of executives they look at their org and they try to split it as much as possible they try to divide and conquer and cut up the org in as many independent units as possible for the purposes of sort of parallelization that makes sense from a point of view I've chosen to do the complete opposite in my organization because even if I have a really big organization with thousands of people at the end of the day it's just one user who is going to use this application they're not going to care whoever built this they don't care about who the library team is or who the search team is the experience need to feel as if it was built by a single developer for a single user so when people come and talk to me about swim lanes and how they want more independence and so forth I tend to tell them that they're doing the wrong sport we're not doing competitive swimming we're doing synchronized swimming it's much harder but it's also much more beautiful to watch that's what we want the product to look like and that means that it's quite different to work at Spotify than many other companies you're going to have more debate because I'm always trying to synchronize my leadership team instead of trying to divide them and basically what I believe in is this old maxim of you want to go fast you go alone you want to go far you go together certainly Spotify wants to go far so we overemphasize on that

[Harry] In terms of synchronizing leadership I'm too interested what have you done that has worked and what has not worked that you've disregarded if we started with what has not worked

[Gustav] The mistake you can do in this not having swim lanes it's very unclear who's responsible for anything everyone is responsible for everything no one makes decisions often in Spotify because they're too nice that's actually a bigger problem than people being too aggressive in other companies you may have the opposite that if it's unclear people are going to power grab I've seen the opposite it's like people don't want to step on other people's toes so they don't make decisions so that's a problem with this model so you still need to make it clear where the ultimate decision or responsibility and accountability lies and that's a balance if you go too far you're going to create a swim lane and this person is going to run away and do something and think that everyone else in the company is a moron and everyone else is going to think everyone else is a moron the tricky thing with this is finding the balance of accountability and ownership so you feel agency but still having a single strategy and having alignment so I'm kind of forcing let's say you own what end user experience looks like you actually have to take your strategy bring it up in this form debate it and defend it it may be other people disagree and they have to disagree and commit but your responsibility is to be able to explain your strategies and answer these questions and if you're there and you can't answer any of these questions you're probably gonna adapt if you're there and you can answer all these questions then it's fine so it's sort of self-regulating but what I'm doing is I'm forcing people to sort of bring up their ideas and have them not critiqued but have them debated

[Harry] We've mentioned like hierarchies there often with scaling companies bluntly leadership changes are very normal and they happen and they have happened at Spotify as they do in every company you and Alex I believe are the only ones who survived multiple layers of leadership transitions obviously with Daniel my question to you is and a question from Shak how did you have to reinvent yourself with each stage and what moments did you have to develop the most

[Gustav] So it sounds like it's a an episode of hunger games and we're the only ones the only ones left

[Harry] You're gone, cake or death, cake please

[Gustav] So I think there are two pretty distinct moments one is in the early days coming into Spotify and having done my own startups those startups were small when when I sold them they were 20 people or something like that so I had a very distinct leadership style which I sort of learned in the army which is leading by example very simple but very effective if you want people to do something you just have to do it yourself first right so if you want your team to work weekends to hit a release bring your sleeping bag and you sleep on the floor next to your team if you can't code then you go and buy pizza for the team or something it's incredibly effective and so for small teams I still recommend that and I think people underestimate it but I came to this point at Spotify where it didn't scale you can't sleep in that many different rooms at the same time and I just had to change and that was quite painful so I had to change from this sort of leading by example it was painful in two ways I ran out of time too many teams and also you can't really be that deep on everything so I had to change my leadership style and instead start to coach other leaders to lead teams and that was a painful moment for me because I didn't really have any coaching or anything like that I just had to sort of reason with myself what is that's happening why am I constantly running out of time and when you do something that works you're likely to just keep doing it and keep doing it so that was one challenge another challenge was when deep learning really happened around 2014 2015 something like that when it started happening and I had been out of university for quite a long time so I didn't really code anymore and I felt that I wasn't deep enough in this to credibly lead this change because it was very clear to me that it was a fundamental change so I basically had to go back to school and start from the basics start reading the math coding doing all the examples bottoms up and implementing all the code and then this took a long time until I could start reading scientific papers and sort of educate myself on this that was hard because it cost so much time for me and for my family but I think it was incredibly important and it certainly paid off for me and hopefully for the company but that was tough because this was a tough time for Spotify as well to find all that time to re-educate yourself on something rather complex when something like crypto comes along if you're going to be a technology leader you need to understand it deeply otherwise you can't evaluate what you should do so that was another moment of okay it's back to school again you have to start coding you have to read you have to start reading papers it's hard to keep up with it's easy to slip into like I'm just a manager now

[Harry] Totally agree it is hard you could have hired in you could recruit ahead of ml you could bring those skills in house and remain in the same position that you are why did you decide to integrate vertically yourself versus add on with an existing talent

[Gustav] I mean I'm an engineer at heart I hate working for people who don't know what I'm talking about if you talk to your boss and you're like this guy or this girl doesn't have a clue what I'm talking about I have a hard time respecting them so that's how I feel I feel like an imposter if I don't understand what I'm supposed to be responsible for

[Harry] Second thing whether it's sleeping in the office with your team whether it's the late nights running to get the pizza whether it's the going back to school to learn ml your family respectfully are the ones at home without you how do you communicate the value of what you're doing to them where they see the importance of why dad's not there

[Gustav] I ask them to listen to the podcast no it is a great question so I've heard many people talk about this I've certainly felt it myself you're so engulfed by your work you get a lot of positive feedback from work as long as at least as long as the company's going well and you try your best to be a good leader and inspiring and so forth and then at home you're actually not inspiring at all you kind of suck and so my wife she is the one who said this like I need to come and see you at work everyone then so I understand what it is you're actually good at because at home I don't see it like and I think she has a really good point there and like you need to be impressed by each other and remember that because when you see yourself day to day you mostly see the the not so impressive side of each other so we try to do that I try to make sure I see her doing the stuff that she's really good at and she's made sure that she sees and cares about some of the stuff I do and then you find this like love and respect for each other and you re-find it that's the best way I've found I try to do the same with my kids every now and then bring them along and see what I do and that helps but there's no cure for like you want to spend time with your family and I am quite religious about that

[Harry] Esther Perel who obviously spoke at Brilliant Minds and I'm sure you know well but she says you're most attracted to your partner when they are in their element when your wife sees you needing a product review she's like Gustav baby I'm sure and likewise vice versa I hope so final one on actually just you and then we're gonna do a near-death experience and then wrap up with a quick fire do you have any other I've seen you and your wife and it's this beautiful marriage and relationship do you have any like genuine relationship advice to me on what it takes to have such a strong and loving marriage and relationship

[Gustav] Tricky question I mean I actually met my wife when I was 20, 21 she was 19 we didn't marry for many years we had a very long sort of trial period it's like a freemium model right so when we married we were pretty sure so we were together for a long time before we married I was working quite hard I was traveling the world before I started working very hard she studied and traveled we lived in different places so we had a lot of freedom and had known each other for quite a long time before we actually started living together so I think that was important neither one of us felt I need to go explore and feel like I'm missing out we had done many of those things even though we met earlier I would also say that my wife and I were certainly different in many ways but we are very similar in values we almost never have disagreement on sort of values of what we think about things then we are very different in terms of our skills completely different and I think that's a benefit she's fantastic at the things I'm really bad at we complement each other really well

[Harry] And we all share a common dislike of like loud music and parties I remember congregating with you in the corner but no I totally get you and I appreciate that final one on just the leadership I do have to ask you you come across as so self-assured confident with conviction when you review your leadership today Gustav is there any elements where you're like I could be better here that is a weakness of my leadership

[Gustav] I think everyone has imposter syndrome and certainly when you when you're fortunate enough to work in a company that grows this much even if you have the same title I've been sort of CPO, CTO for several years it changes every year because first you're a CPO of a tiny Swedish company then you're CPO of a Scandinavian company then of a global company and then I'm a listed New York company the job changes all the time and every time you feel like there's no way I can be that person you're an imposter all the way I think I think I've grown to understand my weak spots better with age I already told you one which is I sort of have this global CEO perspective which is helpful I think is one of the reasons why Daniel likes having me around because he feels like I care about the outcome of the company but it is also tricky when you get in other people's shit that's always tricky so I have all kinds of flaws

[Harry] I would also say elegance of communication it's tricky when you get in other people's shit Gustav wonderfully hurt I mean so beautifully elegant the final element that I do have to touch on before a quickfire I spoke to Mignogna before the show and he said there are many like near-death experiences that are kind of wonderfully entertaining slash educating if you were to choose your kind of favorite near-death experience to tell what comes to mind for you

[Gustav] Well like Mike said there are actually a few I've seen Spotify have negative growth actually losing users and contracting at least twice and I'd speak to people in the industry it's very rare people have seen that but the company never survived to talk about it right it's very rare to actually see it and survive but I think the favorite near-death experience story that I don't think is widely known quite early on we talk about the labels and negotiation with labels as sort of being frustrating but it's not in a sense because it is their job to represent these artists and try to maximize the value of their IP and I actually think they're doing a good job of it it can be frustrating as a product person but we've developed this really good relationship with the music industry and these labels but early on it was different I don't know that they actually believe that Spotify would work maybe they felt that this you could get access to cheap vc money here expecting us to sort of belly flop over and so it was more tenuous relationship and they certainly didn't understand that model and so they were very scared of the free tier the desktop free tier and their notion was that if you just make the free experience worse more people are going to convert and I was of the opposite notion as I said I think the more you play the more you're going to pay that's what the data showed but one of the labels sort of put a gun to our head and said you can't have a free tier anymore in that case we're going to pull our catalog from free and premium and so for us we decided it was existential and we decided to fight it so we built this thing called the switch a switch that you could pull that would basically remove like a quarter or third of the music catalog will break everyone's playlists basically be horrible experience for both free and premium users while our competitors would have full catalog so probably catastrophic but we decided to fight it and say this is important enough that we have to take that risk so we built this and I remember sort of being responsible for the one should pull this switch and we had a team negotiating the licenses so we were supposed to pull the switch at midnight and basically take off this catalog and millions of users would get this message like your music is gone somewhere around half past 11 at night we were sort of starting to say our goodbyes to each other and that was a pretty scary moment and then the call came in not long before midnight that they had backed down and we could keep this catalog and so for me that was sort of our cuba crisis I think we were very close to total annihilation in that moment

[Harry] God that is pretty terrifying why did you decide to fight

[Gustav] I don't think we had a choice we believed in the strategy we have we believe that this was the model at least for us freemium was the only model we had seen other players I think it was like Nokia comes with music and stuff who try to go straight to premium and it didn't work people didn't think they wanted to pay for music at the time you needed a free tier for us we had to make sure that this was a credible threat that we were actually prepared to go down and we were we would have I don't know what would have happened but we were

[Harry] Final one for the quickfire well you mentioned the constraints that labels bring and that licensing brings if labels and licensing were entirely Spotify's entirely integrated just in a hypothetical world from a product perspective with the removal of constraints what would you do in an ideal world

[Gustav] I think what I would do is I would try to make the music experience much more interactive I think this is what you see with tiktok as well I think users want to participate in the music they want to use the music today they can use it to make dance videos but I think there's so many talented musicians out there but the licensing world means that they can't use a beat from the song that they love if you think about coding as an analogy when you want to learn to code what you do is you go to github and then you have this vast library of open source code that you can use and you can look at and you can start prototyping from and building and learning there isn't anything like that in music there is no github for music that's probably what I would change and I think that's the reason why music has actually had very little innovation the track is sort of still three minutes and an intro and two choruses a hundred years later almost that's probably what I would try to do just innovate on the formats

[Harry] I read somewhere about Olivia Rodrigo and how she has changed the structure of her actual songs to accommodate the changing algorithms of music whereby choruses are much more brought forward is that true and is this a new music creation process to fit technology

[Gustav] Absolutely true we've seen small versions of that as well when you move from the download world to the streaming world there is in a financial sense no marginal cost to try another track which means you're going to start exploring more so it gives more artists an opportunity you're also going to start to listen to a lot of new music like sleep music and focus music whereas if you paid a dollar per three minutes you probably wouldn't soundtrack your sleep entire industries popped up because the business model changed and they adapted the music but you also see it because people now have shorter attention spans you can see the chorus moving closer and closer to the beginning of the song right everyone is trying to optimize for the first few seconds and I don't know if I think that's good or bad but it is what it is like incentives and systems drives behavior

[Harry] For sure no I totally agree we see it on tiktok it's all about grabbing the attention in the first second and a half which is absolutely exactly when you get to my age Gustav and you have to be in front of the camera but anyway that's why you have a hat but I want to dive into a quickfire I could talk to you all day so I say a short statement you give me your immediate thoughts does that sound okay

[Gustav] That sounds good

[Harry] This one was actually from Daniel which is what is the future of podcast and audio and he added will future Harry have a job which was an unnerving addition

[Gustav] I can't say exactly what it is that's a secret but what I can say is that I think it is at least as large as social networking 2 3 billion plus the way I think about it is I think music and actually podcasting is a core human behavior like communication and that means that the total addressable market should be the same that's the reason that I keep working here I think we're far from scale at this business

[Harry] Not on schedule but I'm intrigued do you agree with Mike Mignano's suggestion of the disregard of the social graph and the movement into the media recommendation engine

[Gustav] For sure Spotify went through this journey and this is one of the macro wins that we saw quite early and Mike and I have discussed this at length Spotify started as a I wouldn't call it social media I would call it curation media a different version of the same thing which means the internet started with you taking something offline friends books music and then asking your users to curate it into graphs playlist friend graphs that was the pattern right and that's where Spotify grew up and then it shifted from curation to recommendation where users weren't prepared to put in all of that work to soundtrack themselves we actually had an in-between which was editorial where we had editors or professional playlisters that helped curate for you but the natural extension of that is to start combining the editors with machine learning right and now we have many pure machine learning set so we actually made a bet on the shift from curation to recommendation or social media to recommendation media four or five years ago and rebuilt the application quite drastically and today we I would say we are a recommendations based company much more than a curation based company

[Harry] Completely unfair again but joys of it being my show which companies to do you most respect and why

[Gustav] I have a great deal of respect for all of these sort of big tech companies the usual suspects the google and youtube apple amazon facebook and so forth but what I think is interesting specifically and impressive about this set of companies that I think is different from the previous set of companies I think there's a reason we call them technology companies and some people say that makes no sense like car companies were also technology companies at the time everything was a technology company until it became old but I do think these companies are a bit different because I do think they think of technology itself as the strategy what do I mean by that I mean that people try to label them they try to label amazon as a book company and then as a book and diapers company and as an everything store then they started doing aws and like people can't like pin these companies down same with google they were a page on the internet search page then they became the start page of a browser and then they became the start page of a browser of an os and they did email and then they did photos and so forth these companies they refuse to be categorized as what they are and they keep changing all the time and I think it's because they think of technology itself as a strategy so technology is this gift that is going to present opportunities to you every five years it's going to be a broadband a smartphone an ai a crypto or something and the job of this company is not to say like no we're a car company we're going to do cars they're saying that we're a technology company we're supposed to understand and master these technologies very quickly and then figure out how we can change our business model to leverage these things and that's why they keep changing and so I think there is some chance that these companies will be around longer because they refuse to answer the question “what are you?” they just say like I don't know ask me tomorrow they keep changing and that's how I want to think about Spotify as well it's one of the reasons we went from music to podcasts and not audiobooks when people sort of wanted to keep us in that you're a music company shouldn't be doing this and then it's like okay I guess you're an audio company but you definitely shouldn't be doing video and like people want to sort of keep us back but I don't think there is any stopping I think you always need to like ladder up and so I think of us as a technology company in that sense my job is to understand technology and how we need to reposition ourselves all the time to leverage this new technology like there's no reason why that we would be at the end of history right now in terms of technology

[Harry] It's one of the biggest lessons that Shak taught me which is like people always want to put you in a box number one and two you have to earn the right to do the next thing but what's got you to where you are won't necessarily be what gets you to the next thing and actually you have to adapt and it's one of the biggest transformations I've had again thanks to Shak. Which product leader outside of Spotify do you most respect and admire?

[Gustav] People answer mostly the same things but to say something unexpected there is a product that I've specifically fallen in love with over the last year I actually don't know the name of the product leader yeah I try to learn new stuff every now and then and after machine learning I took a break and then now I'm trying to learn a few new things and one of them is playing the piano when you're working at a music company you should probably be able to play the piano I've been using this application called the simply piano you hook up to your piano over midi I really like it for two reasons first it's really good application what you want to do when you start to play piano you don't want to start with these child songs you want to start right away with the rock songs so what they've done is they've painstakingly and I have a lot of empathy for this because I work in the music is they've painstakingly licensed all the popular music so you literally get your Taylor Swift or whatever it is that you want to play and then they've staged it so that you start playing and you're actually only filling in a few notes here and there but it sounds amazing you think you're a full-bleed piano rock star from day one so you're having a lot of fun it's like a competition you get scores for hitting the right notes at the right time and so forth it's like a little game and it takes like maybe five minutes to master a song and then it gets progressively harder and at the end and I know because I am at the end I got this sort of end of year note from them where it said I was the top one percent of their user base as I've gone to the very end at the end you're actually playing the full songs with all the chords the accompaniments and so forth that's actually my favorite application right now

[Harry] The hard thing is like often for me as an investor great products don't always lead to great investments fundamentally a lot of products like that isn't as great as the products are unless you get the incentive frameworks right for usage point being it doesn't lead to a great investment often and that's the thing that I find so hard as someone who loves product as much as me is you have to be more multifaceted does that make sense

[Gustav] It does and actually I'm glad you brought that up because you asked about like insights sort of through my career I've always been incredibly passionate about technology even for the sake of technology and product and I find so much joy in like I wonder if we could build this thing just see if we can build it and at the beginning of my career that means you undervalue the importance of the business model but what made it click for me and I think this is true for many so what I talk to my teams about now is the greatest innovations are when you find a new technology and you change not just the product and how you use it but you change the business model those are always the most disruptive changes to some people who care mostly about design or product it may almost feel like making money is something bad and something negative and it's only vcs who care about money the way I phrase it is if you want to build the greatest product on earth it's going to require a lot of engineers if you have a 20 margin and your competitor has a 40 margin you both make a dollar they're gonna hire twice engineers they're gonna build twice as good a product you want to finance that product passion so you need a good business model I found that a useful way to get people more interested in how you can innovate on business models as well my big passion is actually to try to combine consumer innovations with business model innovations it's much harder takes longer but if you can do it it is the most exciting thing and it tends to have the most impact

[Harry] There is a business model innovation I cannot believe I'm saying this with web3 and crypto

[Gustav] It's a tricky question I love crypto from that technology angle I'm a sucker like many people for this be this is like a true computer science innovation I'm very excited about the possibilities of trustless cooperation and so forth but like everyone else in the very near term maybe a bit disillusioned with the fact that while the promise is there for sort of trustless cooperation actually one of the biggest problems seems to be how you trust other people on this network and you sort of go back to the web2 world to actually verify who someone is so I think it's early I am fundamentally excited about it from a technology point of view but I don't yet have a have an opinion on if there is a business model there I have a feeling that like AI and other things it will take quite a long while there is a chance that it becomes a fundamental part of the infrastructure just further down that it actually powers a lot of things and is very valuable but it might not actually be on the consumer end that might be one of the mistakes that consumers don't care so much about cryptography but if you can solve fundamental problems like on the TCP IP level could be incredibly valuable

[Harry] Penultimate one for you what would you most like to change about the world of product so like mine is like the rise of like operated product leaders and what I mean by that is the operator product leaders bring in process bureaucracy the only word they ever say is alignment and they do very little but they bring this red tape and process and they really irritate me

[Gustav] I did spend a lot of time earlier in my career on frameworks and models to work efficiently we had some internal frameworks and we used lots of external ones I don't spend so much time on it anymore because the company is so big that the different product leaders within my org they tend to have their own processes at a sort of higher level what I would like to change is to try to demystify it so I'm trying to do through the podcast people talk about whether product is science or art and most people tend to answer that it's art but I think that's mostly for self-preservation purposes it's the it's called conspiracies against the latest Bernadette Shaw said you want to protect your own profession by making it seem really hard there are lots of product people who have seen a lot of product so they have good instincts and they can make the right decisions but they can't explain it and then it looks like art I think the really good product leaders they can actually explain their thinking that's much more valuable because then you can share it so I actually think product is 100% science and 0% art which I know is going to upset some people I feel like my mission then is to try to demystify it for example through the podcast and make it much more accessible

[Harry] Sorry I'm being… if you think it's 100% science then it is 100% replicable and it is not 100% replicable it is clear that like Tony Fidele, Scott Belsky the innovations and creativity that come from visionaries like them and I would say from you absolutely in the same category I'm defending you here you are wrong it is not because we can't replicate Gustav 100 times over that's why you are you

[Gustav] But I think really great leaders they are able to introspect themselves synthesize how they think about something it is hard to do but it is possible and then try to scale it and if you can do that it makes the entire company much better than you bottlenecking the entire company I actually don't make a lot of the product decisions at Spotify I have lots of opinions and I sit in these meetings but I feel like I managed to build a team that is at least as good and often much better than myself at product instincts and I think that's because we've spent so much time trying to understand and talk about how we think about the world instead of just saying like now my neural network here has a lot of pattern recognition so I'm gonna say what's right of course great product leaders who have seen lots of product they're going to make the right decisions because they have pattern recognition but that doesn't mean that it's impossible to try to figure out why you have that recognition it's just much harder and oftentimes you're like I just know that this is right just trust me I don't want to spend the time talking if you were forced to you could try to walk through the steps of understanding why and I think those lessons are the most valuable part so I want to argue that it is science it doesn't mean that science is easy but I still think it's science whether you happen to have very good instincts and then you've just internalized the science it's still science

[Harry] What's your favorite memory of working with Shak the many years with Shak I have many but I'm intrigued

[Gustav] What I think is special about Shak and why he is such a core part of Spotify's history is that as I said Spotify is from one view a tech company kind of grew up in this era of leveraging new technology and as I said that's I think that is our core trying to always understand new technology but it is also right in between this world of nerds and hardcore tech like myself and rock and roll and that's always been really interesting at Spotify when you're sitting and you're writing code and then Kanye West comes and knocks on your shoulder and there are these surreal moments and Shak happens to be responsible for most of them he has this incredible ability I haven't met a person that doesn't like Shak and I think he is the embodiment for me of marrying the technology world with Hollywood and the music world and it's very hard to find that kind of person in a company like this and to get that person to be able to work in a company like this as you can imagine Shak is not a big friend of like product processes and reviews and stuff but Daniel has managed to to make this work and have Shak run these special operations for Spotify throughout the years that have been incredibly impactful around our US launch and all these artist relations it's just a very hard person to describe fascinating person

[Harry] I always say he sees in you what you don't often see in yourself which is an amazing

[Gustav] That's very well put

[Harry] I've had time to practice it Gustav listen I've so enjoyed this this has been fantastic thank you so much for joining me and I cannot thank you enough for today

[Gustav] Likewise always great speaking to you and always love talking product

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