Why Spotify’s Daniel Ek Topped Forbes’ ’30 Under 30′ List

Every year Forbes magazine singles out 30 entrepreneurs under 30 years old who are out changing the world before they’re even old enough to run for president.  Topping the list this year is Swedish entrepreneur Daniel Ek, whose digital music service Spotify has won the hearts of music lovers worldwide while working toward a more sustainable business model for the music industry.

According to Forbes, record companies have seen dwindling sales figures ever since Napster came on the scene with free (but illegal) downloads.  And  iTunes’ pay-per-song model further weakened album sales, even before Apple took its share of the profits.

Rather than adopting Silicon Valley’s mantra of  pirating first, apologizing later; Ek nobly went straight to the record labels to work out a deal well ahead of Spotify’s European debut in 2008.  (Compare his attitude to that of Grooveshark chairman Sina Simantob, who wrote in an email sent on Dec. 1, 2009, “The only thing that I want to add is this: we are achieving all this growth without paying a dime to any of the labels,” CNET reported.)  But like Simantob, Ek found that it was necessary to pirate songs in order to give the record label executives a working demo before the labels would partner with Spotify on its catalog, which now has 15 million songs.

“With Spotify people don’t get it until they try it,” Ek told Forbes. “Then they tell their friends.”

Ek was right – the site is inherently social.  Forbes estimates that Spotify’s users that users have shared 1.5 billion songs on Facebook, passing around their play lists and watching the songs stream down their friends’ status feeds as they listen.

And the users love it.  “It’s pretty much like iTunes and Pandora combined, without burning capability,” writes Heidi H. in Temecula, CA. “The database is big, and you can pretty much find any song your heart desires and listen to it for free.”

But many users are paying to use the service.   In America there are approximately 400,00 premium members, say Forbes‘ sources.  Back in August, AllThingsDigital reported that the head count in the U.S. had leaped to 1.4 million subscribers – 175,000 of them paid – in less than a month after Spotify’s American debut.

Today Spotify has 10 million active users and 2.5 million paying customers worldwide, writes Forbes. Pandora’s stream is almost as passive as listening to the radio, while Spotify’s is as personal as an iTunes collection.  Many users want to take their music with them when they leave their desks, and they want to listen to their songs ad-free.  Of the paying customers, 85% pay $10 a month to make the service portable on mobile devices, while the other 15%  pay $5 to get rid of the ads.  Combine that with advertising revenue, and the company could  be generating $300 million in a year.

And record labels get the benefit.  In 2011, Spotify accounted for 50% of Sweden’s music sales, compared to 25% last last year.  It’s even more impressive considering that a third of the population is signed up for the service, and that only a fourth of those users pay.

Not all tech companies have good business models.  An entrepreneur who can turn a wonderful toy into a profitable business deserves a mention in Forbes, but one that can turn around an entire industry – now that’s front-page news.

Image: Nils Z via Shutterstock