Spotify: The Story of a Limping Unicorn

Santiago Rufas Ripol

 

Spotify went public on April 3rd, 2018. Wall Street greeted the newcomer by mistakenly raising a Swiss flag to welcome the Swedish giant. More than a giant, Spotify has been referred to as a unicorn. In the financial world, a “unicorn” is a start-up valued at over a billion dollars and denotes a oncein-a-generation firm that has the potential to change the landscape of one or many industries.

However, change has been difficult for the music industry as it struggles to cope with disruptive technologies. After fighting piracy for over a decade, the focus has now shifted to streaming as the most viable path. That does not mean that there are no tensions going on between the music industry and streaming services such as Spotify. In its first ten years, Spotify’s achievements fall nothing short of mystical, but how well is the unicorn really doing?

Spotify may have saved the music industry by offering a valid alternative to piracy. To this date, Spotify has over 170M users and grosses $5Bn in revenues. In Norway alone, streaming accounted for 77% of music sales. But at what cost? In 2017, Spotify’s bottom line revealed a staggering $1.5Bn loss. To add injury to insult, a bunch of lawyers have decided to sue the company for $1.6Bn over a copyright dispute. Why is Spotify losing so much money? It seems that the unicorn is carrying the burden of pricey licensing deals that ultimately provide us with our favourite tunes whenever we want, wherever we want.

Spotify has continued to rock the world since entering one of the most brutal industries in the world in 2008. The unicorn is limping because the game is still on and as long as it runs, it will remain bloody expensive. Spotify has achieved step one: to offer a valid alternative to piracy. Not so long ago, piracy had made the music industry sleepless for almost a decade. One thing we learned is that the industry did not, does not and will not accept “free” access to music. After all, there are too many resources pooled into the production of music content. In 2018, the record industry is growing for the fourth year in a row, a clear sign that things are moving in a positive direction. While streaming gets credit for this surge, the foundations for its success were laid down in the turbulent age of piracy.

In order to better understand today’s context, we first need to look at yesterday’s events. While Spotify is one of the latest examples of how technology can disrupt an industry’s landscape, others have tried before. Only that most of them are not limping – they are dead. Chances are you have heard about Napster, a revolutionary peer-to-peer network that allowed users to share their favourite tunes online for free. Artists, labels and everyone except the users were horrified as they saw their music wandering freely on the net beyond the confines of copyright law. As revenues plummeted, the music industry engaged in a crusade against piracy, ultimately drowning Napster in a midst of lawsuits over copyright infringement. Hero or villain, Napster was made an example of. A precautionary tale to whoever dared to engage in piracy.

Today, many see Napster as a pioneer, a firm that existed before its time and for which the world was not yet ready. As most pioneers, Napster was slaughtered, but the idea of enjoying music whenever and wherever remained in people’s minds. Just like a restless ghost, piracy continued to haunt the music industry long after Napster’s death… until its reincarnation in 2008. Spotify can be seen as Napster 2.0, only that it has established collaborative stances vis-à-vis the music industry and remunerates creators. The unicorn appeals to both industry and consumers with its innovative business model and user-friendly platform. While streaming stopped the bleeding by providing a valid alternative to piracy, there are still many questions to be answered.

Today, we have more access to music than ever before. Digital technologies have opened Pandora’s Box and there are some disturbing signs moving forward. Increasing consumption has not yet fully translated into a “healthier” industry. Through 2017 Spotify said it has paid $9.8Bn to musicians, but the money does not seem to get there. Therefore, the question remains: where is all the money going? How can the music industry better adapt to disruptive technologies? While Spotify has managed to convert previous pirates – such as myself – into paying users, the issue of monetising streaming remains an urgent matter.

Today, the path towards a fairer, more sustainable music industry seems more viable than it ever. Users, technology and industry finally seem to be moving in the same direction. Unlike piracy, streaming allows us to enjoy our favourite tunes at our fingertips without undermining creators. After all, it is only fair that artists see the fruits of their labour. With the help of a unicorn, shouldn’t this be feasible? Spotify is certainly up for the challenge, but it cannot do so on one leg. The music industry remains reluctant to change, still unfit for the digital age and Spotify seems to be at the forefront of this tension between industry and technology. Things are getting better and if the unicorn continues on its journey, it should be able to heal its wounds and start leading the way full throttle towards a fairer, more sustainable music industry.

Balancing academia and business

Jørgen Aune

 

 

Helge Helguson Neumann

 

At TIK, the link between academia and business is important and works both ways. For the last seven years, Telenor and TIK have been partnering up to understand innovation. Teknovatøren had a chat with some of the actors from both sides to discuss cooperation between academia and firms.

Although there have been close links between universities and private sector for a long time, their explicit differences make it appear as though they exist on different planets. This impression might be tied to the perception that academics are working to discover new knowledge, while private companies are concerned with growth and profits. Different motivation leads to different working methods and routines. However, in today’s society, with digitalization, globalization and rapid innovation, academia and the business sector are partnering up for mutual benefits. One such collaboration is the 7-year long partnership between the telecom company Telenor and the research centre TIK.

Historically, Telenor has been closely connected to science. Before Televerket became Telenor, and before the modern Research Council of Norway was established in 1993, Televerket operated as the “research council” for the telecom industry. This tight connection between Telenor, and the research sector has been maintained in the last decades. “There is a tradition in Telenor to be a progressive company. To be innovative and reach new markets, you need to be able to absorb external knowledge. Thus, collaboration between universities and firms can be decisive for innovation” says Dagfinn Myhre, head of communications and external relations at Telenor Research.

Magnus Gulbrandsen, professor and head of the innovation group at TIK, has done research on collaboration between actors in systems of innovation. He argues that collaboration between universities and firms can be important within an innovation system, but it’s effectiveness depends on several factors. A key for a successful partnership is to recognize mutual benefits, differences, and potential tensions. “Trust is also important; it takes time to build and requires patience”. Gulbrandsen also highlights the importance of informal connections between the industry and academia. “There needs to be a balance, academia needs to prepare the students for what is expected to solve societal problems. At the same time, academia represents a neutral environment where it is possible to be creative and think long-term to a greater extent than in the private sector”.

This same understanding of balance is also present at Telenor, where there are discussions about the bilingual scientist: one that knows the language of both academia and business. Jarle Hildrum, head of service innovation and former researcher at TIK, has experience from both worlds. He also reflects on the importance of having an innovation-environment where you are able to see longterm. “There are many examples, also at Telenor, where new ideas and products have failed. But we still need to explore those ideas to keep innovating and growing”. Myhre adds that this idea of long-term exploring is important in academia as well. “Universities needs to build a good foundation. We need employees who have a generic competence. I don’t think business, or the academic communities prosper from too applied and short-term science”.

The success of Telenor the last decade has been a result of an innovative culture in the company. Myhre addresses the importance of individuals with an innovative mindset. “There has been an entrepreneurial culture with strong industry-oriented individuals who succeeded with Telenor’s international expansion. They know technology, but they also know markets and business. These individuals have been the engine of our growth.” This kind of culture is a significant ingredient in the creation of growth, but this culture also needs input. “We want to build up scientific communities we can work with, because we sometimes need to think differently and get new perspectives. For example, we can talk to TIK if we want to discuss and learn more about the understanding and measurement of innovation.” The collaboration between firms and academia creates a bond where the firm gets essential inputs, while the science institution gets valuable insight in how the firm works. Over time, this mutual understanding can give an even better cooperation as the two parts benefits from each other.

Individuals are important for the cooperation between academia and firms. Some scientific institutions only want to get the contract signed and to deliver a report in the mailbox at the end of the contract, while others are very interested in the firm and eager to discuss and have meetings. What kind of relationship there will be between academia and the firm often depends on individuals. “Personal relationships are essential for how fruitful the collaboration will be. The collaboration works best when individuals in academia really care about our challenges.” Myhre says. Maybe that is why the collaboration between Telenor and TIK has been so successful for the last seven years.

Playing with robots: When toys become intelligent

Kate Pashevich

 

Je suis de mon enfance comme d’un pays. – Antoine de Saint Exupéry

We all are formed by our childhood. As well as our bodies, our character and behaviour develop during the first years of life. A huge part of our early lives takes place in formal learning institutions like comprehensive schools, various clubs and thematic schools. What we often don’t realize is how much we learn outside of those institutions, informally. Usually it happens in a form of play, where we learn to communicate with the surrounding world and with other intelligent creatures. People are social animals, and social intelligence is crucial to develop in order to live a happy life. But what if social intelligence can be created artificially, for example, in “intelligent” toys?

Why toys?

What is the role of toys in our lives? It is inextricably linked with play, which is a very important activity, and not only for children. Huizinga even argued that play remains relatively the same among the majority of mammals, some birds and insects. In the human society, some forms of play are later transformed into our cultural and social institutes, like science, judicial system or medicine. Children don’t really need toys. In fact, there were no toys (or for that matter any objects specifically designed for children) before the late 18th century. Children used to play with each other, but he modern industrial society left children steadily more alone. This is when toys came to the scene: they help children learn and develop their imagination in the absence of adults and playmates.

Children tend to develop strong emotional bonds with some of their toys. Scholars talk about “transitional objects” – toys we take with us from childhood to the adult life. The majority of us don’t like to admit they still have that teddy bear, let alone acknowledge that somewhere deep inside, against all the rational arguments, we know: that bear is alive. Children psychologists heavily argue about what kind of toys children should have: Should they be simple or highly technological? Should we allow children to play with guns? And how would these toys influence children’s behaviour in the future? Probably, we should just ask children, what they want.

The market of AI toys

Today the market of children’s toys is full of “smart” or “intelligent” toys that can walk, talk, move objects and answer children’s questions. They are engaging and useful. However, there are several big questions regarding how these “intelligent” toys are being designed and regulated. Some of them are on the surface: privacy and security issues. Norwegian Consumer Council (Forbrukerrådet) last year launched a campaign against “interactive” toys (“My Friend Cayla” and “i-Que Intelligent Robot”), pointing out they’re not very well thought through design: these toys recorded children’s talk, and there were no clear guidelines regarding how this information is being stored and transmitted. As a result of the #ToyFail-campaign, the doll “My Friend Cayla” was taken off the market in Germany in 2017. This is a good example of how industry is always moving faster than the regulation. At the same time, strict regulation can hinder innovation. In order to prevent such events from happening, designers should consider not only their commercial interests, but also the interests of their customers. In this case, children. What is good for them?

Simulated intelligence

Robotic toys are now even able to possess certain personalities, like the Cozmo robot, which sometimes refuses to do his tasks and gets angry. While gaining more and more social intelligence these toys can lure children into thinking they are communicating with a living thing. Sherry Turkle in her book “Alone together” raises a question of how differently children perceive objects with artificial social intelligence. She writes about her daughter for whom a robotic animal was just as “real” as a living one. The experiment at MIT Media Lab, where children were observed and interviewed while playing with different “intelligent” toys, showed that children perceived these toys as “friends” or “teachers”, and thought of them as having various personalities.

What does it take for children and for us to be tricked into thinking a machine has intelligence? One of the pioneers of the field of artificial intelligence, Alan Turing, was occupied with this problem. He suggested a test or the “Imitation game” (later called the Turing test), where a machine, without being seen, only by answering the questions, needed to trick the human interrogator into thinking that it was a human too. Today, there is a whole field in computer science studying the design of socially intelligent agents (SIA). By “agents” they mean algorithms that are not just passive “tools”, but which possess a certain “agency”. The authors of the book “Socially Intelligent Agents. Creating Relationships with Computers and Robots”, Dautenhahn, Bond, Cañamero and Edmonds say that, since there exists no known “objective intelligence” outside of the experience of a human observer, the task for the designer is more to make it “seem” intelligent rather than to recreate an actual intelligence. Which makes the task much easier, but creates a major ethical concern: when we interact with SIAs, are we always aware that they simply simulate intelligence? And, in our case, do children understand that while playing with such a toy?

Effect on children

How do children perceive, interact and communicate with toys that steadily become more intelligent? The current research shows that children still prefer playing with their human friends to playing with any kinds of toys. Can this change? Will we come to a point where “intelligent” toys will replace living playmates? Another important question with such toys is: what kind of effect they have on children’s learning about the world? These toys are permanently connected to internet and can retrieve any recorded knowledge, but how do they deliver this information to children? Again, a question to their designers. Last but not least, how will the presence of robots from the early days of our lives influence our perception of real and simulated feelings and emotions? Play is a tricky thing: when we play we do realize that it is just a play, yet we are serious about it. If we don’t take the play seriously, it easily falls apart. With “intelligent” toys, will children still be able to draw a distinct line between play and real life?