Facebook and Spotify to enter alliance?

It's written in the stars that proprietary peer-to-peer music streaming service Spotify and Facebook might well find a common ground to start up a closer alliance. It would actually help Facebook to add a music platform (something which has been missing) worth the name. Sure, as a band you can upload your music snippets or full songs, and yes, when iLike was still embraced by Facebook it was something that could have developped into something beautiful. But allas, MySpace bought iLike and Facebook will ban the service from its platform (see detail below). Which, let's be honest, was expected even though MySpace apparently found the decision to be rather unfair. Right.

Anno 2010 iLike is nowhere. Even worse, iLike founders Ali and Hadi Partovi stepped down from the MySpace executive team. Enters Spotify.

Spotify allows unlimited streaming of selected music from a multitude of major labels but also tons of independent record labels including Mute, Alfa Matrix, ArtOfFact, etc. with virtually no buffering delay. Music can also be imported from either iTunes or directly from local files. Adding Spotify to its 'mix' would provide Facebook (users) with a very comprehensive, legal, all-you-can-eat music service. On top Facebook could offer Spotify Premium subscriptions users to create differentiation and value-adding services. The integration would avoid that Facebook has to start negociating with labels and creating an own music service worth that name.

7% of Spotify users pay
Launched in October 2008, Spotify has approximately seven million users as of May 19th, 2010 and about 500.000 (that's a 7% conversion) of these are paying members so CEO Daniel Ek announced earlier this month. The Swedish startup has been able rocketing its service in the countries it has officially launched (and the official US launch has not yet happened).

If Spotify would join up, it would become the default music streaming service worldwide and in one go reach a massive public (for the territories it has covered so far). It would also ease the launch of Spotify on the US market and perhaps that is also the reason why the launch is taking longer than expected. One can only imagine the number of paying subscribers the service could generate from the enormous Facebook userbase.

As a sidenote, it would also push the labels to think differently and no longer consider the service as a download shop but more as a discovery radio station where users can listen to genre channels (including those tracks 'liked' by their friends for instance) with a direct option to buy a download of the track or play it ad free (via a subscription). On top it could have a suggested repertoire where labels pay to get a track in using a pay per 1000 plays model for instance. Options enough to see how to monetize the model via Facebook.

Adding social driven e-commerce
If the integration becomes a fact, Facebook could actually become one of the biggest revenue generating platforms ever created for music. It would even be surpassing iTunes if it would be able converting up to 3% of the Facebook users to its paying model (the figures are based upon data from several scene labels that Side-Line got access to). For actually being a 'radio', Spotify is doing rather well keeping in mind also that it does not even include half of the marketshare of iTunes as far as users is concerned.

Notice that it's by making alliances like this that Facebook will be able to survive and generate a substantial income. Facebook users tend only to visit the site to chat, post, read and game (remember the numerous Zynga 'villes'). Right now that is. But adding a shopping experience little by little might change the user profile and habits. It's also in that perspective that you have to see the Facebook credits which have been imposed onto the game developers who use Facebook as a platform. This is clearly a first step to act like a global PayPal for every purchase you make on Facebook with Facebook taking a (30)% profit share. If users know they can stay inside Facebook to bid on items, buy tickets, play online games, listen to or download music etc; then where's the limit?

And what about Google Music?
Most of Facebook's revenues comes from Credits, and advertisements that are served from the website's Flyers application. On top of that Microsoft is Facebook's exclusive partner for serving banner advertising, and as such Facebook only serves advertisements that exist in Microsoft's advertisement inventory. Sure thing is that it will not add Google Music unless Google is to hand out lots of cash for acquiring that unique position that Microsoft acquired (Microsoft also purchased a 1.6% share of Facebook). On top of that Facebook (especially since launching its social referee 'like'-button) is about to launch a search engin incorporating the 'likes' as pronounced by its community and thus creating a human powered search engin, something that Google failed to do properly despite numerous attempts.

And let's not forget, Google apparently hesitated to approach Facebook the proper way having the MySpace fiasco in mind. MySpace underdelivered in traffic and the traffic sent was of an appallingly low quality.

There is no way that Facebook would or should accept Google sharing in the power of its platform. And although you wouldn't think so when reading the hurrahs from Google, the people at Mountain View are increasingly worried about their future. Facebook will get serious with the search project and they will win the social search war. So where does that leave the tech nerds of Google who have seriously underestimated the community elements in their products?

The panic is increasingly nurtured by Googlers who have defected to join the Palo Alto based camp of Facebook. And jumping ship is not exactly the signal you'd expect from a winning team. And before anyone raises the question why they wouldn't be working together with iTunes' upcoming cloud service: it will be easier imposing the Facebook desires on Spotify that force iTunes to change its habits.

So the Facebook people are up to something that will most probably englobe lots of services that today still are available on several different websites. Think search, think shopping, think eBay, think Amazon, think e-mail, think music (cloud) services. And they have to because social platforms 'an sich' or not exactly the best performing when it comes to advertising. But when social and commerce go hand in hand, there is no limit to what can be achieved especially when it's about something so social as music.

500 million users, that means lots of possible music consumers.