09.10.18 | Possible competition for Afterpay, Spotify makes a move.

By Jessica Sier 10 October 2018 4 min read

Newsletter: Published Tuesday, 09.10.18 |

  • Spotify: making moves;
  • Square a threat to Afterpay?


Competition is a fabulous mechanism to encourage better performance.

In the animal kingdom, both cheetahs and lions feed on similar prey. As such, the presence of the other is a pretty firm negative, but they can ultimately coexist because of their different strategies and strengths.

Lions have intense BDE, are generally bigger and it's easy for them to catch larger prey (and steal meals from cheetahs).

But cheetahs use their speed and nimbleness to take down faster and smaller animals and, according to National Geographic, have a higher success rate of actually making a kill.

When it comes to competition in business, the same principles apply when looking at acquiring users and selling to consumers.

Look, I don't mean to liken you (the consumer) to a helpless gazelle (even though, it's possible that businesses might see you as...prey...) but it's a helpful comparison in how to see the different ways to view competition.

This week we're looking at some potential competition for Afterpay and at Spotify's tentative steps to becoming a more powerful competitor in the music business.

Spotify: making moves.

Two pieces of important Spotify news this week: one exciting, the other weird.

Last month, Spotify began beta testing a new feature allowing independent artists to upload their own music directly to the platform.

This completely bypasses the old label or distributor model that’s existed as the juicy barrier between artist and listeners since the music business began.

It’s not that Spotify is morphing into its own record label, per se, but it’s also not, not that.

Right now, the direct upload option is available as an invite-only beta feature on its 'Spotify for Artists' platform and only “a few hundred US based artists” got the invite.

The nifty thing about this move is that Spotify isn’t charging for artists to upload just yet and they get to keep all the money they earn off streams, rather than having to surrender a large percentage to a record label.

As it stands now, when an unsigned artist wants to get their music on any streaming service, they use a music distributor but they generally charge a fee.

Tension is likely to build between Spotify and the existing record labels, because in order to play top artists who are signed with labels, Spotify needs to keep those relationships solid. If they suddenly look like they are serious competition for those labels' business, they might lose access to other signed performers.

If you’re interested in the future of the music business, here is a great 25iq piece about how Chance the Rapper remained independent and built his entire brand without the help of a record label.

In other, somewhat related news, Spotify has also announced a new partnership with Ancestry.com.

This partnership allows users to input their genealogy findings into Spotify so they can, I don’t know...“explore the soundtrack of their heritage”. Or something.

So, we’re not exactly sure what the deal is with this move but as far as we can tell, that does not mean Spotify suddenly owns your DNA.

Square a threat to Afterpay?

Afterpay is currently one of the darlings of the Australian Stock Exchange.

So far this year, the share price has almost tripled and businesses around the country have been implementing the platform.

Just to recap, AfterPay is a layby-like service that lets shoppers get something immediately - a frock, a mouthguard, a new mattress - and then pay for it in four equal fortnightly instalments.

Afterpay charges 4% of each transaction to the businesses who offer the service, but no fees or interest are charged to the shopper (other than late fees).

The Australian business has begun expanding into the US and, given there wasn’t a service as cheap or as helpful, the Americans have been happily catching on.

That said, there are some competitive forces to keep an eye on.

Last Thursday, Square, the payments business run by Jack Dorsey (who is also CEO of Twitter) announced the launch of Square Installments.

(We have no idea why there are two "Ls" in this name).

According to the release, much like the Afterpay platform, the Square Installments service "provides sellers with access to a powerful tool for growing sales that has traditionally only been available to larger businesses. This new payment method gives their customers the freedom to pay for a large purchase by splitting it into easy, fixed monthly payments.”

Users of the service will be able to pay for the product or service over 3, 6 or 12 months, for qualifying purchases between $250 and $10,000. The service is currently available in 22 US States.

Shares in Afterpay haven’t sold off dramatically in response to the Square announcement. And Spaceship’s investment team aren’t overly worried about the news just yet.

Afterpay has a very simple product that is targeted specifically to retail businesses. It’s also got a particularly strong value proposition, in that customers who pay on time get the service for free.

But you can certainly bet that as this method of payment becomes more and more popular, it’s possible that businesses involved in payments processing services will begin introducing their own version. (Note: We don’t know this for sure).

Important! We’re sharing with you our thoughts on the companies in which Spaceship Voyager invests for your informational purposes only. We think it’s important (and interesting!) to let you know what’s happening with Spaceship Voyager’s investments.

However, we are not making recommendations to buy or sell holdings in a specific company. Past performance isn’t a reliable indicator or guarantee of future performance.

The Spaceship Universe Portfolio invests in Afterpay, PayPal and Spotify.

The Spaceship Index Portfolio invests in PayPal.

Words by
Jessica Sier Right Chevron

Jessica Sier is a financial journalist. Prior to that she led content at Spaceship and was a reporter at the AFR where she discovered that breaking down financial jargon was a public good.

09.10.18 | Possible competition for Afterpay, Spotify makes a move.