Network Effects Cause for Uber – Spotify Partnership
According to two insiders referenced in a New York Times article, a partnership between the two popular startups, Uber and Spotify, will be announced on Monday, November 17th. These same sources say that the partnership will bring personalized music to Uber customers during their rides. It is not clear exactly how this will work technologically, but the aim is to allow Uber customers to stream their Spotify playlists though their Uber car’s audio system.
The partnership will be mutually beneficial to both Uber and Spotify; Spotify will be able to publicize their widely used service to new customers while Uber will bring a more pleasant riding experience to their users. These benefits are examples of Uber and Spotify using Network Effects to increase the prices they can charge for their respective services. Uber is increasing the quality and therefore the value of the good they are offering by bringing personalized music into their rides. Therefore they will be able to charge a higher price for their good even though the popularity of the good in the general population remains unchanged. In contrast, Spotify will be increasing their popularity by advertising their service to Uber users. This popularity is crucial to Spotify’s success as a major part of their service is the social interactions of friends through music. This is exemplified by Spotify’s use of shared playlists and the publication of their users’ listening preferences to their Facebook friends. By increasing their popularity Spotify will also be able to charge a higher price for their good.
The article also highlights the fact that is not the first time these companies are using Network Effects to their benefit. For example, the article mentions Spotify teaming up with Facebook to advertise their services to the hundreds of millions of users that Facebook has. In addition, Uber has advertised its services with the likes of the National Football League, Morgan Stanley, United Airlines, and Starbucks.