Spotify may eventually make your iTunes and Pandora accounts obsolete, but don’t delete them just yet.
Spotify's introduction of free streaming on-demand music to mobile devices, announced Wednesday, will not cause an overnight collapse of the major online music players, and may provide a short-term boost for services that still sell music. The more serious questions surround the long-term implications for a music industry already grappling with change.
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Music lovers still buy music. Sales of music on iTunes have not only weathered the storm of online music streaming, but benefitted from it. Even with the growth of streaming music, per-buyer spending on downloads rose 6% in 2012, according to NPD Group,market advisory service that tracks sales.
“The thing that people often forget is that Spotify customers are actually the best iTunes customers out there,” says Russ Crupnick, senior vice president of industry analysis at NPD Group.
That backs up the claims of Spotify executive Sriram Krishnan, who said earlier this year that the company’s users spend twice as much as the average music consumer.
Rather than an attempt to take on iTunes directly, Spotify is working to convert listeners from its main competitors in the near term — namely Pandora, iHeartRadio and iTunes Radio. The launch of its new service is meant to consolidate music lovers that stream, Crupnick says.
“If you take a look at Spotify's user base, a significant amount of their user base is also using Pandora,” he says. “They have a lot of leakage out of their franchise of people who want to use a free service on a mobile device.”
Spotify is also playing from behind. Pandora says it counted 72.4 million active listeners with an 8.4% share of U.S. radio listening in November. Spotify, which has previously claimed 24 million active users and 6 million subscribers, doesn't make those numbers publicly available, but analysts believe Pandora maintains a firm lead, and Pandora has claimed as much.
The user advantage means Spotify’s service will need to convince listeners to make the permanent switch, which is no easy feat. When iTunes Radio launched, Pandora took a hit but quickly rebounded as listeners returned to a service they were more familiar with, says Laura Martin, a senior media analyst at Needham & Co.
“Whatever the incumbent service the user is listening [to], the Spotify service must be better to overcome inertia ,” she says. “The best metric is consumer adoption. Them entering a market is meaningless until we see consumer adoption rates.”
Spotify may have a way to go to compete with Pandora, but investors have displayed a healthy concern since the launch. Pandora shares are off 8.6% in the past two days, however the stock has still almost tripled in 2013.

P data by YCharts
When asked for comment on Spotify’s launch, a Pandora spokesperson said: “We feel great about Pandora’s business and competitive position. We’ve never lacked for competition. We are also confident there is plenty of room for multiple players in this space to grow and thrive.”
The advent of free on-demand music may not immediately change the online music market or the music industry in general, but it is an indication of an eventual trend that could become the standard industry practice.
“We all know it was going to happen that you would eventually get closer to a music-on-demand mobile experience without paying for it. We're not quite there. This gets us as close as anyone has gotten,” says James McQuivey, an analyst at Forrester Research that tracks digital disruption of traditional business.
Consumers tend to follow the path of least resistance, he adds, which means iTunes will no longer be the best way to access music whether it costs money or not.
“Once free on-demand music is widely adopted, the user experience will dictate that they use it primarily out of convenience,” McQuivey says. “It's not that people are unwilling to pay for a track of music. It's that the easiest way to get that track of music is not iTunes.”
That makes iTunes Radio all the more important for Apple’s music business going forward. Spotify may have the advantage of being the first company to introduce the model. However history is littered with pioneers - like Eastman Kodak and its invention of the digital camera - that were eventually left behind.
“It might get to be so easy to get music to people that you no longer need Spotify as a music-dedicated provider,” McQuivey says. “It could very well be that Spotify becomes the TiVo of digital music.”
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Image: Getty/Justin Sullivan