The future of music, according to Spotify's Daniel Ek

AUSTIN, Texas--Daniel Ek was waving his arms in the air, as if molding invisible clay. He swiped his right hand karate-chop style, made a big loop, and then grabbed an imaginary dial with his left and twisted his fist.

Ek, you see, was talking about the future. In this not-so-far-off future, maybe a decade from now, we're all connected, everywhere, all the time -- perhaps via Google Glass, perhaps via sensors built into our clothes, or through other wearable computing devices. Our touch-screen life will require no touching whatsoever, as we control what we're listening to or seeing through hand motions or simply by talking. And we'll experience it all in 3D.

In this vision, too, exists a musical soundtrack, tailored for you, fitting for the moment, and piped in not just through typical speakers or headphones but perhaps through musical lightbulbs -- or at least through "more intelligent systems" such as the kind Ek is considering for the house he is remodeling in his hometown, Stockholm, Sweden. New musical genres will also emerge as the technology pushes creativity. After all, you'll be able to reach out and take control of the sound waves.

"Actually, I don't want the string section," said Ek, grabbing the invisible song with his left hand. "I'll just kill that."

Ek's role in this all this? He wants Spotify, the company he co-founded and leads, to provide the soundtrack. It's tall talk, for sure. Yet it's hard to dismiss Ek's optimism. He's already defied the odds, leading Spotify further than any digital music company with the exception of Pandora. More importantly, with 24 million active users, 6 million of whom pay to subscribe, and a speedy growth rate, Spotify has become the big music label's second largest digital revenue source behind Apple. The on-demand, streaming model is the fastest-growing part of the beaten-down music industry -- creating an entirely new revenue stream to boot -- and, for now, Ek is leading the charge.

"He's one of the few guys that picked up on the vision and ran with it," said David Kusuk, a digital music consultant who co-wrote the 2005 book "The Future of Music," predicting the shift to the access anywhere model, or what he calls, "music as water." "I give Ek credit for having the guts to try it and really to stick his neck out there."

I met with Ek, who is 30, at last month's SXSW festival in Austin, where Spotify rented a small house on the east side of town and painted it Spotify green. A parade of musicians -- rapper Angel Haze and singer-songwriter Tom Odell among them -- played in the back yard. Ek held meetings at a picnic table and soaked in the scene. He wore the same beige Gibson T-shirt two days running, jokingly blamed the music labels negotiations for his baldness, and apologized for his dark sunglasses even though we sat in the shade. (Very sensitive, very blue eyes.)

Ek knows, of course, that he has a long way to go, and that it's still way too early to claim victory. He comes across as modest, yet he's hardly lacking for confidence. He remains undeterred by the graveyard of digital music startups, and by suggestions that Google or Apple or Amazon, all gunning for his business, could crush him.

Put simply, he said, "I'm more tenacious than most."

A Commodore, a guitar, and a vision
Fortunately, Ek was also naive when it came to thinking the major music labels would eagerly embrace his plan to make a legal version of Napster.

The quick bio of the tech music biz wunderkind goes like this: When Ek was 5, his parents, both musicians, gave him a Commodore Vic 20 computer and a guitar. He took to both. At 14, in the middle of 1990s Internet mania, Ek taught himself HTML and started a side business making commercial Web sites. He ran it from his school's computer lab, hired other teens with an aptitude for math or design, and soon was netting $15,000 a month. He packed his bedroom with servers.

At 16, he applied for a job at Google, but was turned down because the company required a degree. Eventually, he enrolled at Sweden's Royal Institute of Technology, but, discovering he didn't like math, he dropped out after just two months. He landed a contract gig for an ad network called Tradedoubler to build an analytics tool.

That stint paid off: Tradedoubler paid him $1 million for the rights to what he had built, and he made another $1 million selling the patents. It also introduced Ek to his future Spotify co-founder, Martin Lorentzon -- who, now 44, serves as Spotify's chairman and Ek's key sounding board. (The two take Steve Jobs-like walks daily when the always-traveling Ek is at headquarters in Stockholm.)

Ek was 23, rich, and unhappy. He'd flirted with the fast life -- he picked up a Ferrari and a swank apartment in Stockholm -- but he was unfulfilled. Ek dumped the car, retreated to a cabin, meditated, and played guitar, even toying with the idea of playing music full time. The result: a determination to combine his passion for music and tech.

Ek teamed up with Lorentzon, who was Tradedoubler's chairman and far wealthier than Ek due to the company's 2005 IPO. They holed up in Ek's apartment, and built the product. It was modeled after iTunes, inspired by Napster, and packed with pirated music that they used as a demonstration to get licensing deals with the labels. That alone took two years -- and that was just for European licenses so they could launch in Scandinavia, France, the U.K., and Spain.

Sweden, where piracy was rampant, became the testing ground for the labels to allow free, ad-supported, on-demand music that Spotify would offer to lure paying subscribers. More than one third of the Swedish population now use Spotify. It would take almost another three years before Spotify inked deals to launch in the U.S.

Just a year and half since the U.S launch, the labels are no longer worried that Spotify will eat into iTunes sales. Instead, label execs privately complain that Spotify isn't growing fast enough, although it's on track to pay rights holders $500 million this year alone-- the same amount the company paid out in total since launching in 2008. The labels want Spotify to advertise more. The company last month launched its first-ever TV campaign and, just this morning, it rolled out an ad across the top of YouTube, which has become the go-to site for young people to listen to music. Music execs also want the company to strike partnerships with wireless carriers and Internet service providers to bundle the service, a strategy that fueled growth in Europe. The aim: to expand the "funnel," which refers to the number of free users that Spotify has a chance to convert into paying customers.

"It's so funny," said Ek. "When we started off, it was the other way around. 'We don't want a big funnel because it might risk cannibalizing other sales.' And now all they're talking about is how we can grow faster. At least our goals are 100-percent aligned."

Well, not quite. Tension still exists. Ek complains, for instance, that music rights are still bound by national boundaries. Sometimes Ek will post a track on Facebook that people in other parts of the world can't even listen to.

"That is one of our biggest limiters to growth, the restriction that you can't share any piece of content anywhere," he said, talking about the all organizations that make buying music rights so complex. "You need collecting societies in every market and publishing deals in every market." The result: Spotify now has rights deals with more than 50,000 entities.

And so Ek and his team are constantly trying to change an outdated system, to push the old guard to bend. In their arsenal: a growing mountain of data. That has been Spotify's leverage along the way, and to hear Ek talk about it, data holds the key to working toward that soundtrack-for-every-moment that he envisions.

When Spotify was first negotiating with Warner Music Group for U.S. licenses, for instance, Warner wanted to restrict the amount of free music that people could access to three months, according to people involved with the negotiations. Spotify came back with data, culled from Scandinavia, that showed a lot of freeloaders become subscribers after four or five months. This was news to Warner, and it worked; they eventually settled on limitless, free access.

Spotify is now nearing a new deal with the labels to let it offer more free music on its mobile app. Why? Its data shows that many people are discovering Spotify on their phones, ignoring the desktop client entirely.

Mining the music
That's all basic stuff, of course. But Ek said Spotify is collecting and analyzing more data related to music habits than any other company on the planet. Spotify is itself a platform, with companies like Blue Note, Billboard and Pitchfork creating apps that help people discover what they might want to hear, and sending rich streams of data to Spotify along the way. And while listeners can stream privately, Spotify is social by default; to date, its users have created and shared some 1.5 billion playlists, all of which generate even more types of data to parse and, Ek hopes, to lock in customers as more competitors enter the streaming fray.

"Our big problem is how do we make sense of what you want to listen to?" said Ek. "How do we make sense of 20 million songs? How do we make sense of what you want to hear when you wake up in the morning, when you go out on a Friday night? These are distinct moments in your life, and what we're trying to do is make sense of all that, to make sense of that ocean of data."

That's where Will Page comes in. Page, a London-based economist with long ties to the music industry, joined Spotify last fall. He spends his days deep in Spotify data, exploring all sorts of questions: What leads to hits on Spotify? Can activity on Spotify predict a mainstream hit? How much life do which playlists add to what songs? What exactly leads to virality? Why do older people listen to all 40 tracks of a particular compilation, where younger people listen to half that? And so on.

"When you think about it, we don't just have unique data on every single stream on the service," said Page, who stressed the data is based on unique identifiers and don't reveal the person. "We also know where that stream was from -- whether it was driven by Spotify or Facebook -- and on top of that, you've got age, gender and location, and behavioral traits around playlists you've created or consumed. That's far more unique than somewhere like YouTube."

The trick is to merge what the data shows with the technology, something that is gradually happening. At last year's Bonnaroo festival in Tennessee, for example, attendees received a wristband with an RFID tag built in. Each time you visited a stage, you could check-in with a simple swipe at a hub. Then, when you fired up your Spotify account, it had new playlists based on the bands you saw at the festival. The whole effort was largely a marketing push, but it gives a glimpse of the tailored musical experience in action, and its something the folks at Spotify are now working on bringing to festivals the world over.

"That was a giant step in terms of connecting Spotify to live music," said Page. "This can happen at other events, where you wake up and Spotify knows where you were last night."

The shift to mobile also opens up all sorts of possibilities, particularly because Spotify can know your phone's every step. One example: Ek said Spotify is working on software that would let you seamlessly switch what's playing through your phone's headphones to your home sound system the moment you walk through the front door. The idea is that your smartphone will recognize the home Wi-Fi signal, at which point it will ask you if you want to tap a button to change to the home mode.

"Suddenly, your entire house is full of music," said Ek.

Making this future possible, too, is what Ek calls the "platformization" of everything. This phenomenon lets Spotify easily build its service into devices. Spotify now comes baked into some Samsung Smart TVs, Roku, Tivo, as well as in new Fordsand Volvos. And Ek said the company is working on several more such initiatives to roll out this year.

Set-top boxes and smart autos are one thing; touchless screens and wearable computing another. Yet when you look at these steps -- on the hardware front, and Spotify's front -- it's easy to see them merging in ways that might even surprise Ek.

Already, that happened when his contractor was going through refurbishing options for his home in Stockholm. Think picking carpet and paint colors is hard? Try deciding which room needs programmable sensors built into which walls so that the lights and music around the home could be triggered by movement. Think of the applications: Walk into the living room, the music and lights turn on; leave for, say, more than 10 minutes, and they turn off.

Here's the example presented to Ek. He could put motion sensors in the baby's room, which would detect when the baby is asleep, at which point, the system would automatically dim the lights and start playing Barry White -- the technician's example, not Ek's -- for you and your wife in the other room. Then, when the baby wakes, the sensors cut the music and turn up the lights.

Ek isn't going for that option, possibly because he's both single and without a baby. He doesn't yet know how he might build music into his house. But he holds this out as an example of where things are going.

"I'm not even suggesting that it's a great idea," Ek said. "We're only in the beginning of figuring out all these kinds of moments." Moments that, with the music labels and many publishers still in control of most of the world's music, will rely as much on negotiations and corporate politics as algorithms and data.