Spotify is probably the most recognisable provider, but the likes of Deezer and Grooveshark are also posting strong user numbers.
In order to keep attracting new users, one of the key challenges for streaming services is differentiating themselves from the competition.
Last.fm seeks to do this by tracking user listening behaviour and recommending artists based on their musical tastes. Since launching in 2002 the London-based company has collected 65bn pieces of track data from its users, which is obviously a powerful tool for advertisers.
To find out how Last.fm makes use of its data and sell its service to marketers, I spoke to commercial director Chris Wistow...
What is your USP?
We view ourselves as a music discovery service, and we do that by aggregating our user's listening history. We are agnostic in terms of what platform or what player the user wants to listen to music on, and we integrate with all the different music services and platforms whether that is iTunes, or Spotify or whatever.
That means we can create the user's music home online and aggregate their music listening habits from a range of different services.
What we have found is that music listening habits have changed over the years, so a few years ago people would just be listening to iTunes, but now what we are finding is that users are consuming music across a range of different platforms.
And there's a desire from users to take the listening history that's locked in silos on each platform and actually bring that together in one place.
So that's where we come in.
So how are you integrated with iTunes?
We have the Last.fm 'Scrobbler', which is a downloadable piece of software that sits on your desktop and syncs with iTunes and Windows Media Player to keep track of what you're listening to.
It basically aggregates all the track information and adds it to your profile so, over time, the more music you listen to the more in-depth your profile becomes and the smarter it becomes in understanding what you like.
Do you use that data for anything else other than personal music recommendations?
Absolutely. At the beginning of this year we relaunched our charts section to give users the ability to slice and dice the data and make more sense of it.
Historically we could only provide a global view, but now you can go into the charts section and slice it by genre, country or city and see what's trending almost in real time.
Then we also have our hype chart, which registers if there's a spike in a particular artist's activity for a prolonged period of time and then they fall into this category. It specifically looks at what's trending right now.
We hear that a lot of labels use it for A&R, so to recognise what is up and coming and we also use it to identify what is new emerging music when putting on our live events.
How important are live events in your business model?
It has a growing importance. One of the things we have done in the past is our 'Last.fm Presents' monthly shows that work off the hype chart.
The goal is to take the Last.fm experience and demonstrate it in the real world.
When listening to the radio stations you don't hear any adverts, even though it's a free service. How else do you monetise it?
We monetise through advertising and e-commerce, so selling tracks through various partner sites. The ads are banner ads and partnerships or sponsorships – we don't do audio ads, we only do display.
That's because the radio is only one part of what we do, and it's not a free service in every market.
Music content and information is what we're really all about, and we are one of the largest music content sites on the web, so we monetise mainly through visual advertising.
That's appears to be a very different business model to Spotify. Do you see them as a competitor?
We see them more as a partner, as we have our Last.fm app integrated into their service, and scrobbling was one of the first third-party features integrated into Spotify.
With iTunes, scrobbling works as a plug-in but with Spotify we actually sit within the platform.
And what about social - we've seen The Guardian and Spotify boost sign up numbers by creating a Facebook app. Is that something you plan to do?
We have a Facebook page at the moment and we plan to create an app.
I think that a lot of businesses are building themselves on top of Facebook, which is potentially a dangerous thing.
You lose a lot of control by doing that, and a lot of other players in the space have lost control of their customers by relying too much on Facebook.
I think the benefits of working with social networks need to be weighed up quite seriously.
One of the key ways that other online services try to attract advertisers is by offering brand pages. Is this something that you plan to do?
I find this quite an interesting area – marketers are very interested in doing something using a branded platform, but you need to ask them what their objectives really are.
If they are going to do something on a partner site is has to be contextually relevant. There's no point in creating a brand page for the sake of it.
What you're doing on the brand page needs to be intrinsically linked to the service offered by the partner site.
How do you pitch your service to brands ahead of your competitors?
There's a couple of different ways:
First and foremost is in terms of audience – we are a music discovery service so our users are intrinsically searching for something. Because they are in that mode, when they find something they like they often tell their friends about it.
That behaviour is very relevant for brands that want to work with us, as they want to reach the social informers and influencers, so we have a strong case, as a lot of it is about the type of user we are able to deliver.
Secondly, we are pitching to clients around larger partnerships, where we can leverage the data we collect and create something unique for them. One good example of that was a brand page we created for Puma involving Deadmau5.
Users could go in and type in their user name and then it would visualise how your listening habits track against the wider community of Deadmau5 fans.
So it was targeted quite specifically at electronic music fans, but that's still quite a large part of our community.
And it was great for Puma because it was super relevant for them. They got the artist association with Deadmau5 and almost one-to-one brand messaging to those users.
It was also engaging as users got information on the wider community of listeners with similar music tastes.
How did you drive users to the Puma brand page?
We do high impact advertising to raise general awareness, and more tactical advertising utilising our user data so we can target ads on the artist pages themselves, and also target users who we know to listen to Deadmua5.
That sort of stuff is where we feel we have a strong USP against other services, as we have so much user data from around the world that we can do really interesting stuff with that.
We really push our smart ads, which are ads targeted on what the user is listening to or that is relevant to the page content.
Do you target specific industries, such a lifestyles or sports?
We target sportswear, lifestyle, technology, mobile phones, and fashion brands – that sort of thing.
We do a lot of work with Adidas – they are a great brand to work with as they align themselves around urban hip-hop so we have a lot of artists they can align with, which makes it more relevant to both the brand and the user.
And because it's seen as a natural fit the users don't feel like it's being forced down their throat.
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