The Spotify Play Read online

  The two founders were now in the public eye. They gave an interview with the Swedish business paper Dagens industri and posed for photographs in Tradedoubler’s office and in the Norra Bantorget square. In the photos, Martin is dressed in a pinstripe suit and a striped shirt. He holds a Sony Ericsson P910i cell phone in one hand, and the stylus used to navigate the screen in the other.

  Tradedoubler’s founders were quick to transfer their newfound wealth to Cyprus, where they had registered holding companies two months earlier. A few weeks after Tradedoubler went public, Daniel Ek established a holding company in the tax haven as well, likely with Martin’s help. Martin dubbed his company Rosello Company Limited. Daniel’s company was named Instructus Limited. By 2005, Martin and Daniel were ready to invest in a new project together.

  There was just one snag: per the usual initial public offering (IPO) restrictions, the Tradedoubler founders’ shares were locked up, meaning they couldn’t sell all of their holdings immediately. Both Martin and Felix had to wait at least six more months. After that, the plan was to sell and reinvest in Martin and Daniel’s new venture.

  Feeling Hot Hot Hot

  In early 2006, Martin Lorentzon and Daniel Ek met frequently outside of work. Martin, now a multimillionaire, would take the green subway line to the grey suburb of Rågsved to visit his protégé. Daniel still lived in the apartment he grew up in, part of a three-story building atop a hill on Stövargatan, a few blocks from Rågsved’s subway station. His mother, Elisabet, and stepfather, Hasse, had moved out, but were still registered at the address. A hundred yards away, a few concrete high-rise apartment buildings shot up toward the sky. In Martin’s eyes, the rundown suburb would have contrasted sharply with the lush suburban area of Borås where he’d grown up in the 1970s.

  The duo bonded by watching movies. At one point, ahead of Martin traveling out to Rågsved, Daniel jokingly gave him the same advice that Michael Corleone gives Enzo the Baker in the first film of the Godfather trilogy: “Put your hand in your pocket like you have a gun.”

  Daniel’s apartment in Rågsved quickly became an impromptu workshop. Servers hummed in the closet, downloading countless pirated files at all hours of the day, warming the apartment to tropical levels. As they spitballed business ideas, Daniel and Martin would sometimes sit in front of their computers wearing nothing but underwear. They had now agreed to start a company, but Daniel still wasn’t sure he could count on Martin’s financial investment. He wondered what the next step was.

  “I’ll put in ten million crowns,” Martin said at one point.

  Daniel would later describe how he checked his bank account the next day and found the money, a sum worth more than a million dollars, sitting there. Martin’s decisiveness and dedication must have excited the twenty-three-year-old computer wiz.

  They would later tell the story of them sitting in Daniel’s apartment, calling out words in the hope of naming their company something great that wasn’t already taken. Martin thought he heard Daniel call out, “Spotify” from another room. He typed “spotify.com” into his browser and nothing came up. He proceeded to purchase the domain name all over the world. Daniel, however, would maintain that Martin must have misheard him. He doesn’t remember saying “Spotify.”

  Poker Face

  As winter gave way to spring, Daniel Ek frequently had lunch with his Stardoll colleague Andreas Ehn. The young programmer had quickly taken on an informal leadership role at the company and looked like Daniel’s natural successor as CTO. During these informal chats, the pair talked about new business opportunities and the future of technology.

  Gradually, Daniel opened up about his other projects. He wouldn’t say exactly what he was up to, but Andreas would recall how Daniel enjoyed discussing the possibilities of BitTorrent, a type of peer-to-peer technology which broke files down into smaller pieces, sent them between computers in a network, and then reassembled them on arrival. The technology allowed fast transfers, even over networks with lower bandwidth, and had been made popular by The Pirate Bay, the infamous Swedish file-sharing website. In essence, Daniel wanted to do something similar to The Pirate Bay, but legally. During that spring of ’06, Daniel revealed more details to Andreas, at one point proclaiming that it should be possible to build an ad-funded streaming service for video, music, and other media.

  Around the same time, Daniel gave his colleague Christian Wilsson two small freelance assignments. One was to construct a graphic profile for his side project, Advertigo. Daniel mentioned that he was going to show the product to a representative from Google, with whom he had scheduled a meeting at Arlanda Airport north of Stockholm, as one source would recall. The second assignment was to create a logo for a new company that had “something to do with streaming.” Daniel told Wilsson that he was tossing the idea around with someone else, but he didn’t say whom.

  “It’s important that the logo is ‘web 2.0,’” Daniel explained.

  When Christian Wilsson created Spotify’s first logo, he was inspired by the graphic profile of Skype, the voice-over internet company founded by the Swede Niklas Zennström and the Dane Janus Friis in 2003. He used the same type of bubbly, playful font, and added three wavy lines above the “o” in Spotify to illustrate streaming. In a couple of days, he’d created Spotify’s first, light-green logo, with the wavy lines that would later become its app icon. He invoiced Daniel $770 for his work.

  In late March 2006, Daniel Ek sold Advertigo to Tradedoubler for $1.3 million. The company had no income and basically consisted of some advertising technology and a few tech consultants. Advertigo’s services would have little impact on Tradedoubler’s operations, according to several executives serving at the time. Then again, the purchase price was small compared to Tradedoubler’s market cap of around $360 million. The deal hardly made a blip on anyone’s radar.

  For Daniel, however, the windfall was more than welcome. Within a matter of weeks he and Martin Lorentzon would sign the paperwork and start their new company together.

  Spotify was still in its conceptual stage, but Daniel now had his own funds to kickstart the project. In the coming months, he moved from his rundown apartment in Rågsved to a condo on Hagagatan in Vasastan, not far from Martin’s place in central Stockholm. There, he furnished a home office, installed a massive TV in the living room, and equipped his new digs with the latest home technology. He also left Stardoll to dedicate all his time to his new company.

  In later interviews, Daniel would describe a period of partying in which he, newly rich, bought a Ferrari sports car and hung out at the nightclubs around Stockholm’s central business district of Stureplan. But the girls he wanted to impress turned out to be fake and shallow. The adventure ended with Daniel isolating himself in a house in the countryside, close to his mom, strumming his guitar. As he came out of his depression, he decided to dedicate his life to Spotify, a company that married his love for technology with his love for music.

  The timing of this is unclear. More than a decade later, Swedish motor vehicle records contained no trace of a Ferrari, though an agency representative admitted that their historical data was sometimes spotty.

  Perhaps Daniel’s origin story should not be interpreted literally. Many people who know him attest to his tendency, particularly in his early years, to embellish and add spice to his stories. As a young man, two people would recall, he earned the nickname “Spicer”—or “Kryddan” in Swedish—among some of his close friends.

  Good Vibrations

  According to Martin Lorentzon’s official story, Spotify was founded on his 37th birthday, on April 1, 2006. The paperwork was filed a couple of weeks later. For a brief period, the Swedish company, Spotify AB, acted as Spotify’s parent company. It was, in turn, owned by Martin and Daniel’s holding companies on Cyprus.

  With the Advertigo deal behind them, and the paperwork complete, the pieces quickly fell into place. On May 3, Tradedoubler announced that Martin had sold half of his remaining shar
es in the company for almost $11 million. Felix Hagnö had sold shares worth twice that. To calm the market, the founders promised not to sell any more shares for the next six months. The stock price took a hit, but would soon bounce back and climb to new heights. Between them, Tradedoubler’s founders had now amassed around $70 million.

  At about the same time, Daniel Ek went to see his successor at Stardoll, Andreas Ehn, to make him an offer.

  “We’re starting a company. You want in?” he said.

  Andreas didn’t need much time to decide. Pioneering the international market for virtual paper dolls was not a bad gig for an engineer in his early twenties, but here was an irresistible opportunity. He soon became Spotify’s first CTO, with enough stock options to eventually make him independently wealthy.

  Andreas Ehn’s departure from Stardoll was a blow to its CEO, Mattias Miksche. In the years to come, he would find himself in an uphill battle with Daniel and Andreas for Stockholm’s top programming talent. Stardoll was no longer the hottest startup in town.

  The Engineers

  DANIEL EK AND ANDREAS EHN spent much of the summer of 2006 recruiting the best engineers around. Daniel attracted some of the consultants who had helped him at Stardoll. Andreas proved invaluable in drawing engineers from KTH, where he’d earned a reputation as one of the brightest students in his graduating class.

  In August, a small group of engineers flew to Barcelona for Spotify’s kick-off. Over tapas and red wine, Daniel and Martin Lorentzon explained that they wanted to create a legal, torrent-based platform for the distribution of music, and possibly video. The service would be ad-funded but free to use, they explained, because that was the only way to fight piracy.

  They also made it clear that developing the product would be their top priority. Commercial licenses and agreements could wait. Fortunately, the gang in Barcelona didn’t grasp how difficult those final challenges would prove to be. If they had, they may never have attempted to build the platform. In the era of Kazaa and The Pirate Bay, the word “free” caused record label executives’ eyes to roll, their heads to shake, and their doors to close. Spotify’s founders had never negotiated licenses before. They had no idea how strongly the industry would resist their attempt to build an ad-based streaming service by employing the same technology that was being used for illegal file sharing.

  Yet the gang munching tapas on the coast of Catalonia had at least three things going for it: Martin’s experience and considerable wealth; Daniel’s clear and unwavering vision of a product; and Andreas’s ability to attract and inspire Sweden’s best programmers.

  In the fall of 2006, the Spotify engineers moved into the company’s first office. It was located on the second floor of an apartment building on Riddargatan, where Stockholm’s central business district meets the posh residential area of Östermalm. Here, the Spotify crew spent their first week lugging IKEA flat packs up the stairs and assembling office furniture. They unpacked whiteboards and installed computers and servers. It was a humbling task, literally building a company from scratch. No one could know that the work they’d started would, over time, turn hundreds of Spotify employees into millionaires.

  You’re the One that I Want

  The king of torrent technology at this time was a Swede named Ludvig Strigeus. He was a self-taught, twenty-five-year-old hacker who had single-handedly built μTorrent (pronounced “microtorrent”), one of the world’s most popular file-sharing clients. The ultralight program was used to download files rapidly from file websites such as The Pirate Bay. Early on, Daniel Ek and Martin Lorentzon realized that “Ludde,” as he was called, could be key to Spotify’s success.

  Martin had set up a meeting through an acquaintance named Niklas Ivarsson, a charismatic engineer from Borås and head of the European division of ATI, a company that sold software to the automotive industry. He had worked with Ludde and was blown away by the young programmer’s talent for analyzing code and quickly building his own programs.

  Ludvig Strigeus was the kind of genius who, as a child, would spend time disassembling household appliances to see how they worked. His mother told a story of how, in kindergarten, he was able to fix a broken dishwasher before the repairman showed up. But the young Ludde also suffered from a tragic medical condition. As a toddler, his parents had noticed that something wasn’t right with his hips. The doctors determined that he had spinal muscular atrophy, an incurable disease that breaks down the body over time. By the time Ludde was eight years old, he was confined to a wheelchair.

  Ludde’s first computer was a Commodore VIC-20. He later inherited a PC, learned to code in Basic, and began creating simple programs and games. In his teens, he became a hacker and, quite famously, cloned Scumm, a popular gaming engine used to build computer games in the late 1980s. Scumm ran on protected source code, which stopped most young coders from looking under the hood. But Ludde was able to analyze the underlying assembler code, which had passed through a compiler and been translated to a language that only computer processors could understand. Line by line, he deciphered the code and translated the information back into a human programming language. It took him several years, but in the end Ludde had built something he called “ScummVM.” Its users could now convert Scumm games into any desired operating system. Ludde then released his clone as open source code so that anyone could contribute. It was a remarkable feat of programming, especially for a teenager.

  Ludde’s youthful antics made him a phenomenal and unconventional programmer. He preferred to code in C++, an older language that was considerably more difficult than popular alternatives like Java and C-sharp. But when used properly, C++ resulted in fast and lightweight programs. In 2005, when Ludde released μTorrent, the entire file weighed only fifty kilobytes, approximately half as much as a low-resolution photograph. It was the kind of stuff that turns hackers into legends.

  Daniel Ek and Martin Lorentzon began to woo Ludvig Strigeus in the summer of 2006. They traveled to ATI’s offices in the Gårda business district of Gothenburg, where Niklas Ivarsson made the introduction. The two founders explained that Spotify’s system would be based on bittorrent technology. They needed his help to build it, and they were willing to buy μTorrent in order to recruit him. They were proposing an “acquihire” long before the term became widely used in the tech world.

  Ludde thought the idea sounded cool enough, but he was hesitant. Spotify’s offer was low on cash, and he already had two American suitors. One was BitTorrent Inc, founded by the programming legend Bram Cohen, who had authored the original protocol. The other was Azureus, who had a competing bittorrent client that was popular, but not as fast as the one Ludde had built.

  Can’t Buy Me Love

  By the early fall of 2006, Ludvig Strigeus felt overwhelmed by his options. Should he sell μTorrent to Spotify and start working there, or accept one of his American offers? The people from Azureus had already flown into Gothenburg to wine and dine him at the Elite Hotel. Representatives from BitTorrent Inc had gifted him a trip to the film festival in Cannes, all expenses paid. All three of his bidders seemed impatient. The problem was too much for Ludde’s analytical mind. There were too many unknown variables.

  Azureus sent a contract full of American legalese that Ludde struggled to comprehend. The ramifications of selling his company to a US operation were making him nervous. After all, his program was being used for illegal downloading. Just a few months earlier, The Pirate Bay had been the target of a police raid in Sweden. What if he, too, was sued? All things considered, Ludde decided to accept the offer from Spotify. It felt reassuring to work for a Swedish company, close to his colleagues.

  In mid-October 2006, Spotify finalized the deal with μTorrent. At the same time, Niklas Ivarsson left ATI to join Spotify. He would soon prove an asset in the difficult negotiations with the record labels.

  Spotify paid Ludvig Strigeus a small amount of cash, and enough shares to make him Spotify’s fourth-largest shareholder.

>   Martin Lorentzon–42.8%

  Daniel Ek–42.8%

  Felix Hagnö–9.5%

  Ludvig Strigeus–4.9%1

  A few weeks after the deal, Spotify sold μTorrent to BitTorrent Inc. Over the years, Ludde’s shares would be diluted as new investors came on board, but his stake was large enough to be valued in the hundreds of millions of dollars by the time Spotify went public.

  Indestructible

  From the start, Daniel Ek knew what he expected of his CTO, Andreas Ehn. Spotify’s client needed to be quick and nimble. There was no room for the types of glitches often found in other media players on the market. The music needed to flow like water from a faucet. Delays due to buffering would not be tolerated at Spotify. It’s “not cool to have to wait,” as an early version of the Spotify.com website put it.

  The plan was to base the system on bittorrent technology. The users would download the Spotify client and offload its own servers by storing parts of the songs on their own hard drives, sharing them with other users in the network. The arrangement would speed up the system and outsource some of Spotify’s broadband expenses. Unlike The Pirate Bay, Spotify intended to share a part of its advertising revenue with artists and record companies. But the founders clearly felt their users shouldn’t have to pay for music.

  “Our service is ad-funded, so it costs you nothing to use,” the website stated, long before the service had been launched.

  Programming chops were paramount to Andreas as he expanded his team. He made one key recruitment in October 2006, when he called Fredrik Niemelä, a 27-year-old doctoral student at KTH, and offered him a job. Fredrik was a soft-spoken computer scientist from Norrland, in the north of Sweden. He sported a ponytail and goatee, and had been captain of a coding team at KTH that would soon win a world championship in programming.

  Fredrik Niemelä would recall how Andreas, over dinner in Stockholm’s bourgeois district of Vasastan, painted a grand vision of Spotify’s future. The goal was to build an “agnostic” streaming platform, Andreas explained. Music was just the first step. After that, Spotify would expand into streaming television, film, and more. They were building a company, sure, but the product would be technically sophisticated, and ideologically akin to the file-sharing movement.