
52 segments available
Gustav Söderström, Spotify's Chief Product & Technology Officer, discusses how Spotify is navigating the AI revolution and reshaping its business. He explores how generative AI is transforming user interaction from passive consumption to rich two-way conversations. Gustav shares insights into Spotify's unique "bets process" for resource allocation, the company's journey to profitability after 15 years, and how they're building an R&D department for the music industry. TIMESTAMPS: 00:00 Welcome to Invest Like the Best 1:27 Spotify's Journey Through Technological Shifts 2:28 The Impact of Generative AI on Consumer Products 5:36 AI in Coding and Productivity 7:11 Consumer Engagement and AI Playlisting 10:43 Strategic Frameworks and Decision-Making at Spotify 15:39 The Bets Process: Structured Innovation 27:11 The Future of AI and Business Models 40:31 The Future of AI and Inference Costs 42:21 The Concept of Computronium and Infinite Computing 43:02 David Deutsch and the Beginning of Infinity 44:55 The Power of Explanations and Human Understanding 50:03 Spotify's Free Tier and Consumer Needs 52:45 Spotify's Relationship with the Music Industry 59:03 The Rise of Podcasting and Audiobooks 1:11:45 Personal Interests and Continuous Learning 1:16:32 The Kindest Thing Anyone Has Ever Done For Gustav #Spotify #AI #ProductStrategy #MusicIndustry #BusinessModels #Podcast #Leadership #Tech #Innovation #DataScience #machinelearning #chatgpt #openai #artificialintelligence Presented by Ramp: https://ramp.com/business-cards?utm_s Sponsored by AlphaSense and Ridgeline: https://www.alpha-sense.com/invest/ https://www.ridgelineapps.com/ ****** Patrick O'Shaughnessy is the CEO of Positive Sum. All opinions expressed by Patrick and podcast guests are solely their own and do not reflect the opinion of Positive Sum. This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions. Clients of Positive Sum may maintain positions in the securities discussed in this podcast. To learn more, visit psum.vc
Gustav Söderström discusses the imperative for companies to adapt to the AI revolution, likening it to previous technological shifts like the internet and smartphones. He emphasizes that ignoring these changes could lead to elimination, and shares Spotify's proactive approach to integrating machine learning and data science into their product strategy.
"We always try to reproduce a small part of your near cortex on our servers. Can you describe how you think this will play out? That's why startups are ahead. They don't have to rebuild. We don't have ..."
Söderström reflects on Spotify's early challenges with the rise of smartphones, which forced a reevaluation of their business model. He explains how the shift from desktop to mobile required Spotify to innovate and create a free tier for mobile users, ensuring they could retain a growing user base.
"Yeah, it's it's a great question. I think it is the right description at least in the longer term I think it is AI or die just like it was uh smartphone or die and before that internet or die computer..."
In this segment, Söderström differentiates between traditional machine learning and generative AI, highlighting the shift towards two-way interactions with users. He discusses how generative AI allows for richer user input, fundamentally changing how consumer products like Spotify will operate in the future.
"think this is a similar one. The big question to me is does this require a business model change or is it quote unquote just a product change? The other thing that is different I think about AI is tha..."
Söderström explains how Spotify is leveraging generative AI to enhance user engagement through AI playlisting. He describes the new capabilities that allow users to articulate their music preferences in natural language, leading to more personalized and accurate playlist suggestions.
"people say that AI is just machine learning. It's just a new word. And it's an interesting question. What is the difference? I think the difference between what people used to call machine learning an..."
Söderström discusses the impact of generative AI on coding productivity within Spotify. He notes that while generative AI has transformed how startups write new code, its potential for large companies like Spotify is still unfolding, particularly in areas like code refactoring and peer review.
"you receive versus information you give. And I think if you fast forward 5 to 10 years, almost all big consumer products are going to be a conversation to some extent rather than this service that you..."
In this segment, Söderström explores consumer behavior regarding input in music services. He contrasts the previous reliance on explicit user feedback with the new opportunities presented by generative AI, which allows for deeper insights into user preferences and behaviors.
"interesting side is these other seven hours of what a developer does, which is a lot of communication, planning, working with designers, prototyping meetings, those things I think will actually have a..."
Söderström elaborates on how Spotify uses generative AI to conduct ongoing qualitative user research. He emphasizes the importance of understanding user needs through direct communication, which can now be scaled across Spotify's vast user base.
"like this because of that or even do a thumbs up thumbs down requires you to take up your phone unlock it open Spotify what you can do from your earphone is to skip. So we have the skip signal, but th..."
Söderström outlines Spotify's structured approach to innovation, including strategic frameworks that guide decision-making. He discusses the importance of fostering a culture of open dialogue and reasoning within the leadership team to navigate the complexities of technological advancements.
"like the leadership team the product team and literally how you run the process of deciding what to do with your you have a lot of a big team obviously but no matter what you have limited effort limit..."
Gustav shares insights from David Deutsch's work on 'good explanations' and their role in understanding complex phenomena. He stresses that explanations should be scalable, hard to vary, and provide a deeper understanding beyond mere predictions, which is crucial for Spotify's innovation process.
"cheap to talk. We should actually do a bit more of it if you you know sometimes it takes you to like you know it took the Greeks to the concept of the atom you know so we do a lot of talking and and i..."
Söderström outlines Spotify's 'bets process,' a structured innovation framework where VPs pitch their project ideas every six months. This process encourages a startup-like environment, fostering creativity while ensuring alignment with the company's strategic goals.
"out the why I if it's the difference between pattern recognition and actually understanding something, pattern recognition is useful. That's called seniority. You know, I I love people good pattern re..."
Gustav explains the prototyping phase that precedes the bets process, where teams create tangible prototypes to ensure alignment across the company. This approach minimizes conflicts during execution and leverages Spotify's small size for effective collaboration.
"you're going to be much better at delivering something if you were the one who said, "I can do this than if your boss said you can do this." Right? So, so that's the the process, but leading up to tha..."
In the E team meetings, Söderström highlights the importance of real-time problem resolution. By ensuring all VPs are present, issues can be addressed immediately, fostering a culture of accountability and collaboration that enhances Spotify's operational efficiency.
"that's a combination of sort of cultural input and then a very structured process for actually making it work. I I so many questions about process. The first is how that three-hour meeting on Tuesday ..."
Gustav discusses the balance between execution and strategic planning at Spotify. He emphasizes the need for detailed planning while maintaining agility, ensuring that the company can adapt quickly to changes while executing effectively on its initiatives.
"one thing of this meeting. Uh another principle we have in that meeting except uh nothing goes offline is you actually can't bring uh your direct reports for good and bad. The idea is that if you brin..."
Söderström addresses the complexities of resource allocation within Spotify's bets process. He explains the importance of stack ranking projects and the challenges of ensuring that resources are allocated efficiently without causing internal conflicts among teams.
"Airbnb does something similar. I spoke a lot to Branch Chesky about it. Um I think u Netflix may have have had something similar at the time but they're now sort of divided into content the business a..."
Gustav reflects on the ongoing efforts to improve Spotify's planning processes. He acknowledges the challenges faced in resource management and emphasizes the need for effective planning to support the company's innovative strategies and execution capabilities.
"planning. So then the question is how do you divide it you know into blocks and then we have so the structure we have is we have a platform organization uh that does you know they they work with GCP a..."
Söderström elaborates on Spotify's strategic decision to adopt a super app model, integrating music, podcasts, and books into a single application. He contrasts this approach with the traditional Western model of separate apps for different use cases, emphasizing the importance of distribution and synchronization across teams to enhance user experience.
"to get really good at. And I'm not going to say we're really good but we're getting better all the time. It's the thing that I sort of care the most about making sure that the planning is reasonably b..."
In this segment, Söderström reflects on the impact of AI tools like Cursor on productivity within Spotify. He discusses how these tools are beginning to be used by non-developers, enabling a broader range of employees to prototype and interact with Spotify's services without needing extensive coding knowledge.
"good at doing global changes, like changing the entire UI because we're synchronized, but we're probably much slower than other companies at, you know, quickly trying something because it needs to go ..."
Gustav introduces the concept of the Model Context Protocol (MCP), which allows users to interact with internal services using natural language. He shares examples of how this technology can empower non-developers to prototype features, illustrating a shift towards more inclusive and accessible tools within Spotify.
"bigger part of the pie that sounds like really hasn't been hit too directly yet. There are a couple of things that are interesting that I don't think are super obvious. One is it used to be that you k..."
Söderström emphasizes the necessity of exposing Spotify's extensive data as APIs to enable real-time reasoning by AI tools. He discusses the challenges of integrating legacy data systems with new AI capabilities, highlighting the importance of retooling for future advancements in AI and user interaction.
"think of a company like Spotify has tons of infrastructure you know you have the database with play history going 15 years back you have you know who was in the family plan that's that's one server th..."
In this segment, Söderström speculates on the future of workflows in companies as AI tools become more integrated. He predicts that as AI capabilities expand, the way teams collaborate and prototype will evolve, allowing for more efficient and natural interactions with technology.
"happening. So the combination of now there's a standard MCPS that you can wrap these APIs in and many of these at least us trying to expose all of this data means that a business person a lawyer a pro..."
Gustav discusses the current hype surrounding AI technologies and their actual impact on productivity within large companies like Spotify. He shares insights on how the integration of AI requires significant retooling and adaptation, and he reflects on the potential long-term benefits of these technologies.
"see where it where it's going to land because you're you're somewhere right now, but we're pretty certain that that somewhere is on this curve. So, you can be pretty certain that the workflows you see..."
Söderström explores how technological advancements necessitate changes in Spotify's business model. He emphasizes the importance of adapting to new technologies and finding innovative business strategies that align with these changes, positioning Spotify as a leader in the evolving music and media landscape.
"or something like this, what what score would you give how much this is impacting you so far and and like how crazy this might get? Like people are very excited that this is going to literally change ..."
Gustav Söderström discusses the rapid evolution of technology companies, highlighting how they have transitioned from traditional sectors to becoming ubiquitous technology firms. He reflects on how companies like Amazon and Google have adapted their business models to leverage technological advancements, suggesting that Spotify is similarly positioned to embrace these changes.
"computers internet smartphones ML AI, quantum computing and these gifts keep coming almost on a schedule and they actually come closer and closer. Previously technology companies were not called techn..."
Söderström emphasizes the importance of aligning technology with innovative business models. He explains that while technology can disrupt industries, it is the effective business model that drives large-scale change. He shares Spotify's approach to adapting its business model in response to technological shifts, particularly in mobile and audio streaming.
"Yes, we're a music company and then a podcast company and then a book company and a video company, but it's really about trying to anticipate technology, figure out what it can do and then adapt the p..."
In this segment, Söderström outlines Spotify's strategic innovations in audiobooks and streaming services. He explains how bundling audiobooks into Spotify Premium transformed the market, drawing parallels to the evolution of music consumption. This segment highlights the significance of business model innovation in expanding Spotify's offerings.
"first where we need to figure out a free tier on mobile without cannibalizing our pay tier. And and what we did there was we looked at our data and saw that 50% of premium users were listening in shuf..."
Söderström explores the implications of AI on business models, noting the high marginal costs associated with AI technologies. He contrasts this with Spotify's historical experience of managing marginal costs in its streaming model, suggesting that the company is well-prepared to adapt to the challenges posed by AI.
"was audiobooks where you know there were audio books in the US alle cart um and sure we did some nice innovation around being able to stream that book but the real thing is not stream a book you you'v..."
In this segment, Söderström discusses the potential for increased consumer demand as AI inference costs decrease. He speculates on how this could lead to tiered consumer products based on usage, reflecting Spotify's existing experience with multiple service tiers. This insight underscores the evolving landscape of consumer expectations in the age of AI.
"is a net new thing for Spotify. It's interesting because we're like the one technology company that always had a marginal cost. One more stream was a marginal cost to labels. So we grew up in a world ..."
Söderström shares his thoughts on the future of AI and its potential to revolutionize product development. He discusses the concept of product overhang, suggesting that even with current capabilities, there is still significant room for innovation. This segment highlights the ongoing evolution of technology and its implications for future products.
"see more tiering of consumer products based on how much inference you want, but for us, that's not that new. We've had several tiers already. I'm curious because um I'm an investor in a company called..."
Söderström delves into the concept of computronium and the limitless potential of computing power. He reflects on the philosophical implications of quantum mechanics and how they relate to the future of technology. This segment emphasizes the boundless possibilities that lie ahead as technology continues to advance.
"features that you can't currently do? Like is that a is is that a thing or or do you think we kind of have what we need and therefore inference we could expect to be really cheap? So I both subscribe ..."
In this segment, Söderström discusses his admiration for David Deutsch and his influential works, particularly 'The Beginning of Infinity.' He shares insights from their conversation, focusing on the optimistic view of the future and the potential for human understanding to expand infinitely. This segment highlights the intersection of technology, philosophy, and human progress.
"ever and I think we're going to see exact I I think from a financial point of view um when the cost of something drops the demand usually increases more than the cost than than the drop and I think th..."
Söderström reflects on Deutsch's ideas about the power of explanations and their role in human understanding. He discusses how explanations can scale and the importance of developing robust theories in product development. This segment underscores the value of clear communication and understanding in driving innovation.
"very soon. Um, so I've always been interested because quantum computing is the or or quantum mechanics is the most insane thing on this planet. You know, we live in what we consider this reality. But ..."
In this segment, Söderström elaborates on the characteristics of good explanations as defined by Deutsch. He emphasizes the need for explanations to be hard to vary and compatible with existing knowledge. This discussion highlights the importance of rigorous thinking and clarity in the context of product development and innovation.
"know, I wish I will be like him in that age. But this book uh has a few concepts that I've tried to apply at Spotify and one of them is he talks about the power of explanations and he thinks the human..."
Söderström provocatively asserts that product development is entirely scientific, dismissing the notion of magic. He argues for the importance of clear explanations and theories in guiding product decisions. This segment challenges conventional thinking and encourages a more analytical approach to innovation.
"says that a good explanation has to be hard to vary. This I find very obvious but also very non-obvious to people. So what does he mean with a good explanation has to be hard to vary? He means that fo..."
Söderström shares a pivotal example of how Spotify transitioned from a paid-only mobile tier to introducing a free tier. By analyzing user behavior and leveraging first principles thinking, Spotify identified the need for background listening, leading to the innovative shuffle feature that differentiated it from competitors and fueled explosive growth.
"to force people in my company to try to even if we see something working in an AB test, I try to tell them I don't want to launch it until you at least have a theory of why it works. Even if it's supe..."
Gustav discusses Spotify's unique position as the R&D department for the music industry, highlighting the risks both Spotify and the music industry took to innovate. He reflects on Spotify's journey to profitability after 15 years of investment and patience, emphasizing the importance of collaboration with the music industry to drive mutual success.
"the user need there is probably background listening and then you look at the app store. Is there a way to listen to music for free in the background in the app store? The closest thing was Pandora, b..."
Söderström addresses the complexities of revenue sharing in the music industry, explaining how Spotify's model differs from competitors. He argues that the focus should be on scaling the number of paying subscribers rather than solely increasing per-stream payouts, as Spotify's engagement metrics demonstrate the effectiveness of its product.
"success um as does uh Spotify. I've called my team since you know I joined in 2000 2008 somewhere around 2012 or something. I started saying that, you know, my team, the the the R&D team and and all o..."
Gustav envisions a future where billions of people pay for music, emphasizing the need for Spotify to continue scaling its free tier to convert users to premium subscriptions. He believes that the music industry is undervalued and that its potential for growth is significant, driven by innovative strategies and a focus on user engagement.
"you look at the emerging, it's lower. So the average is 40. But that that's not the average across the world. That's a blend of low and high converting. And so far throughout our history, everything s..."
Gustav Söderström reflects on the transformation of podcasting from a low-status medium to a vital communication tool, especially highlighted during the election period. He discusses how the rise of podcasts has led to a surge in corporate marketing strategies focused on podcasting, emphasizing Spotify's role in this evolution.
"industry is absolutely massive. I just think the music industry it's like undervalued. Terminal is going to be much bigger than it looks. I I'm curious how you're thinking about the podcasting world. ..."
Söderström explains Spotify's strategic decision to enter the podcasting space, emphasizing the company's focus on retention over engagement. He shares insights on how the podcast format aligns with Spotify's mission to provide enriching content, paralleling the experience of listening to music.
"with what happened around the election and the importance of podcasts in the election, it seems as though it it it's hit some tipping point where basically anybody that might make sense to have a podc..."
In this segment, Söderström discusses the importance of long-form content in an age of short attention spans. He argues that deep, meaningful discussions in podcasts provide listeners with a sense of learning and fulfillment, contrasting it with mindless scrolling on social media.
"you. If you're an advertising business model mostly you're going to be steered towards any additional engagement. Fortunately for us, we're mostly a subscription based business model. Um, so we focus ..."
Söderström highlights the market potential of podcasting and audiobooks, noting how Spotify's subscription model allows users to explore content without the high costs associated with traditional purchases. He discusses the strategic advantages of entering a growing market early.
"format. Everything in the world was getting more and more short form. People were bite-sized and, you know, attention spans were going down. And there was this this counterforce which was long form di..."
Söderström introduces the concept of 'nutritious' content, comparing the value of time spent on Spotify versus other platforms. He emphasizes Spotify's goal to be a source of enriching experiences, aligning with the company's mission to promote positive user engagement.
"it was something that was in line with music like if you lose an hour in a deep podcast you come out feeling like you learned something and this is the reason we also went into books u because it's in..."
In this segment, Söderström discusses Spotify's bundling strategy, combining music, podcasts, and audiobooks to enhance user value. He explains how this approach differentiates Spotify from competitors and contributes to the company's growth and profitability.
"leveraging our own distribution, combining it with music, saying that the market is this big right now, but what if we could expose podcast to people who listen to music? Could we grow the market? So ..."
Söderström elaborates on the complexities of Spotify's business models, detailing how different media types interact within the platform. He explains the challenges of predicting user behavior and the importance of a cohesive user experience across various content types.
"philosophical discussion like is this are these good calories? Is this nutritious? This is in line with Spotify's mission of being like the place where you go when you want to feel good about yourself..."
Söderström shares his vision for Spotify's future, aiming for significant growth in user base and content offerings. He discusses the potential for audiobooks to become mainstream and the importance of continuous innovation in Spotify's bundling strategy.
"So the easiest model to think about it is Spotify is a bundle now. You you pay some price or or you have the advertising based tier and you get a bunch of value and our job is to try to increase the v..."
In this segment, Söderström reflects on Spotify's past experiments with exclusive podcast content. He discusses the challenges of exclusivity in a low-cost production environment and the strategic pivot towards a more open platform for creators.
"different business model. Very different business model. I think we may be one of the most complex companies in the world on the back end because we're you know music is a sort of pool based royalty m..."
Söderström emphasizes the importance of adaptability in business strategy. He discusses how Spotify learned from its initial exclusivity strategy and shifted towards embracing a more inclusive approach to content, aligning with the desires of creators and users alike.
"behavior where you click matters and you know we have the personalization that has different impacts in terms of of cost and so forth. So we've had to build a system we call it the Spotify machine and..."
Söderström shares insights into his personal approach to growth and learning. He discusses the importance of staying updated with industry trends and engaging with new technologies to remain effective in his role at Spotify.
"like one thing on the front end and we're many different things on the back end with different different products. If you think about let's say 5 years from now and you dream as big as you can possibl..."
Gustav discusses Spotify's strategic pivot in podcasting, emphasizing the importance of adapting to the evolving landscape of content creation. He highlights how embracing syndication allows creators to reach wider audiences, ultimately improving Spotify's catalog and user engagement. This segment underscores the significance of admitting when a strategy isn't working and the value of flexibility in business.
"uh and they are celebrities but they're not always good podcast hosts and u the podcast hosts that were really good they grew up through this organic system. So you know there there are two ways to be..."
In this segment, Gustav shares his approach to staying relevant in a fast-paced world. He discusses the balance between family time and personal development, including his interests in coding, physics, and philosophy. Gustav emphasizes the need for mental stimulation and how engaging with diverse subjects keeps him excited and prepared for challenges at Spotify.
"do you do outside of Spotify in your life that most prepare you or make you capable to do the best job that you can in Spotify? I think the world is moving very fast. So, a lot of my time is just tryi..."
Gustav reflects on his experiences with Brazilian jiu-jitsu, highlighting the humility and discipline it teaches. He explains how the sport emphasizes technique over strength, providing valuable life lessons about adaptability and control. This segment illustrates how martial arts can foster personal growth and resilience, qualities that are essential in both personal and professional realms.
"um for a very long time. I was never like a big math person in school. I was okay but not great. But I found myself getting very excited about math the older I got. So you as you start reading a bit o..."
Gustav recounts a significant misstep in developing a new user interface at Spotify, illustrating the importance of risk-taking and learning from failures. He shares how the support from leadership allowed him to take bold steps without fear of immediate repercussions. This segment emphasizes the value of structured ideation and the need to focus on inputs rather than just outcomes in the innovation process.
"People probably don't know this because how would they, but Spotify, you and Daniel especially, have been probably the most influential people and certainly the company on me and how I've thought abou..."