Definitely Maybe I’ll Stay: The Economics of Spotify Wrapped
- Martin Svoboda
- 1 hour ago
- 5 min read
While listening to the iconic Oasis debut album, Definitely Maybe, I realised that Spotify Wrapped had arrived. Without much warning, Spotify released its Wrapped a few days ago, highlighting each user’s most-listened songs and artists of the past year. For die-hard music fans, this day is somewhat special, as it summarises their listening habits and offers insight into the past year in music. Spotify Wrapped has been a phenomenon for the past 9 years, with users posting their statistics on social media or sharing them with friends. The scale is staggering; the 2025 edition alone saw over 200 million engaged users and generated more than 500 million shares within its first 24 hours. At first glance, this seems like a clever, user-focused feature or just smart viral marketing. But in reality, significant economic considerations lie behind it.
The music streaming service market is highly saturated, with major players including Spotify (31.7% market share), Tencent Music (14.4%), Apple Music (12.6%), and others. These streaming platforms are near-perfect substitutes for a general user. While there are subtle differences like subscription packages, user interface, podcasts, music quality, and artist royalties, they generally have the same content. Since these differences are minor, standard theory suggests users should treat platforms as interchangeable and switch whenever another service offers a better deal.
Classical economics predicts that high price sensitivity, combined with low brand loyalty, leads users to switch to platforms offering the best terms. Yet, despite many controversies, Spotify maintains strong customer retention and market dominance. According to the Financial Times, Spotify is also planning to raise its US subscription prices by USD 1 in early 2025. In theory, this price increase should prompt consumers to switch to cheaper alternatives; however, previous price hikes suggest no significant effect on subscription outflows. Contrary to classical predictions, what makes users stick to Spotify so frequently when switching costs are so low? The answer lies in behavioural economics.
Spotify has changed the meaning of switching costs in streaming. When people think of switching costs, they usually imagine contracts, cancellation fees, or hardware lock-ins. Spotify instead uses psychological switching costs. Spotify features such as personalised Daily Mixes, Discover Weekly, and Wrapped are what keep users coming back. Spotify was the first streaming service to introduce a yearly music summary (Wrapped) back in 2016; others, like Deezer or Apple Music, followed suit, and unsurprisingly so. Wrapped uses raw personal listening data as a new lock-in effect. As Dick Clark, a famous American TV personality, said: “Music is the soundtrack of your life.” Spotify archives your listening year, your moods, and even your relationships, and gifts you this annual Wrapped soundtrack. Switching services could provoke loss aversion, as your playlists and listening hours would be lost and no longer count toward your Spotify Wrapped. This reflects the sunk cost fallacy, as your past use irrationally influences your decision to stay, even though it should be ignored when cheaper alternatives exist. That makes leaving Spotify for music fans less a technical decision and more a personal loss.
One alternative to Spotify is Apple Music, which also offers its own listening summary feature, “Replay.” While on paper, Wrapped and Replay are the same, summarising their users' listening habits, the reactions are very different. Apple’s Replay is just purely informational, and the statistics are visible year-round, making the whole experience feel very impersonal. Conversely, anticipation makes Wrapped so special; it creates a stronger personal connection to your listening history. Users value their music taste far more, which explains why the psychological switching costs are so high, a phenomenon driven by the endowment effect. Music fans predict which artists they have listened to most, and are kept in suspense until the moment it is released. Simply put, Apple Music competes on product features, while Spotify competes on emotional attachment, and wins.
While Spotify keeps its users hooked through behavioural factors and personalised features, this is a tactic to frame the collection of private data in a friendly way. When a user opens Spotify and receives their new Daily Mix based on listening habits, or Spotify Wrapped, it’s framed as a gift. Most individuals appreciate these seamless features; nonetheless, they are built on surveillance. One of the main reasons Spotify has this market dominance is the personalisation of the user experience. In particular, Spotify Wrapped uses affirmative language, “Top 0.006% global fan”, turning monitoring into recognition. The fact that listening activity is tracked is often disregarded, even though Spotify follows every skip, play, and pause. Understandably, Spotify has to monitor its users' activity to enhance the app's functionality. However, using only individuals' music habits, Spotify can create a highly granular personality interface that can identify routines and moods. These behavioural logs can often be very detailed and reveal a lot about a specific user.
Unsurprisingly, Spotify is not the first app to track users' activity to improve the experience. By contrast, Facebook’s similar data-collection practices often provoke public backlash. The key difference is framing: Spotify exploits the effect, as listeners react positively to sharing quite sensitive data about their music tastes. In comparison, Facebook doesn't frame data surveillance positively and suffers from past privacy breach controversies. It is essential to acknowledge that the data collected by Spotify and Facebook differ, as the latter contains much more sensitive information. Nevertheless, app activity and listening habits do provide Spotify with plenty of personal information, which they use.
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The economic payoff of using personalised data and effective framing is evident in Spotify’s profitability. In 2024, Spotify recorded its first profitable year, with net profits of around EUR 1.14 billion. While several factors have influenced this, such as steady growth and subscription models, the personalised experience of playlists and Spotify Wrapped plays a significant role. It is important to note that Spotify has faced several controversies in the past few years, including being accused of boosting the visibility of fake AI artists and of failing to pay artists fair royalties. While Spotify has received public scrutiny from a specific group of subscribers, it definitely doesn't extend to the majority of its users. This further solidifies Spotify's position as a market leader, demonstrating the effectiveness of its overall personalisation strategy.
Spotify is a fascinating case study of a tech company that openly uses personal data but, by framing it correctly, doesn't face much public scrutiny. Increasing psychological costs through basic behavioural phenomena in personalised playlists and Wrapped further strengthen Spotify's pioneering position. Spotify Wrapped has become a music sensation and is a vital part of its behavioural schemes. If Spotify successfully maintains this strategy, its dominance will definitely NOT fade away.