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Microsoft's Next Big Acquisition Should Be Spotify

Microsoft has been throwing cash around recently, Nokia, LinkedIn, Minecraft... it's a diverse set of purchases and that's not anything close to an exhaustive list. There's one more purchase it needs to make and that's Spotify.

Microsoft hasn't managed to get significant traction with its Groove Music service - despite the widest platform compatibility list in the game. It needs Spotify's subscribers to boost its position in a market where, excepting only Apple, it has the biggest upsell capability.

With Office 365, Xbox Live and OneDrive subscribers Microsoft has a large cohort of customers already tied into a subscription model. Bundling in a music service makes absolute sense and I believe that's exactly what Amazon is seeking to do with Prime, once it negotiates contracts with rights holders.

So Microsoft has a great reason to buy but why would Spotify sell?

Simply put, Spotify is in a no-win position, despite the success its having in adding subscribers and converting free users to paying ones. No one in the music industry seems keen on the ad-supported service that 70% of Spotify's subscribers use and at a time when the company is looking to renegotiate agreements with the labels that's an awfully large millstone around its neck.

Whereas Apple and Google need make a minimal return from their music services, streaming music is the only business Spotify has. It needs to find a way to make money - something it has failed to do so far - at a time when it's being pressed to hand over a larger share of its revenue to the music industry.

Acquisition by Microsoft would allow it to compete on a level playing field with Apple and Google, and the merger of Spotify and Groove music would boost paying subscribers (even if only slightly) as a proportion of the Spotify user community.

If Spotify continues to bump along as an independent it is only a matter of time before subscriber numbers start to weaken and evidence that the company is heading towards a even more ad-supported model will be all the reason the music industry needs to pull the rug from under Spotify.

Of the potential suitors out there, Microsoft is the best fit. Whether the two can get it on is a completely different question entirely.

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