Spotify's (SPOT 2.55%) mission is to have one million creators making a living from its music platform and to have billions of people on the platform listening to them. To achieve those goals, the streaming audio giant will need to succeed and win market share in the world's biggest markets. And given that it's operating at something of a disadvantage in China because of the government's preference for local internet companies, Spotify has focused a significant share of its investment on the only other country with more than one billion people: India.

Woman listening to music on her couch.

Image source: Getty Images.

By the numbers

Spotify entered the Indian market in Feb. 2019, and since then, it has made rapid gains there compared to its streaming audio rivals. According to App Annie, at the end of Sept. 2020, Spotify had 42.1 million monthly active users (MAUs) in India -- pulling ahead of local competitor Gaana and just behind market leader JioSaavn. If it keeps up this pace of growth, it should become India's leading music service soon (if it hasn't already).

In its last three earnings releases, Spotify has highlighted the fact that its performance within the Indian market has beaten management's expectations. One way to track that growth -- beyond the reports of third-party services like App Annie -- is to focus on how Spotify's "Rest of World" segment is faring relative to the company as a whole. In the first quarter of 2019, "Rest of World" accounted for 13% of Spotify's overall MAUs, but by the fourth quarter of 2020, it was accounting for 19%. Much of that growth can likely be attributed to India, which shows that the company is attracting users there more rapidly than it is in Europe and the Americas.

So we know that Spotify has been winning over consumers in India, but how has it been doing that? Well, for one thing, the company prices its services there to reflect both Indian consumer habits and download speeds. For example, it just announced that a version of its paid subscription service called "Premium Mini" will be available to Indian customers for about 100 rupees per month ($1.38). It also offers a stripped-down version of its app called Spotify Lite that helps optimize the service for patchy networks in emerging markets. 

Lastly, Spotify is investing in local podcast content to help improve the value proposition of its free service. With India's subscribers paying a fraction of what those in Western markets do for the service, it will be necessary for the company to do more to monetize that market through advertising. Podcasts should be a big part of that push.

India's streaming potential 

Why is India so crucial for Spotify? Well, the country is projected to have a population of close to 1.5 billion people in 2025, and streaming is already the preferred choice for music listeners there with a 73% share of recording industry revenue. Smartphone usage is also soaring in the country. In 2017, only 23% of the Indian population used a smartphone -- by 2022, 36% are expected to have one.

These numbers highlight the size of Spotify's opportunity in India. The service is riding a giant tailwind from the growth in music streaming and smartphone penetration in the country. If it can maintain its growth against the competition, the service could reach 150 million or even 250 million MAUs some time in the next decade, while Spotify may already be getting close to market saturation in Europe and North America. And with a leadership position in the Indian audio streaming market, the service will reach management's goal of one billion users sooner than many investors think.