Ever since Spotify initially launched in the US, they have had a little trouble gaining ground. While I do receive emails every few days that another Facebook friend has joined the service, they have not had a lot of success getting people to pay fir the service, though they do see to inspire users to buy music elsewhere. The goal of monetizing the service has been met with even stiffer competition with the likes of Xbox Music and whatever Apple launches in the aftermath of Ping.
To continue operations, the company has sought another round of funding, this time in the range of $100 million from groups, including Goldman Sachs. This will put the company's valuation somewhere in the $1 billion range, far below their hopes for $4 billion. That is not unexpected, however, in the wake of disasters such as Zynga, Groupon and Facebook. With recent failures like those in your industry, it is always harder to get high valuation.
Despite these issues, Spotify has maintained growth. They currently have 15 million active subscribers in 15 countries, with about a 20% conversion rate to paid membership. Between paid subscriptions and advertising revenue, the company expects to make somewhere in the $900 million range this year. With revenue that high, it would seem the company would be better than ever on its valuation, especially with companies like Square, the mobile payment provider, valued at over $3 billion.
It is an interesting time to be an Internet start-up, with some companies with little to no innovation receiving large capital investments, and others that are wholly innovative receiving significantly less. Spotify will need to find a way to truly differentiate itself from Xbox Music, Apple's coming service, Rdio, Pandora and Last.fm if they want to compete in the over-crowded marketplace.