The FDI angle:

  • Spotify announced plans to cut 17% of its global headcount on December 4.
  • In recent years the music streaming subscription service opened offices around the world through foreign direct investment (FDI) projects.
  • Why does this matter?The long-term impact of this FDI has been put into question after total job cuts to 2,300 people this year.

The iconic modernist Adelphi building on London’s Embankment is home to more than just Art Deco features. Since a lavish opening with performances by musicians Joy Crookes and Dermot Kennedy in February 2020, it has hosted Spotify’s UK headquarters. 

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Across two floors, the Swedish audio streaming platform has created nearly 300 jobs devoted to research and development (R&D), making it one of its largest tech hubs globally. But this week, the office had a more sombre undertone than its star-studded opening. 

Spotify announced on December 4 it will cut 17% of its global workforce in its third round of layoffs in 2023. CEO Daniel Ek said in a note to employees that this was to “rightsize” costs after significant team expansion due to lower-cost capital in 2020 and 2021. This reflects a broader unwinding of pandemic-era over-hiring across the tech industry.

The company declined to comment further on how its latest cuts will impact their workforce by region or function. Company data shows that before layoffs began in 2023, Spotify had invested more heavily into R&D teams and projects than any other department.

Almost half of Spotify’s global full-time workforce of 8359 were employed in R&D at the end of 2022, according to the company's financial statements. This was 31% higher than a year earlier and double its R&D team’s size in 2019.

Last year, Spotify’s R&D costs jumped by 52% to around €1.38bn, equivalent to 12% of revenue. While this partially reflects a jump in foreign exchange costs due to stronger US dollar, two-thirds of the increased R&D expenses was due to personnel-related costs.

Spotify’s latest financial results show the company is on track to surpass this figure in 2023. In the first nine months of the year, Spotify’s R&D expenses amounted to €1.26bn — higher than any other department such as sales and marketing (€1.1bn).

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More tech-related data trends:

“We invest heavily in R&D in order to drive user engagement and customer satisfaction on our platform,” read Spotify’s latest financial statement. The company believes R&D helps drive organic growth in monthly active users and retention of its 226 million premium subscribers worldwide. 

The latest layoffs have impacted Spotify employees across numerous teams including leadership, product, engineering and marketing, according to people familiar with internal discussions and posts on Blind, an anonymous tech forum.

“Today, we still have too many people dedicated to supporting work and even doing work around the work rather than contributing to opportunities with real impact,” wrote Mr Ek in his note. Rather than making smaller headcount reductions throughout 2024 and 2025, Mr Ek decided “substantial action” was needed.

Alongside its big bets on podcasts and audiobooks, Spotify’s R&D investment reflects a need to innovate in an evolving and competitive music streaming market that includes Apple, Amazon and Tidal.

“The model of the music industry itself, outside of live, is changing monthly,” says Rich Melville, the CEO of Starscream Communications, a PR agency for audio brands and artists. 

For instance, TikTok now plays an increased role in the way music is discovered. “The innovations lie at a tech level, a brand level and a race to show more real support for artists,” adds Mr Melville.

Despite its recent hiring spree in engineering and focus on R&D, Mr Ek’s layoff letter did not once mention technology or artificial intelligence (AI). This is in contrast to an increasing number of Spotify’s AI-enabled features through partnerships with Google, Open AI and other tech juggernauts. As the dust settles on its latest set of layoffs, observers will question whether Spotify’s grand London R&D hub will ever be the same.

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