Spotify

Instacart

Spotify

Spotify operates on a freemium model. The free tier is ad-supported — users listen with periodic audio and display ads.

Spotify Premium costs $11.99/month (individual) for ad-free listening, offline downloads, higher audio quality, and on-demand playback. Family ($19.99/month) and Student ($5.99/month) plans drive additional subscriptions.

Duo ($16.99/month) covers two people.

The economics are challenging by design. Spotify pays roughly 70% of revenue to rights holders — record labels, publishers, and distributors.

This means for every dollar Spotify earns, about 70 cents goes back to the music industry before Spotify pays for anything else. Gross margins have historically been around 25-28% — razor thin compared to software companies that keep 70-80%.

Podcasting was supposed to fix the margin problem. Spotify spent over $1 billion acquiring podcast companies (Gimlet, Anchor, Parcast) and signing exclusive deals (Joe Rogan for reportedly $200 million+).

The logic: podcasts don't have the same royalty obligations as music, so margins are dramatically better. Results have been mixed — podcasting revenue is growing but hasn't transformed the overall margin structure yet.

Instacart

Instacart operates as a marketplace connecting consumers with personal shoppers and grocery retailers. Revenue comes from multiple streams: delivery fees and service fees charged to consumers (typically $3.99+ per delivery), tips to shoppers (passed through, not revenue), retailer partnerships (grocers pay Instacart for access to the platform and fulfillment services), and advertising.

Advertising has become the crown jewel. Instacart Ads lets consumer packaged goods (CPG) brands like Coca-Cola, Procter & Gamble, and Nestlé pay for sponsored product placements within the Instacart shopping experience.

When someone searches for "chips," Doritos can pay to appear first. This is incredibly valuable because it's advertising at the exact moment of purchase intent.

Ad revenue was $871 million in 2023 and crossed $950 million in 2024.

The retailer partnership model is key. Unlike DoorDash or Uber Eats (which listed restaurants without permission early on), Instacart works with grocers as partners.

Over 1,500 retail banners including Costco, Kroger, Albertsons, and Publix have formal partnerships. Instacart provides the technology and shoppers.

Grocers provide inventory and stores.

Spotify

Daniel Ek was a teenage tech prodigy in Stockholm who had been running web businesses since age 14. By his early twenties, he'd already made money from several ventures and retired briefly at 23 — then got bored.

Martin Lorentzon, co-founder of the digital marketing company Tradedoubler, was looking for his next venture. They met and bonded over a shared observation: people were pirating music because paying for it was terrible, not because they didn't want to pay.

In 2006, the music industry was in freefall. Napster had been shut down, but LimeWire, BitTorrent, and dozens of piracy tools had taken its place.

CD sales had dropped 40% from their peak. The record labels' strategy was suing individual downloaders — literally taking grandmothers to court for sharing files.

It wasn't working.

Ek and Lorentzon founded Spotify in 2006 with a radical proposition: make a legal streaming service that was better than piracy. Faster, easier, higher quality, and free (with ads) or cheap (with a subscription).

The technical challenge was making songs play instantly — no buffering, no lag. Ek's engineering team built a peer-to-peer caching system that made playback feel instantaneous.

They launched in Sweden in 2008, expanded across Europe, and finally reached the US in 2011 after two years of negotiating licensing deals with major labels.

Instacart

Apoorva Mehta was a 26-year-old Amazon engineer in Seattle who quit his job in 2012 to start a company. The only problem: he had no idea what to build.

Over the next year, he started and abandoned roughly 20 different projects. A social network for lawyers.

A way to track restaurant wait times. Nothing stuck.

Then one day he was too lazy to go grocery shopping. He looked for a service that would shop for him and deliver everything to his door.

Nothing good existed. The existing options were grocery store delivery services that only worked during specific windows, had limited selection, and required ordering days in advance.

Mehta wanted to order groceries the way he ordered everything else online — immediately, from whatever store he wanted.

He built a prototype in 2012 and applied to Y Combinator. The demo was rough — he ordered a six-pack of beer through the app and had it delivered to a YC partner's house during the application process.

It worked. He got in.

Instacart launched in the San Francisco Bay Area in 2013 with a simple promise: order from your favorite local grocery store and have someone shop for you and deliver within an hour.

Spotify

Spotify grew by being better than piracy. The free tier was the Trojan horse — give people unlimited legal music for free, then convert them to paying subscribers over time.

The conversion rate from free to Premium hovers around 40%, which is extraordinary for a freemium product.

Playlist culture became the growth engine. Spotify didn't just offer music — it offered curation.

Discover Weekly, Release Radar, and editorially curated playlists like RapCaviar became cultural institutions. Getting on a major Spotify playlist could make an unknown artist famous overnight.

This gave Spotify power over music discovery that radio stations used to have.

International expansion was methodical and effective. Spotify launched country by country, negotiating local licensing deals and adapting content.

They're now in 184 markets. In markets where piracy was rampant (Latin America, Southeast Asia), the free tier was particularly effective — it gave people a legal alternative that felt just as good as stealing.

Instacart

Instacart grew by solving a problem one city at a time. They launched in San Francisco, proved the model, then expanded to other major metros.

Each new market required recruiting shoppers, signing up retailers, and building enough consumer density to make the economics work.

The COVID-19 pandemic was the inflection point. Grocery delivery went from luxury to necessity overnight.

In March 2020 Instacart announced it would add 300,000 shoppers, then raised that by another 250,000 weeks later. Order volume increased 500%.

Years of planned growth happened in weeks. The pandemic proved that grocery delivery wasn't a niche — it was the future of how a significant chunk of the population would shop.

The enterprise play is the long-term moat. By providing white-label technology to grocers, Instacart becomes embedded in their operations.

Even if a grocery chain wanted to build its own delivery service, they'd need years and hundreds of millions to replicate what Instacart provides. The more deeply integrated Instacart becomes in grocery operations, the harder it is to rip out.

Spotify

The music label dependency is structural and permanent. Universal Music Group, Sony Music, and Warner Music control roughly 70% of all music.

Spotify cannot exist without their catalogs. This gives the labels enormous leverage in licensing negotiations.

They can (and do) demand higher royalty rates, and Spotify has limited ability to push back. Spotify's margins are essentially set by the labels.

Artist relations are perpetually contentious. Taylor Swift pulled her music from Spotify in 2014 (she returned in 2017).

Artists regularly complain about low per-stream payouts — at $0.003 per stream, an artist needs roughly 350,000 streams to earn the equivalent of a minimum-wage monthly salary. The "Spotify doesn't pay artists fairly" narrative is a constant PR headache, even though Spotify has paid over $40 billion to rights holders cumulatively.

Apple Music is the premium competitor. Apple bundles Music with its hardware ecosystem and Apple One subscription.

They pay slightly more per stream and don't have a free tier diluting revenue. Apple doesn't need Music to be profitable — it's a retention tool for the iPhone ecosystem.

Spotify has to be profitable as a standalone business, which is fundamentally harder.

Instacart

The post-COVID hangover was brutal. After pandemic demand normalized, growth slowed dramatically.

The company's valuation dropped from a peak of $39 billion in early 2021 to about $10 billion at IPO in September 2023. Investors who bought at the peak saw a 75% paper loss.

The narrative shifted from "essential infrastructure" to "nice-to-have luxury."

Unit economics are perpetually tight. Paying a person to walk through a grocery store, pick items, bag them, and drive them to someone's house is expensive.

Unlike meal delivery (one restaurant, one bag), grocery delivery involves dozens of items per order, refrigeration requirements, and substitution decisions. Every order that requires a shopper to call the customer about an out-of-stock item eats into efficiency.

Amazon is the existential threat. Amazon Fresh, Whole Foods delivery, and Amazon's own logistics network represent a competitor with nearly unlimited resources and a Prime membership base of 200+ million.

Amazon has been willing to lose billions on grocery delivery to build market share. Instacart's advantage is retailer partnerships — Kroger and Publix use Instacart specifically because they don't want to help Amazon dominate grocery.

Spotify

Spotify Premium — the flagship subscription with ad-free music, offline listening, and on-demand playback across 184 markets worldwide. Spotify Free — the ad-supported tier that serves as the world's largest music discovery and conversion funnel.

Spotify for Podcasters (formerly Anchor) — the platform where creators host, distribute, and monetize podcasts. Hosts over 6 million podcast titles.

Spotify Wrapped — the annual personalized year-in-review feature that goes massively viral every December. Essentially free global marketing.

Discover Weekly — an algorithmically generated playlist delivered every Monday with 30 personalized song recommendations. Over 8 billion streams since launch.

Instacart

Instacart Marketplace — the core platform where consumers order groceries from 80,000+ stores for delivery or pickup, with personal shoppers fulfilling orders. Instacart+ — subscription service ($9.99/month) offering free delivery on orders over $35, reduced service fees, and credit back on pickup orders.

Instacart Ads — a retail media platform letting CPG brands run sponsored product listings, display ads, and coupons within the shopping experience. Instacart Platform (Enterprise) — white-label e-commerce technology that lets grocers build their own online ordering and fulfillment powered by Instacart's infrastructure.

Caper Cart — AI-powered smart shopping carts (from the 2021 Caper AI acquisition) with built-in screens, barcode scanners, and payment that let shoppers skip the checkout line.

Spotify

Tencent invested $1 billion and holds a significant stake through a share swap arrangement. Technology Crossover Ventures led early rounds.

Accel Partners, Kleiner Perkins, and Goldman Sachs participated in growth funding. DST Global invested pre-IPO.

Spotify went public through a direct listing in April 2018 (not a traditional IPO — no new shares were sold, existing shares just started trading on the NYSE). The reference price was $132 a share, it opened at $165.90, and closed the first day worth about $26.5 billion.

Instacart

Sequoia Capital was an early and consistent backer. Andreessen Horowitz invested in growth rounds.

D1 Capital Partners led the 2021 round that valued Instacart at $39 billion. Existing investors including Valiant Capital, T.

Rowe Price, Fidelity, and Tiger Global participated across rounds. Y Combinator was the starting point (Summer 2012 batch).

The September 2023 IPO on NASDAQ priced at $30 per share, valuing the company at approximately $10 billion.