Organic Growth Methods | Edexcel A Level Business A2

[Maximum number: 20]

Extract H Spotify's growth When Spotify launched its music streaming service in some European countries on 7 October 2008, few people would have thought that this unknown Swedish-based start-up would eventually grow into the world's most popular music platform. In 2008, music streaming was still in its infancy, accounting for a small fraction of global music revenues. Eventually, Spotify's early entry into the music streaming market would be a move that would pay off. Spotify continues to be the market leader with a market share of 30\% followed closely by Apple Music with 25\% and Amazon Music with 12\%. As Figure 1 shows, Spotify did not grow quickly at the start. However, by 2013 the streaming pioneer had roughly 30 million monthly active users and 8 million premium subscribers. Monthly active users are listeners who are able to enjoy music for free but it includes advertisements. Premium users have access to music streaming with no advertisements included. Since then, Spotify's numbers have continued to steadily grow, reaching 299 million monthly active users and 138 million premium subscribers by the end of June 2020. Spotify went public two years ago and is currently valued at almost $50bn. For the three months ending 30 June 2020, it reported an operating loss of €167m on €1.89bn in revenue, most of which came from premium subscriptions. Spotify's worldwide monthly users (millions)

Figure 1

Extract A adapted from: https://www.bramwellbrown.com/pages/about-us and https://www. bramwellbrown.com/collections/weather-clocks/products/weather-clock-small

Extract B adapted from: https://beta.companieshouse.gov.uk/company/08504514/filing-history

Extract C adapted from: interview with Rob Bramwell, co-founder of Bramwell Brown, August 2020

Extract D adapted from: https://www.bramwellbrown.com/pages/about-us

Extract E adapted from: https://www.bramwellbrown.com/pages/design-intellectual-property

Extract F adapted from: https://www.forbes.com/sites/johnkao/2020/06/17/reimagine-redesign- reorganize--the-starbucks-theorem-for-transformation/\#196ad82df72a and https://www.businesswire.com/ news/home/20200728005948/en/Starbucks-Reports-Q3-Fiscal-2020-Results

Extract G adapted from: https://www.businesswire.com/news/home/20200728005948/en/Starbucks- Reports-Q3-Fiscal-2020-Results

Extract H adapted from: https://www.statista.com/chart/15697/spotify-user-growth/

Indicative content guidance
Answers must be credited by using the level descriptors (below) in line with the
general marking guidance. The indicative content below exemplifies some of the
points that candidates may make but this does not imply that any of these must
be included. Other relevant points must also be credited.
QS: QS8 and QS9
Knowledge, Application, Analysis, Evaluation - indicative content
- Organic growth is expansion of a single business by extending its own
operations using retained profit, loan capital or funded by share capital
- Organic growth can be a safer option than inorganic growth as it relies on
a tried and trusted business model which is clearly working for Spotify
- Spotify is estimated to be worth $50bn so has access to sources of finance
to fund any further expansion
- Organic growth avoids culture clashes with a takeover of a rival streaming
business such as Apple which often happens when inorganic growth occurs
- It can avoid the loss of jobs which often happens when there is a
duplication of resources due to a merger or takeover
- Organic growth can create a more sustainable growth which can build on
Spotify's existing strengths and be less risky in the long term
- However, growth achieved may be dependent on the growth of the overall
market
- Spotify is the market leader with 30% market share, it might be hard to
build further market share due to this
- It is difficult to know how large the streaming market will grow and the
actions of rivals such as Apple and Amazon Music might restrict the growth
of Spotify if organic growth is used
- Organic growth often is a very slow way to grow in comparison with
inorganic growth and shareholders may prefer more rapid growth of
revenues and profits
- Inorganic growth can lead to greater economies of scale due to
rationalisation of duplicate resources
- Organic growth can also lead to a lack of new ideas from outside of the
business which often happens with inorganic growth
- Spotify made a loss of €167m in 2020 so does not have retained profit to
reinvest back into the business and would have to rely on share capital for
expansion
- Figure 1 shows that the bulk of Spotify's users are classed as monthly
active users who do not pay to use the service, which could restrict growth
if Spotify does not look to grow inorganically
- The overall benefits of using organic growth will depend on the culture and
objectives of growth within the business

Level

Mark

Descriptor

0

No rewardable material.

Level 1

1-4

Isolated elements of knowledge and understanding.

Weak or no relevant application of business examples.

An argument may be attempted, but will be generic and fail to connect causes and/or consequences.

Level 2

5-8

Elements of knowledge and understanding, which are applied to the business example.

Arguments and chains of reasoning are presented but connections between causes and/or consequences are incomplete. Attempts to address the question.

A comparison or judgement may be attempted but it will not successfully show an awareness of the key features of business behaviour or business situation.

Level 3

9-14

Accurate and thorough knowledge and understanding, supported throughout by relevant and effective use of the business behaviour/context.

Uses developed chains of reasoning, so that causes and/or consequences are complete, showing an understanding of the question.

Arguments are well developed.

Quantitative and/or qualitative information is introduced in an attempt to support judgements, a partial awareness of the validity and/or significance of competing arguments and may lead to a conclusion.

Level 4

15-20

Accurate and thorough knowledge and understanding, supported throughout by relevant and effective use of the business behaviour/context.

Uses well-developed and logical, coherent chains of reasoning, showing a range of cause and/or effect(s).

Arguments are fully developed.

Quantitative and/or qualitative information is/are used well to support judgements. A full awareness of the validity and significance of competing arguments/factors, leading to balanced comparisons, judgements and an effective conclusion that proposes a solution and/or recommendations.

3.3.2.2a - Organic growth methods question 1