List of online music databases

Why Spotify deserves the hype

July 14, 2011: 11:49 AM ET

One of the most innovative online music services to come along in years has finally hit the States. Here's why you should be excited. (Hint: no monthly listening cap for free U.S. users.)

FORTUNE -- Yes, America, Spotify is finally here.

After nearly two-and-a-half years of promises and speculation, the music streaming service opened up shop in the U.S earlier this morning and already promises to potentially transform the way U.S. listeners consume music.

Currently, the service will be invite-only, but as CNN reports, will open itself up to all users in the coming weeks. The select number of lucky users, many of whom pre-registered prior to the launch and can log in now, will find many of the same features some 10 million European users have been enjoying since co-founder and CEO Daniel Ek launched the service back in October 2008.

The simple, legal "all-you-can-eat" music service has made waves in parts of Europe with an innovative freemium model that lets users listen to over 15 million tracks for free -- a stark contrast to competitors like Rhapsody that require upfront monthly paid subscriptions. Spotify in the U.S. will offer three distinct tiers: a free ad-supported service, which unlike the current European version will not enforce a monthly listening cap for now, a $4.99 ad-free version, and a $9.99 "Premium" plan that that also lets users stream and store songs to mobile devices.

Spotify CEO and co-founder Daniel Ek. Photo: Robert Marquardt/Getty Images

"The essential feeling we wanted to create was to have all of the world's music available at your fingertips," Ek told Fortune recently.

To that end, Spotify is wicked fast, and snappier than Apple's (AAPL) iTunes which asks users pay upfront and wait to download tracks before they can listen to them in their entirety. Spotify users, whether they're paying $0 or $10, don't have to wait: click on the song or album, and it streams instantly from "the cloud."

Also important to Ek was that free, ad-supported tier. In opening up the company's entire music catalog to users without them having to pay a cent, he believes they'll listen to and discover more songs, albums, and artists and eventually get so hooked they'll want to go "Premium." That seems to be the case so far. To date, Spotify reaches more than 10 million users -- 750,000 of which are paying customers -- and many of them remain fiercely loyal advocates of the service.

I've used Spotify's Premium service for two weeks now, and it's not hard to see why. The interface is clean and easy-to-pick up -- even for an easily-confused tech guy like myself -- and Ek's promise of a snappy user experience is accurate. Songs stream instantly whether over WiFi or 3G. If you create a music playlist on the desktop app, it's automatically added to your mobile device (and vice versa), and stays synchronized when you add or drop songs. And the ability to make songs available for listening offline (read: store them on your mobile device) without having to purchase each and every track individually is great for someone like me who relies a lot on public transportation or just runs into crappy AT&T reception all the time. The "People" sidebar, populated by my Facebook friends, has actually proven handy, letting me listen to entire playlists of theirs, find new tracks I like, and share them with other users. And with no listening cap currently for U.S. users of the free tier, I imagine that many others will find lots to like, too. (According to Kenneth Parks, Spotify's Chief Content Officer & Managing Director for North America, the company didn't want a listening cap to limit user engagement and may wait six months to decide about when and whether to enforce such a cap.)

Spotify's European popularity, along with a recently-announced partnership with Facebook, could also explain why it's so optimistic about its U.S. operations: the company reportedly expects to reach 50 million American users in its first year here.

With a number of similar services like Rhapsody and startup Rdio already entrenched in the U.S., the big question moving forward will be whether Spotify gains significant traction domestically and if that extremely ambitious userbase goal is realistic.

But it's worth noting that just because a service is first (or even second) to the race doesn't necessarily mean there isn't room for healthy competition from a late entrant. In the social space, Facebook remains far and away the social networking champ with some 750 million active users, but Google +'s (GOOG) rapidly growing userbase -- an estimated 10 million and counting by one third-party estimate -- since last month's launch proves people, at least when it comes to tech, will be open to and interested in features from services like Spotify done right.

To learn more about Spotify's future plans, register to watch next week's Fortune Brainstorm Tech conference in Aspen, CO, where Ek will join Fortune Managing Editor Andy Serwer for a discussion on July 21.

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