How Spotify CEO Daniel Ek Got Rich

Swedish-born serial entrepreneur Daniel Ek become the newest member of the tech world's billionaire club this week as his on-demand music streaming platform, Spotify Technology SA (SPOT), hit the public markets in a direct offering. The 35-year-old founder and CEO of the world's leading music streaming service, which competes against tech giants such as Apple Inc. (AAPL), Alphabet Inc. (GOOGL) and Amazon.com Inc. (AMZN), has a roughly 9% stake in the $26.9 billion company, worth about $2.4 billion. 

This isn't Ek's first success. The tech visionary became a self-made millionaire at only 23, before even putting a thought into Spotify. Growing up in a working-class suburb of Stockholm, the self-taught computer programmer started his first business designing and hosting websites for companies. Ek told Sarah Lacy in a 2013 interview that he was generating up to $50,000 in revenues in just a month charging local companies $5,000, leading his income to quickly surpass that of his mechanic father by age 16. (See also: How Jeff Bezos Got to Be the World's Richest Man.)

Around this time, the teenager, who was buying up vintage guitars and video games, became acquainted in online chat rooms with Sean Parker, the founder of Napster, who was later to become an early backer in Spotify. The two entrepreneurs realized that they had talked over the web under aliases in their teen years after Parker sent Ek an email praising Spotify in 2009. 

Ek's endeavors quickly grew his one-man businesses out of his bedroom or his school's computer lab. By the age of 18, he was leading a team of 25 and was forced to incorporate his business after Swedish tax authorities "started asking questions about where all the money came from," Ek told the Financial Times in a 2013 interview. After graduating from high school, Ek did a brief eight-week stint studying engineering at Sweden's Royal Institute of Technology until he decided that he would rather hit the ground running in the tech world. He held leadership roles at a handful of companies including e-commerce platform Tradera, which was later sold to eBay Inc. (EBAY) and as Chief Technology Officer (CTO) at fashion-related online gaming company Stardoll. 

At age 23, Ek "retired" from the business and sold his online marketing company Advertigo to Swedish digital marketing firm TradeDoubler in a deal worth $1.25 million. 

In 2006, tired and unfulfilled by his life in his luxury apartment in Sweden, where he drove his red Ferrari to nightclubs, the entrepreneur decided he was done with that chapter and moved to a cabin in the woods. There, he decided on his next big project. In an interview with the New Yorker in 2014, Ek indicated that his lavish lifestyle made him "completely depressed," realizing that his friends weren't real friends and indicating that "no one teaches you what to do after you achieve financial independence." He teamed up with Martin Lorentzon, the co-founder of TradeDoubler, to work on building a company that merged his two passions of music and technology. The two used the peer-to-peer (P2P) file-sharing internet service Napster as their inspiration, avoiding legal issues around piracy by relying on streaming technology and inking licensing deals with record companies. Spotify's business model differed from other services in that it did not involve charging for song downloads, offering users free music if they were willing to view or or listen to advertising.

In 2008, after two years spent developing the service and convincing record labels and artists to allow their music to be streamed on Spotify, Ek launched the platform to European users. Due to difficulty in obtaining international licenses for music, it took over two more more years for Spotify to finally launch in the U.S., where the company continued to face road blocks including boycotts from high-profile musicians such as Taylor Swift, alongside issues with major record labels and new competitors such as iPhone maker Apple. 

According to the firm's most recent tally, Spotify lists almost 160 million monthly users, including 71 million paid subscribers. Last year, the company raked in approximately $5 billion in revenue, yet lost over $1.5 billion due to the rising cost of music royalties. 

Spotify bulls see the platform as still in its early days, expecting the stock to mirror Netflix Inc.'s (NFLX) stock's impressive run since it hit the public market in 2002. As consumers become more willing and accustomed to paying for "key tech utilities" such as Netflix and Spotify, some on the Street see the music streaming platform doubling its number of premium paying subscribers by 2020. 

"While this is obviously a big day and I’m really proud of my employees, I really just feel like we’re in the early days, not celebrating the end days like so many other companies are doing,” Ek said about the company’s unusual NYSE listing, in which there were no underwriters and no initial public offering (IPO) price was set in advance. “We’re now a decade into that journey. And I really just feel like we’re in the second inning.” (See also: Spotify Stock Offers ‘Netflix-Like Promise’.)