The music industry has taken some extreme measures to counter piracy, but it hasn't found the silver bullet yet. The key is to come up with a service that will fulfill the needs of music lovers, and one that would even be embraced by the most hardcore pirate. With Spotify, this might just become possible.

Spotify is a music service that gives users access to a huge library of music, through a lightweight application that looks like a mashup of the best parts of iTunes and Last.fm. Music is streamed, partly supported by P2P technology, but it plays instantly, like we’ve never seen before.

One of the software engineers at Spotify is Ludvig Strigeus, the creator of uTorrent. It is therefore no surprise that the application uses very few resources, just 12k memory when we tested it. The rumor goes that some of the money made when uTorrent sold to BitTorrent Inc., has actually been invested in Spotify, an application that competes with piracy.

When we asked Andres Sehr of Spotify to describe the service, he told us “Spotify is a new way of enjoying music. We believe Spotify provides a viable alternative to music piracy. We think the way forward is to create a service better than piracy, thereby converting users into a legal, sustainable alternative which also enriches the total music experience.”

The quality of the music on Spotify is comparable to 160kbps MP3s, which is more than decent for a streaming application. To fill its library, Spotify has cut deals with EMI, Warner Music, Sony BMG and three other major labels, which all responded positively to the new concept. Interestingly, Spotify also uses P2P technology to stream the more frequently accessed tracks.

“Spotify uses a hybrid p2p system where music is delivered both by our servers and using P2P,” Andres Sehr said. “This allows us to deliver the long tail of music which may not be very popular, as well as quickly serve up the latest hits that the majority of users listen to. P2P allows us to both increase the speed that we deliver music and also lower the cost of streaming it.”

Aside from being a music streaming application, Spotify also allows users to create and share playlists with each other, the top 100 tracks of 2008 according to Pitchfork editors for example. On top of that, the Spotify interface helps you to discover new artists with its “similar artists” and “artist radio” feature.

The overall response from Spotify users seems to be very positive, but can it compete with piracy? Time will have to tell, but Spotify invites are actively being traded within the BitTorrent community, and it has even been well received on some of the most elite music trackers.

One user at the music tracker What.cd wrote: “Honestly it’s going to be huge. I’ve been browsing and playing from its seemingly endless music catalogue all afternoon, it loads as if it’s playing from local files, so fast, so easy. If it’s this great in such early beta stages then I can’t imagine where its going. I feel like buying another laptop to have permanently rigged.”

Spotify is not perfect though. One of the mentioned downsides is that it is not compatible with iPods and other portable MP3 players. The Spotify team hasn’t ruled out the option of an iPod compatible version in the future, but for now they will focus on optimizing the Windows and Mac application.

Overall we can conclude that Spotify definitely has potential, but time will tell if it’s able to compete successfully with piracy. Spotify is currently in Beta stage, invites to the free (ad-supported) version can only be used in the UK, Sweden, Finland, Norway, Spain and France, but restrictions usually don’t stop pirates.

Update: We have a few invites left, please remember though that it’s only available in the UK, Sweden, Finland, Norway, Spain and France. Those who’d like to receive an invite, send me an email with “spotify” as subject. According to some of the commentary, an invite is not even needed though.