This article is more than 2 years old.

February 23, 2015 This article is more than 2 years old.

This post has been corrected.

India’s startup industry isn’t just about warring e-commerce firms.

Backed by global venture capital and large content libraries, entrepreneurs are now fighting it out on a new battlefield: Digital music.

There were already over a dozen digital music services in the country, when Rdio announced in January that it would enter India. About 10 months earlier, the San Francisco-based startup had acquired Dhingana, an Indian music streaming service.

In November last year, Australian music streaming company Guvera also arrived in India, even as telecom giant Bharti Airtel introduced its own digital music app, Wynk.

All these launches not only mean more competition for homegrown companies like Gaana and Hungama—but also for Saavn, the first international startup to test India’s digital music market around five years ago.

India’s Spotify

Often likened to Spotify—the American digital music behemoth—Saavn began in May 2010 with a catalogue of 150,000 songs, and swiftly pulled in a million users within six months.

Now, as India’s digital music market is heating up, Saavn is switching gears.

In August last year, Saavn signed up Bollywood actor Ranbir Kapoor to become the face of the brand. But Kapoor—featured in Saavn’s television ads in recent weeks—isn’t just a brand ambassador. Instead, his association is termed as a creative partner, where the actor works on “consumer marketing ideation and production, business development and content.”

Two months later, in November, Saavn began a partnership with Indian e-commerce firm Snapdeal, to lure online shoppers on Android phones onto the music service.

And last month, the New York-based startup announced it had 11 million users streaming music every month—and that it hired former Google executive Mahesh Narayanan as the chief operating officer.

With almost 90% of its listeners tuning into Saavn on their mobile phones, the company now plans to launch a “social experience,” perhaps like Facebook and Whatsapp. It already has a Twitter-powered internet radio station.

“Music, messaging and social are king,” CEO and cofounder Rishi Malhotra told Quartz. ”So users aren’t just going to be playing music, they’re going to be playing with music.”

Bullish investors

Although the industry worldwide is estimated to be worth about $9 billion (Rs55,800 crore) in 2014, it touched only $450 million (Rs2,790 crore) in India and other emerging markets in the Asia Pacific region.

There are significant challenges. For one, internet speeds can be sketchy. And second, Indians are the world’s second highest consumers of illegal and pirated music content, worth $64.3 billion, according to marketing consultant Tru Optik Data. Out of this, the illegal music content is worth $298.2 million (Rs1,849 crore).

Still, investors are bullish about digital music websites and apps on the back of the ever increasing number of internet users in the country.

Last year in August, Saavn closed a round of funding estimated at $4 million, led by Hong Kong-based hedge fund Steadview Capital. In an earlier round, the startup raised about $16 million from US-based Tiger Global Management and other investors.

Before all startups…

Saavn started as a movie service in 2006 in the US. The company licensed Bollywood films from India, and brought them onto cable platforms, such as Time Warner, Comcast and Cablevision.

“We were basically selling movies on-demand because we saw a gap in the marketplace,” said Vinodh Bhat, Saavn’s president and cofounder. “That evolved into music.”

Saavn was the first Indian music store on Apple’s iTunes, however Bhat said it was “frustrating because when you work for a third party, you don’t control the end-user experience.”

“There’s a certain way they will merchandise content; a certain way they will promote it; a certain way they will control the playlists,” he explained.

In 2010, the startup decided to hit out on its own and became one of the first companies to bring Indian music to digital space—legally. “We had a partnership with Google India—and so we were the No. 1 organic result when anyone was looking for music. We quickly moved from a few thousand users to up to a million,” Bhat said.

Today, Saavn licenses music with record labels directly.

A data company too

Within India, the company offers English tracks. Outside of the country, it is an only Indian music streaming service.

India’s Spotify for Bollywood music, Saavn even licenses content to the American music store giant. “But what we do is we give a sliver of the catalogue. So when people who want to deep dive, they can only do that on Saavn.”

Although an editorial team of six carefully curates music, creates playlists and ideates genres, Saavn’s secret is an intelligent algorithm—or codes that manipulate playlists on the basis of a user’s likes, dislikes and listening behaviour.

“We’re just as much a data company as a music company, and that’s going to come through in a big way this year,” Malhotra said.

“Streaming music enables us to understand everything from carrier connectivity to label priorities to advertiser needs. It’s an advantage (over other companies that) we have built as a company and modelled after companies like Google,” he explained.

Making money

But there is one persistent hurdle: Indians typically don’t want to pay for content.

Flyte, Flipkart’s music streaming service, was a perfect example. In 2013, the e-commerce firm was forced to shut it down after it failed to take off.

“Even if Apple offers a song for Rs12, people are not buying it in droves,” Bhat said. “The reason is people will not pay for content, but they would pay for access to content—like the 110 million people in India who pay a monthly cable bill for a bouquet of channels.” Therefore, a subscription model attracts users.

Though the company doesn’t reveal its revenue, 80% of money flow is from advertisements, and only the remaining 20% from subscriptions. A Saavn Pro subscription costs $3.99 (Rs248) a month worldwide. At that fee, users can download unlimited songs, and do away with ads. However, the startup has about 100 advertisements, including Apple, Pepsi, SanDisk, Hyundai, Ford, Western Union, AT&T, State Farm Insurance, among others.

What about profits? “We are still investing,” Bhat said.

Correction: Saavn raised an estimated $4 million in funding last year, not $4 billion, as incorrectly stated in a previous version of this post.