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The Rise of Soundcloud

“If you like it, share it”

The Rise of Soundcloud

Following the death of Myspace and the crackdown on file-sharing in the early noughties, it was hard to predict what the next convenient way to publicly share sounds would be; all before Soundcloud came along. One day the world woke up and suddenly the platform had all changed, raising certain questions. How does the site, which is mostly free to use, balance out financially, does it subsist off premium accounts, where has all the funding money gone and will they ever pay it back? If their business model isn’t tailored to hosting mixes, then what is it? Are they affiliated with the global collecting bodies that provide artists with financial returns via royalties, and how do they manage to subvert this revenue stream for artists?

For some, it might come as a surprise that everyday platforms such as YouTube have a going-price of $1.65 billion (and that was in 2006.) Learning about such major business moves can make reading the news feel like the Antiques Roadshow of the internet; “it’s worth how much? For this old thing?” Indeed, even that dusty old ‘Ask Jeeves’ packed away in the basement was retired with a value of $1.85B in 2005. When it comes to start-ups they seem to either fail miserably or thrive. For something so simple as an embeddable audio player, Soundcloud leapt from 10 million users in January 2012 reaching 180 million people per month by December. If all they want to do is enable us to “create sounds and share them everywhere”, what’s in it for them?

"the longer you wait,
the bigger your
idea needs
to be....”

Since the premium accounts of the past were so expensive and features like branded accounts have only recently become available, SoundCloud needed to look elsewhere for a significant amount of money to provide the service that we’ve come to expect. Venture capital has beefed the company up with some $63.3 million from investors including Kleiner Perkins Caufield & Byers (who’ve also got their hands on Twitter and Flipboard,) Doughty Hanson, and more.

SoundcloudPRO.jpg

A large amount of the investment money has gone towards advertising, equipment, and employees. A site that has ‘10 hours of audio uploaded every minute’ requires some seriously large servers, as well as both technical and creative staff. Given the very nature of venture capital, the investors should be reaping the rewards once a bigger firm either acquires the company, or when it goes public and the venture capitalists can sell their stocks.

Unlike Google and Facebook, SoundCloud actually made a business model before it launched. Showing that they had ideas to make money from the start probably didn’t hurt getting investors, even though it wasn’t originally conceived as a profitable venture. Founders Eric Wahlforss and Alexander Ljung didn’t know how popular their site would get, they just wanted to create something that would be useful and encourage creativity in the music community.

Without incoming revenue a start-up’s growth is financed entirely by venture capital and “…the longer you wait, the bigger your idea needs to be.” The ‘freemium’ model, where all features are free until a certain level where users can pay on a monthly basis, ensured that no one was unable to use the site due to a financial barrier. After a year of experimenting, data-collecting, and adjusting, the SoundCloud team changed the pricing system to better line up with casual and professional usage patterns.

For a site that is growing so rapidly, it seems to be keeping its cool without falling victim to inserting ads at every turn. Its new “Pro” accounts provide extra storage space for those who are serious about posting content. If only the artists are paying while we listen for free, do they benefit somewhere along the line? While platforms like YouTube offer the opportunity to monetize and collect royalty-related money, SoundCloud is a royalty-free platform, which is outlined in its Terms & Conditions. After some major labels complained that SoundCloud was allowing copyright infringements to occur when users uploaded others’ content, they introduced the ‘Content Identification Filter’.

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