Digital Marketing Case

SoundCloud.com: Will the cloud burst?

By: Ashish Thakur Submitted to:

Dr.Ankit Kesharwani
16BSPHH01C1262
Section A
 Soundcloud.com: Will the cloud burst?

What is SoundCloud ?
SoundCloud is an online audio distribution platform based in Berlin, Germany, that enables its users
to upload, record, promote, and share their originally created sounds. Founders Alexander Ljung and
Eric Wahlforss are the chairperson and chief product officer (CPO), respectively.
Swedish sound designer Ljung and Swedish artist Wahlforss established SoundCloud in Berlin in
August 2007. The founders aspired to allow musicians to share recordings with each other, but the
concept later transformed into a full publishing tool that also allowed musicians to distribute their music
tracks.
A few months after inception, SoundCloud began to challenge the dominance of Myspace as a platform
for musicians to distribute their music by allowing recording artists to interact more nimbly with their
fans.
In a 2009 interview with Wired, Ljung said:

“ We both came from backgrounds connected to music, and it was just really, really
annoying for us to collaborate with people on music—I mean simple collaboration, just
sending tracks to other people in a private setting, getting some feedback from them, and
having a conversation about that piece of music. In the same way that we’d be
using Flickr for our photos, and Vimeo for our videos, we didn't have that kind of platform
for our music. ”

In April 2009, SoundCloud received €2.5 million funding from Doughty Hanson Technology Ventures.
By May 2010, SoundCloud announced it had one million users.

In January 2011, it was confirmed that SoundCloud had raised a US$10 million funding round
from Union Square Ventures and Index Ventures. On 15 June 2011, SoundCloud announced they had
five million registered users, and investments from Ashton Kutcher and Guy Oseary's A-Grade Fund.
On January 23, 2012, SoundCloud announced on their blog that they had 10 million registered users.
By May 2012, the company at a press conference held in San Francisco, where a new version of the
API was previewed, announced 15 million users. The usage level for the site was growing by 1.5 million
users per month at this stage.

The new API was released to the public in December 2012. To accommodate the proliferation of mobile
devices, it provided new features such as: redesigned profiles; more sharing options; real-time
notifications; continuous play, which allows concurrent listening and site navigation; the ability to
create personal collections/sets; and the addition of real-time indexing to search. The response from
users was mixed, and many expressed dissatisfaction with the change. SoundCloud received over
60,000 comments regarding the new layout by 10 December 2012. Also in December 2012, the
company's data showed that SoundCloud was reaching 180 million people per month—8 percent of the
global Internet—while users were uploading 10 hours of content every minute.

In March 2013, Twitter announced SoundCloud as a third-party music partner, alongside iTunes, in
developing the Twitter's first integrated music app. However, the initiative never eventuated;
SoundCloud's inability to load licensed music—due to the absence of arrangements with the major
music labels—was cited as a major reason. By July 2013, SoundCloud's registered users had quadrupled
in number from the beginning of the previous year, with a total of 40 million, and an additional 20
million listeners were using the service on a monthly basis.

Subscription Service
SoundCloud Pro: SoundCloud offers premium services for musicians under the banner SoundCloud
Pro for $7/month or $63 /year. The SoundCloud Pro service allows users to upload up to six hours of
audio, and adds additional features such as enhanced analytics, and the ability to disable comments on
tracks.

SoundCloud Pro Unlimited: Unlimited upload time with $15/month or $135/year plus extensive stats
and access to millions of songs.

SoundCloud Partner: Free subscription with just 3 hours of upload time and basic stats of the account.

Features:
Among SoundCloud's key features is the ability to access uploaded files via unique URLs, thus allowing
sound files to be embedded in Twitter and Facebook posts.
Registered users are allowed to listen to unlimited audio and may upload up to 180 minutes of audio to
their profile at no cost.
SoundCloud distributes music using widgets and apps. Users can place the widget on their own
websites or blogs, and then SoundCloud will automatically tweet every track uploaded.
SoundCloud depicts audio tracks graphically as waveforms and allows users to post "timed comments"
on specific parts of any track. These comments are displayed while the associated audio segment is
played.
Users are allowed to create playlists (previously known as "sets"), and to "Like", "Repost", and "Share",
to "Follow" another user, and to make complimentary downloads of their audio available.
SoundCloud's API allows other applications or smartphones to upload music and sound files, or
download files if the user has permission to do so.This API has been integrated into several applications,
including GarageBand, Logic Pro, and PreSonus Studio One DAW.
SoundCloud supports AIFF, WAV, FLAC, ALAC, OGG, MP2, MP3, AAC, AMR, and WMA files. It
then transcodes them to MP3 at 128 kbit/s for streaming purposes.
SoundCloud into deep trouble:
Music streaming is an extremely tough business that is dominated by big companies willing to treat it
as a loss leader. But one of the most troubled smaller services—SoundCloud—made its fragile position
worse through a long series of technical flubs and tactical missteps.
SoundCloud built itself by making online music hosting easy for independent musicians. But it has been
losing huge amounts of money in recent years, missed multiple acquisition opportunities, and recently
closed two offices and laid off 173 staffers. The company has insisted that it's not in danger of shutting
down anytime soon, and CEO Alex Ljung recently reported that revenue has doubled over the last 12
months. But its challenges are clearly substantial.
According to musicians and labels interviewed by The Verge, SoundCloud’s troubles began as early as
2012. That’s when the service introduced a reposting feature that, thanks to a design flaw, opened the
floodgates for promoters to manipulate listeners’ feeds with music they didn’t actually like. The
company didn’t try to correct the problem until 2015, while also doing little to rein in music publishers
paying third parties to inflate listens and likes. SoundCloud reportedly still has few tools for curbing
such abuse.
SoundCloud was also slower than its competitors to work out deals with major labels that would have
attracted more listeners. Spotify, which expanded to the U.S. in 2011, offered a full catalog and now
has 50 million paid subscribers. SoundCloud didn’t launch a paid service for listeners until 2016, and
its catalog was relatively skimpy. The company hasn't disclosed its subscriber numbers, but the premiere
of a budget-tier service earlier this year doesn't imply much success.
And the major label deals came with strings attached. According to the Verge's sources, SoundCloud
was pressured to aggressively clamp down on musicians using music copyrighted by others—a common
practice in the site’s early days, when remixes helped fuel its popularity. SoundCloud’s copyright
monitoring system also reportedly issued frequent false warnings and takedowns.
On top of those headaches, artists increasingly found that SoundCloud’s competitors let them earn more
money from their music, leading many to focus their efforts elsewhere.

Hired just to be laid off

SoundCloud holds one of the most differentiated products in streaming music thanks to its repository
of user-created songs uploaded by amateur and semi-professional musicians. That content, including
unofficial remixes and hour-plus DJ sets, is missing from the top streaming competitors like Spotify
and Apple. At the same time, this content comes with copyright problems and SoundCloud has had
trouble monetizing it.

Despite the startup’s financial troubles, Ljung told those in attendance at the all-hands meeting he was
adamant about SoundCloud staying independent and there’s no intention to sell the company. That
hesitation may have cost a lot of people’s jobs.

One of the facts that was most frustrating to SoundCloud staff was that the company continued hiring
people into positions that would soon be eliminated, with some workers joining SoundCloud as little as
two weeks before the layoffs. Several new hires had quit other jobs, sold their homes, abandoned rights
to permanent residency and uprooted their lives in other countries to join SoundCloud’s Berlin office.
During the all-hands, it was revealed that SoundCloud had known for months that it had to lay off a
large number of people, yet didn’t properly inform the team that it should be cutting costs. “The
investors said it was part of the conditions” one source said were in reference to the $70 million debt
funding SoundCloud received in March from Ares Capital, Kreos Capital and Davidson Technology
after it failed to raise $100 million in venture funding.
Some of SoundCloud’s offices had catered lunches twice a week and had lavishly stocked kitchens and
bathrooms, according to a source. When team members joined, they were given company swag,
headphones and brand new Apple laptops. Employees were confused how the company was “blowing
through money, but now is saying they don’t have any money. People would have made sacrifices, to
be honest. It’s a fun company to work at, but there was no indication.”

A core question from staff during the all-hands was why there wasn’t transparency into the finances or
a strict hiring freeze. The message from management was that a hiring freeze would show weakness
and lead to people asking questions. That wasn’t satisfying when the company ended up shedding
almost half its staff.

Focus on Independent Creators

It’s been almost three years since SoundCloud updated its user stats, though it still touts that 175 million
people listen every month. Yet some analysts believe it to have sunk to as low as 70 million.
Growth of SoundCloud’s subscription services also hasn’t been worth announcing, but the company
plans to change its focus.

SoundCloud has a free tier with ad-supported access to 120 million songs, largely from lower-quality
independent artists. Its $7 per month SoundCloud Pro subscription removes the ads and offers offline
listening. And its $15 per month SoundCloud Pro Unlimited tier adds access to 30 million premium
songs from big-name artists like what you’d find on Spotify or Apple Music.
Like other streaming services, SoundCloud has to pay a huge percentage of revenue it earns off Go+
premium songs to the record labels. Spotify pays out around 70 percent, for example. Its margin is much
better on the user-generated music uploaded to its service. Only a small percentage of creators is eligible
for ad and subscription revenue share payouts from SoundCloud, and it pays them a much smaller cut
than it does to labels for premium music.

Even at half the price of Go+, the higher-margin Go tier subscriptions could earn SoundCloud sizable
revenue.

SoundCloud needs enough subscribers and ad listeners so payouts are high enough to lure the best
artists who aren’t on major labels. But it needs the best artists’ content in order to seduce those listeners.
Meanwhile, its free tier works fine for most occasional listeners, so beyond synced downloads and
skipping a few ads, there’s not much reason to upgrade to $7 per month.

And the recent layoffs make everything tougher. Our sources say there were deep cuts to the
revenue/monetization and creator relations teams. Beyond closing the San Francisco and London
offices, there were significant layoffs in the New York office. The planned rollout of SoundCloud Go
subscriptions in South America may be delayed, though some staffers are unsure it will happen at all.

Royalty distribution platforms like Dubset threaten to make some of SoundCloud’s most unique content
like remixes and DJ mixes available on Spotify and Apple Music. Those services have continued to
rapidly grow thanks to sleek and frequent redesigns while SoundCloud’s clunky interface falters. “Even
at SoundCloud, people secretly listen to Spotify because it’s easier,” one employee said.
Can this internet record collection be saved?
After 10 years and raising well over $200 million, SoundCloud has failed to build a sustainable
business off “the YouTube of music.”

If SoundCloud wants to survive, it may need to accept that it should sell to some more
established company that could do better managing and monetizing it. YouTube grew into a
content juggernaut, but it might never have made it that far without Google’s help.

SoundCloud must get much more aggressive about identifying its differentiated value —
independent musicians — and drop any business like GO+ where it can’t keep up. It would
need to deepen its relationship with creators and offer more tools to get them paid, like the
booming monthly subscription patronage platform.

The fate of the world’s biggest collection of bedroom remixes, garage recordings, living room
podcasts, basement DJ sets and all other manner of home-made sound is at stake. The death of
SoundCloud would be a sad blow to the independent musicians who are scraping by as it is.
And the sale to an exploitative corporation that sees music as at best a side hustle and at worst
a loss leader could ruin this canvas for sonic creation.

That’s why it’s so worrisome that one employee of SoundCloud concluded “There’s no
strategy.”

SoundCloud may still appeal to basement musicians just looking for some exposure, and
diehard fans looking for the next big thing. But if it can't correct course and keep more serious
creators engaged, it will be left with less and less to attract the broader listener base it
desperately needs.
SoundCloud listener subscription pricing (Old Plans)
SoundCloud listener subscription plan (New Plans)
Sources:
www.soundcloud.com
www.djmag.com
www.musically.com
www.financialtimes.com
www.oneadviseresearch.com