by : April 2014, Business

A Note on SoundCloud

A Note on SoundCloud

SoundCloud is one of the leading sources of audio sharing on the net, with 250 million active monthly users up from just ten million two years ago. The user base is quarter of Facebook’s. Moreover, each passing minute it purportedly adds twelve new hours of original uploaded music and miscellaneous audio, nine-tenths of which is played back within a day.  Swedish sound designer Alexander Ljung and electronic musician Eric Wahlforss founded the platform in Stockholm, Sweden in October 2008. When the company began to grow, it moved its base to Berlin. From there it has gone on to acquire offices in London, New York, San Francisco and Sofia, Bulgaria, and now staffs more than 200 employees.

SoundCloud’s intent was to create a platform where people could distribute and comment on audio and it is a good tool for musicians to circulate their music. It is now an evolving as a social platform wherein established artists may connect with their fans, and where budding artists may push their repertoire into the online community for discovery. For this reason, CEO and co-founder Alexander Ljung has referred to SoundCloud as the YouTube of audio.

Certainly, their no-cost structure has been a leading motivator for users. Anyone can sign up for an account and start uploading their sounds for free; the standard quota caps off at two hours of content. From there, if the user wants more time, there is an inexpensive fee of $38 a year, yielding four total hours of uploads, or $130 a year for unlimited upload time. The pro accounts also offer the benefits of analytics—being able to see exactly who listens to the user’s uploaded audio, and where the plays are coming from.

SoundCloud has also gained a lot of traction simply because of its clean design, high-resolution format, and embeddable functionality. The site is built in a minimalistic style with simple ways of connecting uploaded audio to other sites. A SoundCloud widget can easily be embedded in any HTML-coded site or WordPress. When a user updates on SoundCloud, it shows in the widget as well, and this is a hot ticket for the company.  Musicians regularly release new music through social media like Facebook and Twitter by quickly uploading their files to SoundCloud and punching in a widgitized URL to their respective launch point.  Thus, SoundCloud is an easy go-to for self-releases.

Moreover, multimedia demands a platform like SoundCloud in which artists can communicate directly with potential fans and receive instant feedback from their Internet peers for free.  Many music creators today deem free streaming a necessity.  In part, this is because artists must first have a chance at connecting with the outside world before, say, asking for funding.  SoundCloud, therefore, fills a void in the arsenal of aspiring musicians.

Because SoundCloud doesn’t pay out royalties to its users, it has the opportunity of keeping between 50-70% of its revenue. This makes the business model very attractive to investors. CrunchBase reports that the last five years have seen SoundCloud raise more than $123 million in funding. According to the site, investors include Union Square Ventures, Index Ventures, Kleiner Perkins Caufield & Byers, GGV Capital, and Doughty Hanson Technology. Most recently, SoundCloud has been a participant in a round of fundraising through the Institutional Venture Partners together with the Chernin Group. As a Berlin-based, European startup, this is big news. Having the confidence of American Venture Capital firms says good things for the future of the site and of Berlin’s startup scene.

Such investments are fuelling SoundCloud’s growth. Its team is now focusing on the mobile market, and SoundCloud Apps for iPhone, iPad, and Android have already generated much conversation in multimedia circles. Additionally, SoundCloud has taken the opportunity to work with the licensing-site Getty Images. SoundCloud’s subscribers can license their songs through Getty, and get them played in alternate media, commercials or radio. Not long ago, SoundCloud also cooperated with Instagram, so that users could upload artwork from their Instagram account. These partnerships bode well for SoundCloud, as is the matchup of venture investors that bring more expertise to grow the company in tandem with co-founders Alex Ljung and Eric Wahlforss.

Right now, there is speculation that SoundCloud is in talks with the major labels. It remains to be seen what kind of business venture the site plans to undertake with these deals: iTunes or Amazon MP3 sales, a radio service like Pandora or iTunes Radio, or an interactive streaming service like Spotify with competitively priced subscription options.

However, it is not clear what SoundCloud would do with all of the unsigned and often nonprofessional music that makes up most of the site and sets it apart from others. Although SoundCloud has never revealed the percentage of users who pay for subscriptions, the likely figure, according at least to Forbes, is one-in-twenty. As investors clamor for returns and the company incurs more expenditures, it might be just a question of time before the site starts using ads to maximize profit, just like Facebook and YouTube did. Otherwise, the site’s “freemium” allure will make way for mandatory monthly or annual subscription payments. This transition may not be easy.

By Athena Butler and Linnéa Lundgren

Endnotes

1. Peoples, Glenn. “SoundCloud Raises New Funding.” Billboard. N.p., n.d. Web. 05 Feb. 2014.

2. Peoples, Glenn. “Business Matters: At 10 Million Users, SoundCloud Is Scratching the Surface.” Billboard. N.p., n.d. Web. 05 Feb. 2014.

3. Peoples, Glenn. “Business Matters: At 10 Million Users, SoundCloud Is Scratching the Surface.” Billboard. N.p., n.d. Web. 02 Feb. 2014.

4. “SoundCloud | What’s the Difference between Each …” SoundCloud | What’s the Difference between Each … N.p., n.d. Web. 02 Feb. 2014.

5. Who’s Listening to SoundCloud? 200 MillionUSA Today. Gannett, n.d. Web. 04 Feb. 2014.

6. Mac, Ryan. “SoundCloud Manages Criticism As It Moves To Become The YouTube Of Audio.” Forbes. Forbes Magazine, 26 Apr. 2013. Web. 5 Feb. 2014.

7. “SoundCloud Raises $60 Million At A $700 Million Valuation.” TechCrunch. N.p., n.d. Web. 08 Feb. 2014.

8. Kafka, Peter. “SoundCloud Starts Pushing Its Own Native Ads Out of a New York Outpost.” AllThingsD. N.p., n.d. Web. 8 Feb. 2014.

9. Pham, Alex “Questions Answered, Alex Ljung” Billboard 14 Dec. 2013. 1. Print

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