Unsinkable SoundCloud: from the idea to the 10th anniversary of the project - the most complete audiostart story
In 2014, the company announced that its audio platform was used by more than 175 million people on a monthly basis. Since then, SoundCloud has not updated this information, but over the past 6 months, SimilarWeb has registered nearly 2 billion visits to the SoundCloud website.
A large user audience is not the only thing that social music can boast of. Network: For 10 years of operation, SoundCloud launched a career in a number of new musicians, attracted first-rate performers, and even formed a new musical genre .
Today we will tell the story of SoundCloud - from the birth of this startup to all sorts of difficulties with funding and a successful exit from the crisis last summer.
')
Thomas Bonte CC Photos
The founders of SoundCloud - sound engineer Alex Ljung (Alex Ljung) and Eric Walfors (Eric Wahlforss) - studied together at the Swedish Royal Institute of Technology.
Future entrepreneurs united love for music. Erik grew up in a family where music was a part of everyday life, and he studied music himself, and Alex worked as a sound engineer and also had the experience of recording his own tracks. Colleagues had a common idea - to create a platform that musicians could use to exchange and discuss their compositions. According to Valfors himself, at that time it was possible to turn to either “cheap file sharing services” or the MySpace social network, in which “there was a total mess.”
Partners began to implement their ideas in 2007. To do this, they bought the domain name soundcloud.com for $ 400 and moved to Berlin. They had to work on their product in a cafe and a common apartment - there were not enough funds for the development of the project. However, already at this stage, Alex and Eric found support in the face of local underground musicians.
The platform was launched in the fall of 2008 and quickly gathered 20 thousand musicians and people close to the “musical get-together”, which became the first users.
Photo newthinking communications CC
Shortly after the launch of SoundCloud dubbed "Flickr for music."
This slogan emphasized the convenience of the platform and its social mechanics. After the beta tests, free account holders were able to download and share an unlimited number of tracks (but no more than five per month).
Visible to other users were only the 10 most recently uploaded entries. Even then, basic statistics were available. A paid version worth $ 11 a month allowed you to download more tracks. According to Eric, the first versions of the SoundCloud profiles have been optimized for the needs of musicians and independent labels.
In 2008, a small team worked in the SoundCloud office, not counting even 10 people. For the development and payment of employees needed money.
At the beginning of the service existed at the expense of friends of Valfors from previous work in the startup industry, but the company continued to need investments.
Already in 2009, SoundCloud holds its first round of funding. Investment company Doughty Hanson Technology Ventures invests EUR 2.5 million in SoundCloud. At that time, Doughty Hanson was actively interested in start-ups in the music industry and was looking for new growth points in this area, which at that time was already warming up with the streaming service Spotify.
Stefan Tierty, representative of Doughty Hanson Technology Ventures, commented on the investment round as follows: “What we found is a team that solves the real problem that professional musicians face. SoundCloud for music is the same as Flickr for images. ”
At that time, SoundCloud had already stepped over the 100 thousand users mark and began to receive money from paid subscriptions.
Money and first stars, such as the Foo Fighters, who came to SoundCloud with their music, became a growth point for the platform - in 2010 the number of users reached a million people. Applications for Android and iOS have been launched .
The year 2011 began for the company immediately with two statements: the SoundCloud audience doubled , and the platform raised $ 10 million from the funds of Union Square Ventures and Index Ventures. In less than 100 days, the company added another million users to its audience.
At the same time , the first overseas SoundCloud office in San Francisco opened , the number of employees increased to 50, and the company focused on improving service. There was an iPad application, an updated widget , an experimental music creation lab and a number of other functions for producers of music content.
Thomas Bonte CC Photos
In 2012, 10 million users were already registered on SoundCloud.
Alex Ljung explained the growth of a sound ecosystem for musicians and the popularity of the application - at that moment, developers focused on mobile platforms and achieved 5 million downloads of the application. SoundCloud did not have new forms of monetization - only paid pro accounts remained in the arsenal.
At the end of 2012 there was a massive redesign . The developers paid attention to social functions, having improved the mechanism of distribution of tracks and the recommendation system. The most important announcement of the company in December was reaching a peak of 180 million users of the service in terms of a month.
By the end of 2012, SoundCloud had achieved recognition from star performers such as Snoop Dogg, held a third round of funding, and opened new offices in London and Bulgaria. The total number of employees exceeded 100 people.
More and more artists used the platform to share their tracks with the audience. Among them - Destiny's Child and The Strokes. Then the founders had an ambitious plan to attract a billion listeners.
In December 2012, SoundCloud management introduced new monetization models: updated subscription plans and branded accounts for companies. They were used, for example, by Red Bull, The Guardian and Snoop Lion.
However, despite the growing audience and new earnings tools, 5 years after launch, the company has still not made a profit. Only 5% of registered users paid for subscriptions in 2013.
At the end of this year, SoundCloud reported a loss of almost $ 30 million.
In 2014, SoundCloud raised another $ 60 million in investment. In the same year, the company began negotiations with music labels. Signing contracts would put it on par with Spotify and would allow it to find a new source of revenue.
In the second half of the year, SoundCloud signs an agreement with the Warner Music Group, one of the three whales of the record industry. In accordance with the contract, all artists of the label and holders of exclusive rights to the works begin to pay royalties .
As two former employees of the company told , more than half of the materials on SoundCloud were pirated at that time, and we had to get rid of them.
SoundCloud attracted DJs who shared their sets with the audience. Sometimes they violated the rights of other performers, using as a basis their compositions. To search for pirated content, the company agreed with the service Zefr. This is the same mechanism that helps YouTube keep track of instances of violations of the rights of content owners.
From that moment on, was to take a guideline to work with the tasks of the recording industry. Two other major labels put pressure on SoundCloud, forcing you to delete rights-violating tracks. To continue paying royalties, the company introduced paid advertising in mid-2014. This year, the company suffered a multi-million dollar loss.
In 2015, “rights problems” continued. Performing Right Society, the British copyright observance community, gathered to collect royalties from the company that were not paid to British musicians. By the end of the year, a settlement was reached, SoundCloud had to make concessions and pay a sum that was not announced to the public.
The following year, which began for the company with a large investment loan, SoundCloud signed agreements with two other major labels - Universal Music Group and Sony Music . Now nothing prevented the platform from launching its streaming service.
This is how SoundCloud GO, a competitor of Spotify, appeared.
Photo by Eric Wahlforss CC
Spotify, by the way, shortly after the launch of the SoundCloud streaming service, responded with an offer to acquire the platform. This transaction also did not take place . But Twitter still invested its $ 70 million in the development of SoundCloud in the next round of funding.
Streaming paid subscriptions were supposed to be a new source of income for SoundCloud, but this did not happen - 2017 was the peak of the looming crisis. If financial losses were the norm for the company, user outflow became a new phenomenon after several years of growth.
Rumors about the plight of the company have been around since the beginning of the year. There was even talk that the platform, which once could be sold for 2 billion dollars, could now be bought for 250 million.
In May, management again turned to a loan of $ 70 million and went to reduce the cost of a subscription to SoundCloud GO, but failed to achieve the required number of paid users, as well as solve all financial problems.
July was fatal - it became known that SoundCloud had the money at the current level of expenses and income for only 80 days of work .
While the users were going to create an archive copy of the service, and at Hacker News they were picking up a new job for abbreviated "soundklauder", the platform got out of a difficult situation. For this, financial investments were needed again - this time in the amount of $ 170 million. Investors were the New York bank Raine Group and the sovereign fund of Singapore Temasek.
As part of the investment agreement, Alex Ljung was removed from his post as CEO. His place was taken by the former head of Vimeo video hosting Kerry Trainer (Kerry Trainor).
He has been in the manual so far, and, judging by recent statements , his attention is focused on attracting new musicians. At the beginning of 2017, Eric Valfors took up a new post as head of products. He continues to work in SoundCloud.
SoundCloud was not the first Internet project for musicians. When it appeared, in this sphere already worked, for example Last.fm. From the point of view of social mechanics, the MySpace social network acted as a direct competitor to SoundCloud in the early stages - this platform was known for its vast community of musicians.
Compared to other services, SoundCloud had an important advantage - the ability to play tracks on third-party platforms. Thus, the combination of SoundCloud and Twitter or Facebook allowed groups to establish direct communication with fans much more efficiently than was possible with MySpace.
The thing was that SoundCloud created an ecosystem using all available tools, and MySpace became an increasingly closed platform.
SoundCloud was originally developed by musicians for musicians, and the interests of the artists have always been taken into account by the developers in the first place.
Because of this, SoundCloud has become something of a convenient portfolio manager. Based on the track lists and comments to them formed musical community. Celebrities and independent performers were on the same site, who could easily get in touch with their idols and discuss their tracks.
Thomas Bonte CC Photos
Deviation from this strategy is one of the possible reasons for the outflow of the audience in 2016. As the former employees of SoundCloud told Buzzfeed, the true cause of the crisis in the company should be considered its cooperation with major music labels and access to a niche streaming services. Instead of a new source of income, the social network received a set of strict restrictions on downloadable content. This caused discontent among users - for the first time their interests were pushed into the background by management. Independent musicians for SoundCloud have become less valuable than the stars, signed on three major labels.
As TechCrunch columnist Josh Kostin (Josh Constine) writes: “SoundCloud has been wasted for many years building relationships with major labels in the hope of creating a competitor to Spotify.”
In this case, from the very beginning, SoundCloud's strategy was that the service does not compete with Spotify. He goes to meet novice musicians and stimulates the creation of original music content, while Spotify resells tracks on behalf of major labels.
According to Josh, the new head of the company is now on the right track. It is about returning to basics - to independent artists. The platform again creates convenient tools for them and allows them to earn a reputation.
At the end of 2017, Kerry Trainer, the head of the company, submitted an updated application. It has features reminiscent of Spotify, for example, recommended playlists, and original designs like rap and DJ playlists. Kerry claims that SoundCloud with its new application and strategy, as well as at the very beginning of the journey, goes to meet novice musicians, and there is enough money for the platform not to suspend work in the near future.
This allows us to hope that the company has finally got out of the crisis and will continue to open new independent artists to listeners.
More about sound in our “World Hi-Fi”:
Our historical rubric on GT:
A large user audience is not the only thing that social music can boast of. Network: For 10 years of operation, SoundCloud launched a career in a number of new musicians, attracted first-rate performers, and even formed a new musical genre .
Today we will tell the story of SoundCloud - from the birth of this startup to all sorts of difficulties with funding and a successful exit from the crisis last summer.
')
Thomas Bonte CC PhotosFast start
The founders of SoundCloud - sound engineer Alex Ljung (Alex Ljung) and Eric Walfors (Eric Wahlforss) - studied together at the Swedish Royal Institute of Technology.
Future entrepreneurs united love for music. Erik grew up in a family where music was a part of everyday life, and he studied music himself, and Alex worked as a sound engineer and also had the experience of recording his own tracks. Colleagues had a common idea - to create a platform that musicians could use to exchange and discuss their compositions. According to Valfors himself, at that time it was possible to turn to either “cheap file sharing services” or the MySpace social network, in which “there was a total mess.”
Partners began to implement their ideas in 2007. To do this, they bought the domain name soundcloud.com for $ 400 and moved to Berlin. They had to work on their product in a cafe and a common apartment - there were not enough funds for the development of the project. However, already at this stage, Alex and Eric found support in the face of local underground musicians.
The platform was launched in the fall of 2008 and quickly gathered 20 thousand musicians and people close to the “musical get-together”, which became the first users.
Photo newthinking communications CCShortly after the launch of SoundCloud dubbed "Flickr for music."
This slogan emphasized the convenience of the platform and its social mechanics. After the beta tests, free account holders were able to download and share an unlimited number of tracks (but no more than five per month).
You could still maintain a contact list of 20 "friends."
Visible to other users were only the 10 most recently uploaded entries. Even then, basic statistics were available. A paid version worth $ 11 a month allowed you to download more tracks. According to Eric, the first versions of the SoundCloud profiles have been optimized for the needs of musicians and independent labels.
First money
In 2008, a small team worked in the SoundCloud office, not counting even 10 people. For the development and payment of employees needed money.
At the beginning of the service existed at the expense of friends of Valfors from previous work in the startup industry, but the company continued to need investments.
Already in 2009, SoundCloud holds its first round of funding. Investment company Doughty Hanson Technology Ventures invests EUR 2.5 million in SoundCloud. At that time, Doughty Hanson was actively interested in start-ups in the music industry and was looking for new growth points in this area, which at that time was already warming up with the streaming service Spotify.
Stefan Tierty, representative of Doughty Hanson Technology Ventures, commented on the investment round as follows: “What we found is a team that solves the real problem that professional musicians face. SoundCloud for music is the same as Flickr for images. ”
At that time, SoundCloud had already stepped over the 100 thousand users mark and began to receive money from paid subscriptions.
Years of carefree growth
Money and first stars, such as the Foo Fighters, who came to SoundCloud with their music, became a growth point for the platform - in 2010 the number of users reached a million people. Applications for Android and iOS have been launched .
The year 2011 began for the company immediately with two statements: the SoundCloud audience doubled , and the platform raised $ 10 million from the funds of Union Square Ventures and Index Ventures. In less than 100 days, the company added another million users to its audience.
At the same time , the first overseas SoundCloud office in San Francisco opened , the number of employees increased to 50, and the company focused on improving service. There was an iPad application, an updated widget , an experimental music creation lab and a number of other functions for producers of music content.
Thomas Bonte CC PhotosIn 2012, 10 million users were already registered on SoundCloud.
Alex Ljung explained the growth of a sound ecosystem for musicians and the popularity of the application - at that moment, developers focused on mobile platforms and achieved 5 million downloads of the application. SoundCloud did not have new forms of monetization - only paid pro accounts remained in the arsenal.
At the end of 2012 there was a massive redesign . The developers paid attention to social functions, having improved the mechanism of distribution of tracks and the recommendation system. The most important announcement of the company in December was reaching a peak of 180 million users of the service in terms of a month.
At that time, every minute the platform was replenished with 10 hours of music. Then Ljung said that soon more or more content would be uploaded to SoundCloud than on YouTube.
By the end of 2012, SoundCloud had achieved recognition from star performers such as Snoop Dogg, held a third round of funding, and opened new offices in London and Bulgaria. The total number of employees exceeded 100 people.
More and more artists used the platform to share their tracks with the audience. Among them - Destiny's Child and The Strokes. Then the founders had an ambitious plan to attract a billion listeners.
New market and crisis years
In December 2012, SoundCloud management introduced new monetization models: updated subscription plans and branded accounts for companies. They were used, for example, by Red Bull, The Guardian and Snoop Lion.
However, despite the growing audience and new earnings tools, 5 years after launch, the company has still not made a profit. Only 5% of registered users paid for subscriptions in 2013.
At the end of this year, SoundCloud reported a loss of almost $ 30 million.
However, when SoundCloud’s cost in 2014 was estimated at $ 700 million , Eric Valfors was confident that the company had the potential to grow.
In 2014, SoundCloud raised another $ 60 million in investment. In the same year, the company began negotiations with music labels. Signing contracts would put it on par with Spotify and would allow it to find a new source of revenue.
In the second half of the year, SoundCloud signs an agreement with the Warner Music Group, one of the three whales of the record industry. In accordance with the contract, all artists of the label and holders of exclusive rights to the works begin to pay royalties .
As two former employees of the company told , more than half of the materials on SoundCloud were pirated at that time, and we had to get rid of them.
SoundCloud attracted DJs who shared their sets with the audience. Sometimes they violated the rights of other performers, using as a basis their compositions. To search for pirated content, the company agreed with the service Zefr. This is the same mechanism that helps YouTube keep track of instances of violations of the rights of content owners.
From that moment on, was to take a guideline to work with the tasks of the recording industry. Two other major labels put pressure on SoundCloud, forcing you to delete rights-violating tracks. To continue paying royalties, the company introduced paid advertising in mid-2014. This year, the company suffered a multi-million dollar loss.
At the same time, there was a rumor about the sale of SoundCloud. At that time, Twitter raised funds during the IPO and, as it turned out, wanted to spend most of it on acquiring a music social network. A year earlier, Twitter had already taken a step toward rapprochement through integration with SoundCloud. However, the transaction for the sale of audiostartap did not take place - SoundCloud valued itself at $ 2 billion.
In 2015, “rights problems” continued. Performing Right Society, the British copyright observance community, gathered to collect royalties from the company that were not paid to British musicians. By the end of the year, a settlement was reached, SoundCloud had to make concessions and pay a sum that was not announced to the public.
The following year, which began for the company with a large investment loan, SoundCloud signed agreements with two other major labels - Universal Music Group and Sony Music . Now nothing prevented the platform from launching its streaming service.
This is how SoundCloud GO, a competitor of Spotify, appeared.
Photo by Eric Wahlforss CCSpotify, by the way, shortly after the launch of the SoundCloud streaming service, responded with an offer to acquire the platform. This transaction also did not take place . But Twitter still invested its $ 70 million in the development of SoundCloud in the next round of funding.
Streaming paid subscriptions were supposed to be a new source of income for SoundCloud, but this did not happen - 2017 was the peak of the looming crisis. If financial losses were the norm for the company, user outflow became a new phenomenon after several years of growth.
In mid-2017, it turned out that since January 2016, the platform had begun to lose millions of users every month.
Rumors about the plight of the company have been around since the beginning of the year. There was even talk that the platform, which once could be sold for 2 billion dollars, could now be bought for 250 million.
In May, management again turned to a loan of $ 70 million and went to reduce the cost of a subscription to SoundCloud GO, but failed to achieve the required number of paid users, as well as solve all financial problems.
July was fatal - it became known that SoundCloud had the money at the current level of expenses and income for only 80 days of work .
At the height of the July crisis , offices in San Francisco and London were closed , and 170 employees were laid off - almost half of the total staff at that time.
While the users were going to create an archive copy of the service, and at Hacker News they were picking up a new job for abbreviated "soundklauder", the platform got out of a difficult situation. For this, financial investments were needed again - this time in the amount of $ 170 million. Investors were the New York bank Raine Group and the sovereign fund of Singapore Temasek.
As part of the investment agreement, Alex Ljung was removed from his post as CEO. His place was taken by the former head of Vimeo video hosting Kerry Trainer (Kerry Trainor).
He has been in the manual so far, and, judging by recent statements , his attention is focused on attracting new musicians. At the beginning of 2017, Eric Valfors took up a new post as head of products. He continues to work in SoundCloud.
"Magic" and SoundCloud's Weaknesses
SoundCloud was not the first Internet project for musicians. When it appeared, in this sphere already worked, for example Last.fm. From the point of view of social mechanics, the MySpace social network acted as a direct competitor to SoundCloud in the early stages - this platform was known for its vast community of musicians.
Compared to other services, SoundCloud had an important advantage - the ability to play tracks on third-party platforms. Thus, the combination of SoundCloud and Twitter or Facebook allowed groups to establish direct communication with fans much more efficiently than was possible with MySpace.
The thing was that SoundCloud created an ecosystem using all available tools, and MySpace became an increasingly closed platform.
SoundCloud was originally developed by musicians for musicians, and the interests of the artists have always been taken into account by the developers in the first place.
Because of this, SoundCloud has become something of a convenient portfolio manager. Based on the track lists and comments to them formed musical community. Celebrities and independent performers were on the same site, who could easily get in touch with their idols and discuss their tracks.
Thomas Bonte CC PhotosDeviation from this strategy is one of the possible reasons for the outflow of the audience in 2016. As the former employees of SoundCloud told Buzzfeed, the true cause of the crisis in the company should be considered its cooperation with major music labels and access to a niche streaming services. Instead of a new source of income, the social network received a set of strict restrictions on downloadable content. This caused discontent among users - for the first time their interests were pushed into the background by management. Independent musicians for SoundCloud have become less valuable than the stars, signed on three major labels.
As TechCrunch columnist Josh Kostin (Josh Constine) writes: “SoundCloud has been wasted for many years building relationships with major labels in the hope of creating a competitor to Spotify.”
In this case, from the very beginning, SoundCloud's strategy was that the service does not compete with Spotify. He goes to meet novice musicians and stimulates the creation of original music content, while Spotify resells tracks on behalf of major labels.
According to Josh, the new head of the company is now on the right track. It is about returning to basics - to independent artists. The platform again creates convenient tools for them and allows them to earn a reputation.
At the end of 2017, Kerry Trainer, the head of the company, submitted an updated application. It has features reminiscent of Spotify, for example, recommended playlists, and original designs like rap and DJ playlists. Kerry claims that SoundCloud with its new application and strategy, as well as at the very beginning of the journey, goes to meet novice musicians, and there is enough money for the platform not to suspend work in the near future.
This allows us to hope that the company has finally got out of the crisis and will continue to open new independent artists to listeners.
More about sound in our “World Hi-Fi”:
- Case SoundCloud: through thorns to new rounds of funding
- What is it: the Russian market of streaming services
- Join the stream: The present and the future of music streaming
Our historical rubric on GT:
- "Eight Beats": about sounds in old games
- "Sound in the Museum" - industrial design and creative experiments
- "How rock and roll sounded": the story of the brand Marshall
Source: https://habr.com/ru/post/371279/
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