February 20, 2018 at 21:13Unsinkable SoundCloud: from the idea to the 10th anniversary of the project - the most complete history of audio startup
In 2014, the company announced that more than 175 million people used its audio platform on a monthly basis. Since then, SoundCloud has not specified this information, but over the past 6 months SimilarWeb has recorded nearly 2 billion visits to the SoundCloud site.
A large user audience is not the only thing that the social music boasts. network: over 10 years SoundCloud launched the career of a number of new musicians, attracted artists of the first magnitude and even formed a new musical genre .
Today we tell the story of SoundCloud - from the birth of this startup to all sorts of difficulties with financing and the successful exit from the crisis last summer. Photo Thomas Bonte CC
SoundCloud's founders - sound engineer Alex Ljung and Eric Wahlforss - studied together at the Royal Swedish Institute of Technology.
Future entrepreneurs were united by a love of music. Eric grew up in a family where music was part of everyday life, and he studied music himself, while Alex worked as a sound engineer and also had experience in 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 Walfors 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 complete mess”.
Partners began implementing their idea in 2007. To do this, they bought the soundcloud.com domain name for $ 400 and moved to Berlin. They had to work on their product in a cafe and in 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 launched in the fall of 2008 and quickly gathered 20 thousand musicians and people close to the "music party" who became the first users.
Photo by newthinking communications CC
Shortly after launch, SoundCloud was dubbed “Flickr for Music.”
This slogan emphasized the convenience of the platform and its social mechanics. After beta testing, free account holders received the ability to upload and share an unlimited number of tracks (but not more than five per month).
Only the last 10 uploaded records were visible to other users. Even then, basic statistics were available. The paid version costing $ 11 per month allowed to download more tracks. According to Eric, the first versions of SoundCloud profiles have been optimized for the needs of musicians and independent labels.
In 2008, a small team of not more than 10 people worked in the SoundCloud office. For the development and payment of employees, money was required.
In the beginning, the service existed at the expense of Walfors's acquaintances from previous work in the startup industry, but the company continued to need investments.
Already in 2009, SoundCloud is conducting its first round of financing. Investment company Doughty Hanson Technology Ventures is investing 2.5 million euros in SoundCloud. At that time, Doughty Hanson was actively interested in startups in the music industry and were looking for new growth points in this area, which at that time was already heated up by the Spotify streaming service.
Stefan Tierty, a spokesman for 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 mark of 100 thousand users and began to receive money from paid subscriptions.
Money and the first stars, such as Foo Fighters, who came to SoundCloud with their music, became a growth point for the platform - in 2010, the number of users reached one million people. Applications for Android and iOS were launched .
The year 2011 began for the company with two statements at once: the SoundCloud audience doubled , and the platform raised $ 10 million from Union Square Ventures and Index Ventures. In less than 100 days, the company added another million users to its audience.
Along with this , the first SoundCloud overseas office in San Francisco was opened , the number of employees increased to 50, and the company focused on improving the service. Have appearediPad app, updated widget , experimental lab for making music, and a host of other features for music content producers.
Photo by Thomas Bonte CC
In 2012, 10 million users were already registered on SoundCloud .
Alex Lung explained the growth of a well-thought-out ecosystem for musicians and the popularity of the application - at that moment the 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, finalizing the mechanism for distributing tracks and the recommendation system. The most important announcement of the company in December was the achievement of a peak of 180 million users of the service in terms of the month.
By the end of 2012, SoundCloud won recognition from celebrity artists such as Snoop Dogg, conducted 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 are 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 a growing audience and new earning tools, 5 years after the launch, the company still has not reached 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.
SoundCloud raised another $ 60 million in investments in 2014 . In the same year, the company began negotiations with music labels. Signing the contracts would put her on a par with Spotify and would find a new source of income.
In the second half of the year, SoundCloud signs an agreement with Warner Music Group, one of the three whales of the record industry. In accordance with the contract, all artists of the label and owners of exclusive rights to works begin to pay royalties .
As told by two former employees of the company, more than half of the materials on SoundCloud were at that time pirate, and had to get rid of them.
SoundCloud attractedDJs 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 Zefr service. This is the same mechanism that helps YouTube keep track of copyright infringement cases.
From that moment, a guide was taken to work with the tasks of the recording industry. Two other major labels pushed SoundCloud, forcing them to delete infringing tracks. To continue to pay royalties, the company introduced paid advertising in mid-2014. This year, the company suffered multimillion-dollar losses.
In 2015, “rights issues” continued. The Performing Right Society, the British copyright community, is set to collect royalties from the company that were not paid to British musicians. By the end of the year, an amicable agreement was reached , SoundCloud had to make concessions and pay an amount that was not announced to the public.
The following year, which began with a major investment loan for the company, SoundCloud signed agreements with two other major labels - Universal Music Group and Sony Music . Now, nothing prevented the platform from launching its streaming service.
So there was SoundCloud GO, the competitor of Spotify.
Photo by Eric Wahlforss CC
Spotify, by the way, shortly after the launch of the streaming service SoundCloud, reacted with a proposal to acquire the platform. This deal also did not take place . But Twitter still invested its $ 70 million in the development of SoundCloud in the next round of financing.
Paid streaming subscriptions were supposed to serve as a new source of income for SoundCloud, but this did not happen - 2017 was the peak of a looming crisis. If financial losses were the norm for the company, the outflow of users has become a new phenomenon after several years of growth.
Rumors about the company's distress have been around since the beginning of the year. There was even talk that the platform, which could once be sold for $ 2 billion, could now be bought for $ 250 million.
In May, management again turned to a loan of $ 70 million and went to lower the cost of subscribing to SoundCloud GO, but to achieve the required number of paid users was not succeeded, as well as to solve all financial problems.
July turned out to be fatal - it became known that SoundCloud had the money at its current level of expenses and income for only 80 days of work .
While users were going to create an archive copy of the service, and at Hacker News they were picking up new work for shortened “sound clauders”, the platform got out of a difficult situation. For this, financial injections were again needed - this time in the amount of $ 170 million. Investors were the New York Bank Raine Group and the Singapore sovereign fund Temasek.
As part of the investment agreement, Alex Lung was removed from his post as CEO. His place was taken by the former head of Vimeo video hosting Kerry Trainor.
He is still in the lead, and judging by recent statements , his attention is focused on attracting new musicians. Eric Walfors in early 2017took up a new position as head of products. He continues to work at SoundCloud.
SoundCloud was not the first online project for musicians. When he appeared, he already worked in this area, for example, Last.fm. From the point of view of social mechanics, SoundCloud was a direct competitor in the early stages of the MySpace social network - 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. So, the combination of SoundCloud and Twitter or Facebook allowed groups to establish direct contact with fans much more effectively than was possible using 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 artists have always been taken into account by developers in the first place.
Thanks to this, SoundCloud has become a kind of convenient portfolio manager. On the basis of track lists and comments on them, musical communities were formed. Celebrities and independent performers coexisted on one site, who could easily get in touch with their idols and discuss their tracks.
Photo by Thomas Bonte CC
Deviation from this strategy is one of the possible reasons for the outflow of the audience in 2016. As toldBuzzfeed former employees of SoundCloud, the true cause of the crisis in the company should be considered its collaboration with major music labels and entry into the niche of streaming services. Instead of a new source of income, the social network received a set of strict restrictions on downloadable content. This caused dissatisfaction of users - for the first time their interests were pushed to the background by management. Independent musicians have become less valuable to SoundCloud than stars signed to three major labels.
As writes columnist for TechCrunch Kostin Josh (Josh Constine): «SoundCloud I wasted many years, establishing relations with the major record labels in the hopes of creating a Spotify rival."
At the same time, from the very beginning, SoundCloud's strategy was that the service does not competewith Spotify. It meets novice musicians and encourages 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. This is a return to the roots - to independent artists. The platform again creates convenient tools for them and allows you to earn a reputation.
At the end of 2017, Kerry Trainer, the head of the company, introducedupdated application. It has both features reminiscent of Spotify, for example, recommended playlists, as well as original developments 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, meets novice musicians, and the platform will have enough money to not stop work in the near future.
This allows us to hope that the company has finally gotten out of the crisis and will continue to open up new independent artists to the audience.
More interesting about sound - in our “Hi-Fi World”:
Our historical section on GT:
A large user audience is not the only thing that the social music boasts. network: over 10 years SoundCloud launched the career of a number of new musicians, attracted artists of the first magnitude and even formed a new musical genre .
Today we tell the story of SoundCloud - from the birth of this startup to all sorts of difficulties with financing and the successful exit from the crisis last summer. Photo Thomas Bonte CC
Fast start
SoundCloud's founders - sound engineer Alex Ljung and Eric Wahlforss - studied together at the Royal Swedish Institute of Technology.
Future entrepreneurs were united by a love of music. Eric grew up in a family where music was part of everyday life, and he studied music himself, while Alex worked as a sound engineer and also had experience in 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 Walfors 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 complete mess”.
Partners began implementing their idea in 2007. To do this, they bought the soundcloud.com domain name for $ 400 and moved to Berlin. They had to work on their product in a cafe and in 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 launched in the fall of 2008 and quickly gathered 20 thousand musicians and people close to the "music party" who became the first users.
Photo by newthinking communications CCShortly after launch, SoundCloud was dubbed “Flickr for Music.”
This slogan emphasized the convenience of the platform and its social mechanics. After beta testing, free account holders received the ability to upload and share an unlimited number of tracks (but not more than five per month).
It was still possible to maintain a list of contacts from 20 “friends”.
Only the last 10 uploaded records were visible to other users. Even then, basic statistics were available. The paid version costing $ 11 per month allowed to download more tracks. According to Eric, the first versions of SoundCloud profiles have been optimized for the needs of musicians and independent labels.
First money
In 2008, a small team of not more than 10 people worked in the SoundCloud office. For the development and payment of employees, money was required.
In the beginning, the service existed at the expense of Walfors's acquaintances from previous work in the startup industry, but the company continued to need investments.
Already in 2009, SoundCloud is conducting its first round of financing. Investment company Doughty Hanson Technology Ventures is investing 2.5 million euros in SoundCloud. At that time, Doughty Hanson was actively interested in startups in the music industry and were looking for new growth points in this area, which at that time was already heated up by the Spotify streaming service.
Stefan Tierty, a spokesman for 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 mark of 100 thousand users and began to receive money from paid subscriptions.
Years of Carefree Growth
Money and the first stars, such as Foo Fighters, who came to SoundCloud with their music, became a growth point for the platform - in 2010, the number of users reached one million people. Applications for Android and iOS were launched .
The year 2011 began for the company with two statements at once: the SoundCloud audience doubled , and the platform raised $ 10 million from Union Square Ventures and Index Ventures. In less than 100 days, the company added another million users to its audience.
Along with this , the first SoundCloud overseas office in San Francisco was opened , the number of employees increased to 50, and the company focused on improving the service. Have appearediPad app, updated widget , experimental lab for making music, and a host of other features for music content producers.
Photo by Thomas Bonte CCIn 2012, 10 million users were already registered on SoundCloud .
Alex Lung explained the growth of a well-thought-out ecosystem for musicians and the popularity of the application - at that moment the 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, finalizing the mechanism for distributing tracks and the recommendation system. The most important announcement of the company in December was the achievement of a peak of 180 million users of the service in terms of the month.
At that time, every minute the platform was replenished with 10 hours of music. Ljung then stated that sooner or later more content would be uploaded to SoundCloud than to YouTube.
By the end of 2012, SoundCloud won recognition from celebrity artists such as Snoop Dogg, conducted 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 are 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 a growing audience and new earning tools, 5 years after the launch, the company still has not reached 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 was valued at $ 700 million in 2014 , Eric Walfors was confident that the company had potential for growth.
SoundCloud raised another $ 60 million in investments in 2014 . In the same year, the company began negotiations with music labels. Signing the contracts would put her on a par with Spotify and would find a new source of income.
In the second half of the year, SoundCloud signs an agreement with Warner Music Group, one of the three whales of the record industry. In accordance with the contract, all artists of the label and owners of exclusive rights to works begin to pay royalties .
As told by two former employees of the company, more than half of the materials on SoundCloud were at that time pirate, and had to get rid of them.
SoundCloud attractedDJs 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 Zefr service. This is the same mechanism that helps YouTube keep track of copyright infringement cases.
From that moment, a guide was taken to work with the tasks of the recording industry. Two other major labels pushed SoundCloud, forcing them to delete infringing tracks. To continue to pay royalties, the company introduced paid advertising in mid-2014. This year, the company suffered multimillion-dollar losses.
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 towards rapprochement through integration with SoundCloud. However, the deal to sell an audio startup did not take place - SoundCloud priced itself at $ 2 billion.
In 2015, “rights issues” continued. The Performing Right Society, the British copyright community, is set to collect royalties from the company that were not paid to British musicians. By the end of the year, an amicable agreement was reached , SoundCloud had to make concessions and pay an amount that was not announced to the public.
The following year, which began with a major investment loan for the company, SoundCloud signed agreements with two other major labels - Universal Music Group and Sony Music . Now, nothing prevented the platform from launching its streaming service.
So there was SoundCloud GO, the competitor of Spotify.
Photo by Eric Wahlforss CCSpotify, by the way, shortly after the launch of the streaming service SoundCloud, reacted with a proposal to acquire the platform. This deal also did not take place . But Twitter still invested its $ 70 million in the development of SoundCloud in the next round of financing.
Paid streaming subscriptions were supposed to serve as a new source of income for SoundCloud, but this did not happen - 2017 was the peak of a looming crisis. If financial losses were the norm for the company, the outflow of users has become a new phenomenon after several years of growth.
In mid-2017, it became clear that since January 2016, the platform monthly began to lose millions of users.
Rumors about the company's distress have been around since the beginning of the year. There was even talk that the platform, which could once be sold for $ 2 billion, could now be bought for $ 250 million.
In May, management again turned to a loan of $ 70 million and went to lower the cost of subscribing to SoundCloud GO, but to achieve the required number of paid users was not succeeded, as well as to solve all financial problems.
July turned out to be fatal - it became known that SoundCloud had the money at its 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 users were going to create an archive copy of the service, and at Hacker News they were picking up new work for shortened “sound clauders”, the platform got out of a difficult situation. For this, financial injections were again needed - this time in the amount of $ 170 million. Investors were the New York Bank Raine Group and the Singapore sovereign fund Temasek.
As part of the investment agreement, Alex Lung was removed from his post as CEO. His place was taken by the former head of Vimeo video hosting Kerry Trainor.
He is still in the lead, and judging by recent statements , his attention is focused on attracting new musicians. Eric Walfors in early 2017took up a new position as head of products. He continues to work at SoundCloud.
The Magic and Weaknesses of SoundCloud
SoundCloud was not the first online project for musicians. When he appeared, he already worked in this area, for example, Last.fm. From the point of view of social mechanics, SoundCloud was a direct competitor in the early stages of the MySpace social network - 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. So, the combination of SoundCloud and Twitter or Facebook allowed groups to establish direct contact with fans much more effectively than was possible using 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 artists have always been taken into account by developers in the first place.
Thanks to this, SoundCloud has become a kind of convenient portfolio manager. On the basis of track lists and comments on them, musical communities were formed. Celebrities and independent performers coexisted on one site, who could easily get in touch with their idols and discuss their tracks.
Photo by Thomas Bonte CCDeviation from this strategy is one of the possible reasons for the outflow of the audience in 2016. As toldBuzzfeed former employees of SoundCloud, the true cause of the crisis in the company should be considered its collaboration with major music labels and entry into the niche of streaming services. Instead of a new source of income, the social network received a set of strict restrictions on downloadable content. This caused dissatisfaction of users - for the first time their interests were pushed to the background by management. Independent musicians have become less valuable to SoundCloud than stars signed to three major labels.
As writes columnist for TechCrunch Kostin Josh (Josh Constine): «SoundCloud I wasted many years, establishing relations with the major record labels in the hopes of creating a Spotify rival."
At the same time, from the very beginning, SoundCloud's strategy was that the service does not competewith Spotify. It meets novice musicians and encourages 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. This is a return to the roots - to independent artists. The platform again creates convenient tools for them and allows you to earn a reputation.
At the end of 2017, Kerry Trainer, the head of the company, introducedupdated application. It has both features reminiscent of Spotify, for example, recommended playlists, as well as original developments 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, meets novice musicians, and the platform will have enough money to not stop work in the near future.
This allows us to hope that the company has finally gotten out of the crisis and will continue to open up new independent artists to the audience.
More interesting about sound - in our “Hi-Fi World”:
- SoundCloud Case: Through Thorns for New Rounds of Financing
- What is it: the Russian market of streaming services
- Join the Stream: The Present and Future of Music Streaming
Our historical section on GT:
- Eight Beats: About Sounds in Old Games
- “Sound in the Museum” - industrial design and creative experiments
- “How Rock and Roll Sounded”: Marshall Brand History