SoundCloud: A peak behind the curtain
On Wednesday, December 7th, Factory Berlin hosted a fireside chat with Alex Ljung and Eric Wahlforss, the co-founders and respective CEO and CTO of SoundCloud. It is unusual for the founders to do appearances together in a public forum so this was a rare occasion.
In case you do not listen to music or live under a rock, I’ll briefly describe what Soundcloud does. With the largest, most diverse catalogue of content currently available, SoundCloud differs greatly from the other music distribution platforms in the market like Spotify and Apple Music. At its core, it is artist-focused and people-powered, and stands out as the most open and authentic player for both iconic artists and unknown bedroom DJs. The service has been in existence for 9 years and currently hosts 12 million creators per month with a user base of 175 million monthly listeners. The music industry and how people listen to music is being disrupted and reinvented and Soundcloud is one of the firms on the forefront.
If you couldn’t make it to the event, I’ve summarized what Alex and Eric said into the key parts you actually want to hear — like cutting out everything but the chorus to Come On Eileen.
How the Founders Met
Alex and Eric studied together at Stockholm Royal Institute of Technology. They had heard of each other through mutual friends but ultimately met because they were working on campus and spotted each other as the only other ones with Macbooks in a crowded lab. Alex struck up a conversation; they hit it off and eventually went to Silicon Valley to write their thesis together.
The Idea
While spending time in Silicon Valley, they became very interested in the macro trend of niche mass-scale platforms based around particular types of content. They saw firms like Youtube and Vimeo do this for videos and Flickr for photos by connecting billions of people around one medium. They both had backgrounds in creating music and no one yet had built a sharing platform for audio content. Thus, they saw a need and filled it.
What’s Changed?
Their original intention was to make it easier for artists to share their music with other creators — to simplify the painfully overcomplicated FTP servers that artists used at the time. They wanted sharing creative audio content to be as easy as posting a tweet. Its function was pure utility because they knew that’s what the artists needed. From there they built out the social space and created their iconic blown-up waveform, a visual representation for audio that didn’t really exist before, and a commenting feature that allowed conversation to happen within the content. The purely sharing outlet shifted to be one more about the social connection between content creators and consumers.
In the early days SoundCloud intended to host a wide variety of audio content like raw sounds and political speeches. Alex has publicly promoted this intention and told stories of hearing his nephew cry for the first time through the platform as well as sounds of cities he has never been to. In 2014 NASA even started an account to upload various sounds of space. An extensive range of audio content still exists on the platform but all of their recent directions have been focused on music content.
As for how the platform itself have changed since then, the founders say not by much. They claim to have jumped through a lot of hoops to not overcomplicate the platform and keep it as simple as they can. They recognize the extreme breadth of content they host in terms of covers, mashups and various other original works from artists starting out in their bedrooms. These people are a huge and crucial part of the music industry today and the goal of SoundCloud is to embrace and legitimize them.
Why Berlin?
After spending time in the Bay Area Alex and Eric, at the time both broke students, toured around Europe to London, Barcelona, Vienna, and lastly to Berlin. Eric’s first experience with Berlin was Love Parade in 1997, a week of millions of people, little sleep, and copious amounts of raves. He returned home ill, but feeling energized, and in love with Berlin. The creative energy and vibrancy of the music scene resonated deeply with the founders. At the time, the tech scene wasn’t very established but the counter-culture punk attitude and overall vibe of the city connected with what the company stands for – which was much more important to them. Locating in Berlin was much more of an emotional decision than a strategic one.
The city has proved to be the perfect place for SoundCloud. In classic Berlin fashion, the transition from private beta to public beta was done at midnight in an infamous club, Picknick. “I kind of get the feeling that the whole city of Berlin is a start-up,” noted Alex, “It’s fast-moving, chaotic. You don’t really know where it’s headed, but you know it’s headed in a good direction, and that’s a start-up feel.”
How They Grew
A big part of the vision for SoundCloud was the social aspect but when they first started they didn’t have the network need to make that a reality. The growth of SoundCloud has been more of an exponential curve than one with clear inflection points. In short, Eric credits its growth to “the hustle” and the artist-based focus of the platform. He recalled a story of one gruelling weekend, cold messaging a thousand or so of his Myspace music friends and acquaintances to use the service to share their content. In addition to his continued effort to push everyone he comes in contact with to use the platform and, more recently, to subscribe, he credits the pure utility of the platform as to what ensured its success. Simply put, artists needed it.
Over time more and more creators joined to share their music with other creators and the platform gained a critical mass of vibrant insider artists. From there came the consumers and now the platform has 175 million monthly unique listeners.
The Challenges
When trying to create something on an enormous scale that is trying to disrupt an industry, it is natural to run into many challenges. “Traditional radio plays about 3000–4000 artists a year, on SoundCloud we play 12 million artists a month — It’s just a completely different scale of creativity then what people thought existed in the realm of music and in the industry,” Alex stated, making the disruption clear. This makes SoundCloud very different from the rest of the music service platforms but also creates very unique problems. For example, there was no blueprint for the new ideas around licensing and revenue that they could simply tweak and adopt.
As for specific periods of time, Eric recalled one of the lowest points in the firm as trying to raise their Series A round right after the financial crisis in early 2009. They were out of money and couldn’t pay their employees for an indefinite amount of time. Eventually, they closed the round with Doughty Hanson Technology Ventures in London, but not before losing a few team members, evictions, and sending Eric to a therapist for panic attacks.
Monetization
SoundCloud had a revenue stream from early on through SoundCloud Pro — a creator subscription that provides user analytics and unlimited uploads. They also earn revenue through advertisements between songs but they have been debating the right time for further monetization in board meetings for quite a while.
SoundCloud Go, the consumer subscription service rolled out in March in the United States, and on December 7th in Germany. According to Eric and Alex, their biggest motivation for rolling out SoundCloud Go is to build a payment stream for the artists although many would point to their extreme lack of profitability as the core cause.
SoundCloud started by providing creators functionality. From there they built a network and provided artists not only with function but also with an audience. According to the founders, they see the next step in the progression of artist services as the monetization of their creative content.
However, some artists feel that this step is long overdue. In a classic Taylor Swift fashion, Dave Wiskus lashed out against SoundCloud Go in an open letter to Soundcloud. He notes that not only has the firm has been receiving revenue via advertisements for years without sharing any profits with the artists but the monetization for artists they speak of is only for major labels. He writes, “You’ve been running ads for a while now without paying us. I guess I wrote it off as a temporary measure to keep the lights on. I could accept that. But now you’re charging people for access to our songs, rolling out the red carpet for the major labels, and saying you’ll get around to us eventually.”
SoundCloud faces some clear struggles in this area as the subscription service has been relatively unsuccessful in the U.S. thus far and has caused some intense consumer backlash. Regardless, the future of the firm is … cloudy.
