“SoundCloud in danger of running out of cash”<\/p>\n
(Financial Times<\/a>)<\/p>\n “Soundcloud\u2019s top execs are leaving at an incredibly awkward time”<\/p>\n (QZ<\/a>)<\/p>\n “Is SoundCloud Imploding? Top Execs Jump Ship as \u2018Desperate\u2019 Fundraising Begins”<\/p>\n (Digital Music News<\/a>)<\/p>\n<\/blockquote>\n You don\u2019t have to be an expert analyst to understand that the company is going through severe financial difficulties \u2014 even looking past some of the the more sensationalist headlines.<\/p>\n Despite the doom and gloom\u00a0SoundCloud holds a lot of good will in the eyes of users and indie artists, some of whom have built a career from scratch using the platform:<\/p>\n \u201cThis is for every indie artist. Shouts out to SoundCloud for holding me down. It\u2019s another one, baby!\u201d<\/i><\/p>\n (Chance the Rapper shouts out SoundCloud in Grammys acceptance speech<\/a>\u00a0– The Verge)<\/i><\/p>\n<\/blockquote>\n So this is the bottom line, then: SoundCloud is a product for the artists and the listeners.\u00a0<\/strong>It was built out of passion, to solve a problem that its founders were facing, and has changed the way that young up-and-coming talent can grow and connect with their fanbase \u2014 and this is the part of the business that came first. But when it comes to converting such positive sentiment into revenue, things are far from working well.<\/p>\n There\u2019s a caf\u00e9 not 5 minutes from my apartment in Berlin, where the SoundCloud founders are rumoured to have put together the very first version of the cloud-based streaming app. Perhaps it’s for this reason that I feel some kind of connection to the company. Although having never worked there myself, a number of friends and acquaintances have joined and left over the years. It’s a staple of the city, and somewhere most people in tech seem to have some form of connection to. The company also plays its part when it comes to fostering the community by hosting a range of engineering meetups and other startup events.<\/p>\n For those in the Berlin tech scene, SoundCloud is seen as something of a flagship company for the city \u2014 for at least as long as I can remember. The tech industry here is still relatively immature compared to other European cities like London, which has given birth to a number of high-profile names\u00a0and big exits. It\u2019s still not clear when that will change, given the proportion of early-stage startups\u00a0still dominating headlines.<\/p>\n Despite being such a recognized brand in Europe and worldwide, the SoundCloud product is hard to categorize in a world now shared\u00a0with the big names and deep pockets of Spotify and Apple.<\/p>\n If SoundCloud wasn\u2019t around, it\u2019s still not clear who would take up the banner of \u201cBerlin startup flagship\u201d in their place.<\/p>\n It\u2019s important to understand the space that SoundCloud was born into, back in 2008. The \u201cYouTube of audio\u201d was launched at a time when YouTube was barely a shell of what it is today. At a time when MySpace was dominating as a platform for independent musicians, SoundCloud was intended to provide a better way for creators to share and present their music to an audience on the web \u2014 something that still applies today.<\/p>\n In comparison to MySpace, music on SoundCloud was more shareable, compatible with social media and more \u201copen\u201d in general \u2014 something that became increasingly important over time with the rise of platforms like Facebook.<\/p>\n In many ways this focus has paid off for the platform; today, I\u2019d argue that the variety of indie content from individual artists is the platform\u2019s single unique selling point for consumers (but more on that later).<\/p>\n Over the years, the team have had several attempts at monetizing the platform in a number of different ways.<\/p>\n As creators of a podcast, we pay for SoundCloud Pro at ChartMogul. With this subscription, you\u2019re essentially just paying for more storage and stats on listeners. You\u2019ll hit the limits of the free plan once you upload 3 hours of audio, so it\u2019s basically a must-have for any serious creators on the platform.<\/p>\n I can\u2019t help but think that getting creators to pay for storage is a backwards way of approaching monetization that only serves to limit the content on the platform. YouTube doesn\u2019t charge for the number of hours of video uploaded to your account \u2014 they simply monetize on the user side through their ad platform.<\/p>\n I was genuinely excited when SoundCloud Go was launched back in March 2016. But I arrived at the announcement page and was instantly<\/i> confused by the majority of messaging:<\/p>\n So you can see why I didn\u2019t buy. This is the LEAST compelling subscription pricing page I\u2019ve seen for a long time! I\u2019m an early-adopter proficient in tech, so how do they plan to sell this to\u2026 my Mum, for example?!<\/p>\n It\u2019s too vague. I pay \u00a310\/month for Spotify. If someone told me I could pay \u00a315\/month for \u201ceven more tracks\u201d, how am I supposed to understand if that\u2019s a valuable proposition\u00a0for me?<\/p>\n In reality, what they\u2019re really suggesting is that they\u2019re adding access to licensed tracks from the various record company deals they\u2019ve signed (UMG, Sony, Warner etc.). But how is the user supposed to make this distinction?<\/p>\n I can\u2019t help but feel like the company made some serious concessions to close the various deals they needed with each record company – features like paid-only content are clearly there to appease the rights holders, and for listeners only serve to confuse and frustrate.<\/p>\n Following in Spotify\u2019s footsteps, SoundCloud inserts streaming ads in between tracks for free users of the service.<\/p>\n Actually, when you look at the type of product SoundCloud represents, this form of monetization seems to make the most sense. SoundCloud has:<\/p>\n There\u2019s definitely another streaming platform with very similar characteristics: YouTube<\/b>.<\/p>\n How is YouTube monetized? By running ads in its free user-generated content. (Okay, I know there\u2019s YouTube Red, the premium subscription too, but that still represents a minor chunk of the platform\u2019s revenue at this point).<\/p>\n For whatever reason, SoundCloud has failed to imitate\u00a0the YouTube model work effectively. This could be due to reasons of scale, or subtleties in the audio format when compared to video. Or the\u00a0product execution.<\/p>\n The core user\u00a0interface of SoundCloud hasn\u2019t changed considerably over the years, and while the web experience was never renowned for its elegance, it remains functional without too many surprises.<\/p>\n The mobile app however\u2026 well where do I start? All you have to do is read some of the blog comments from the announcement back in 2014<\/a> when the latest re-design went live. Here is just one of many comments on the post:<\/p>\n “SoundCloud’s new app is one of the most unfortunate business decisions I have ever seen a company make. It seems they have forgotten that without the musicians that upload music there wouldn’t be people to listen.”<\/p>\n<\/blockquote>\n The backlash was extensive, and almost entirely targeted towards the removal of features that artists relied upon, and the addition of a new, completely unintuitive user interface.\u00a0The mobile app confuses me on almost a daily basis when I tap the wrong thing, swipe the wrong way or play a track without meaning to. And I\u2019ve been using it since 2014! I don\u2019t think I\u2019ve felt this way since trying to use Snapchat for the first time.<\/p>\n SoundCloud is the only streaming audio platform I\u2019ve used that has a feed, i.e. I can see a chronological stream of new tracks that are posted and recommended by people I follow. I like that! One of the main problems I have is with discovery. With so much user-created and indie content on the platform, my ability to find and play new music that fits my taste profile is shockingly low.<\/p>\n The pivot towards including licensed tracks on SoundCloud means competing with the big players in the space (Spotify, Apple Music, Google Play music) in a much more direct fashion.<\/p>\n Spotify touts 43 million paying subscribers (out of over 100 million accounts overall), and is still struggling to break even at that scale with its licensing model. Given the mixed messaging around SoundCloud Go (see above), it\u2019s not completely surprising that the service is rumored to have no more than a few hundred thousand paying listeners – although no official numbers exist for this yet.<\/p>\n As highlighted above, each separate attempt at monetization has effectively attacked the product from every possible angle, leaving a fragmented user experience. The result is that users suffer\u00a0from a\u00a0sense of penny-pinching, pushed to part with their money at every opportunity.<\/p>\n This is in all likelihood a result of the search for reliable revenue mentioned above. As a listener, it’s not clear to me what SoundCloud\u00a0is\u00a0<\/em>any more. Where does it fit into the streaming music landscape? It doesn’t feel like a product that can stand on its own as an alternative to Spotify or Apple Music, but it’s still asking for ten of my hard earned dollars every month.<\/p>\n If SoundCloud was to succeed in the launch of paid subscriptions (SoundCloud Go), they needed to convert a serious number of their free users over to paid accounts. Spotify is incredibly proud of its proposed free-to-paid conversion rate of 20-25% —\u00a0which dwarves most other similar freemium businesses.<\/p>\n In the recent\u00a0Financial Times report,\u00a0analyst Mark Mulligan, founder of Midea Research stated:<\/p>\n \u201cIt will never get conversion rates [from free to paid] anywhere close to Spotify\u2019s 20-25 per cent… The best it could ever hope for was 2 to 3 per cent, and in doing so it will alienate much of its userbase.\u201d<\/p><\/blockquote>\n It’s not clear what kind of conversion rate SoundCloud Go has seen in the months since launch, but the outlook isn’t promising.<\/p>\n In a market where margins are virtually non-existent, your business may not be remotely viable unless you\u2019re the single dominant player in the market. Spotify has eaten up a large chunk of the music streaming market, but even at 43\u00a0million paying subscribers is struggling to balance the economics in their favour.<\/p>\n Your subscription offering needs to be communicated in a crystal-clear way. This runs from the actual Pricing page through every part of Marketing communication and into the product itself. The positioning of the paid subscription needs to be communicated from the consumer\u2019s perspective \u2014 even if it\u2019s driven from the business side. Thinly-veiled monetization strategies are obvious.<\/p>\n Consumer subscriptions generally only work well when the value of the paid service in comparison to any alternatives is overwhelmingly high. One good example of this is Netflix \u2014 for a\u00a0single monthly fee you get such a vast, high-quality library of content that you can consume to your heart\u2019s desire.<\/p>\n As has been said many times from both a B2C and B2B perspective, users who sign up for your free plan are not necessarily the same segment of users who would sign up for a paid plan. They may have no intention to ever pay for such a service, but are quite happy to make the most of your free offering. Focusing on freemium growth without a solid plan for converting said free users means you\u2019re building a high level of risk into your business model.<\/p>\n Over the last few months we\u2019ve seen signs that time may be up for the company – at least in its current form. According to a filing for SoundCloud Ltd in January 2017, the company\u2019s net loss grew to $52M in 2015<\/a>, outpacing a very slow growth in revenue (to $22M).<\/p>\n\n
![\"Chance](\"https:\/\/chartmogul.com\/blog\/wp-content\/uploads\/2017\/02\/Screenshot-2017-02-15-12.30.06-1024x513.png\")
The poster child of Berlin\u2019s startup scene<\/b><\/h1>\n
![\"St](\"https:\/\/chartmogul.com\/blog\/wp-content\/uploads\/2017\/02\/GR003912-1024x678.jpg\")
\nFact sheet<\/b><\/h3>\n
\n
\nBack in a different era…<\/b><\/h1>\n
![\"MySpace](\"https:\/\/chartmogul.com\/blog\/wp-content\/uploads\/2017\/02\/myspace-coldplay.jpg\")
The elephant in the room: Revenue<\/b><\/h1>\n
Creator subscriptions (SoundCloud Pro)<\/b><\/h2>\n
Listener subscriptions (SoundCloud Go)<\/b><\/h2>\n
![\"SoundCloud](\"https:\/\/chartmogul.com\/blog\/wp-content\/uploads\/2017\/02\/soundcloud-go-1024x366.jpg\")
\n
Streaming audio ads<\/b><\/h2>\n
\n
User experience woes<\/b><\/h1>\n
![\"Soundcloud](\"https:\/\/chartmogul.com\/blog\/wp-content\/uploads\/2017\/02\/IMG_6443-1024x683.jpg\")
<\/p>\n\n
So what went wrong?<\/b><\/h1>\n
1. Shift in focus to directly compete with licensed streaming platforms<\/b><\/h3>\n
2. Scattered attempts at monetization<\/b><\/h3>\n
3. Poor product evolution and vision<\/h3>\n
4. A big bet on converting free users to paid<\/h3>\n
What can subscription businesses learn from this?<\/b><\/h1>\n
1. Consumer subscriptions require unparalleled scale<\/b><\/h3>\n
2. Don\u2019t drive your pricing communication from the business side<\/b><\/h3>\n
3. Freemium: Don\u2019t assume free users can be converted to paid users<\/b><\/h3>\n
What now?<\/b><\/h1>\n
![\"\"](\"https:\/\/chartmogul.com\/blog\/wp-content\/uploads\/2017\/02\/GR003900-1024x660.jpg\")