Soundcloud: A Startup Case Study

by Robert Kohler

“Hear the world’s sounds” – that is what users read first when they go to Soundcloud. Based in the German capital Berlin, this startup is succeeding all over the world. What makes the company successful? How do they earn money? What can I learn from this startup? I am trying to find answers to these questions in the following post.

Content strategy: Home of the sounds

Flickr is for image-sharing, YouTube is for video-sharing, and Soundcloud is for audio-sharing. It is as simple as that. In 2007, the audio sharing platform was founded by the Swedish musicians Alexander Ljung and Eric Wahlforss in Berlin. Since that time, Soundcloud has become one of the most important internet hubs for sound files (link in German) worldwide. According to their website, Soundcloud is “the largest community of artists, bands, podcasters and creators of music and audio.”

It was primarily designed for producers of music. But the founders realized quickly that musicians can reach their fans easily on this platform. They can upload their new music on Soundcloud, comment on each other’s work and let users rate their work. What makes the content strategy particularly interesting: Every uploaded sound file must be self-provided. The music is not licensed. Files are hosted on Soundcloud’s website, where interaction and comments are allowed, and also can be shared as widgets on other platforms.

 

“Born out of frustration”

Founders Ljung and Wahlforss acted from necessity: “We both came from backgrounds connected to music. And it was just really, really annoying for us to collaborate with people on music – I mean simple collaboration, just sending tracks to other people in a private setting, getting some feedback from them, and having a conversation about that piece of music,”  co-founder Ljung said in an interview in 2009. “Soundcloud was born out of the frustration that there were no tools available at the time for creators, so we decided to change that,”  co-founder Wahlforss said in another interview.

To establish the connection to Paul Graham’s text on how to get startup ideas: The problem they wanted to solve affected themselves. The idea grew “naturally out of the founders’ own experiences.” So Soundcloud can be considered  an “organic” startup idea.  Soundcloud shows Graham’s theory of getting  startup ideas works.

Where the revenue comes from

Both private users and professional artists can upload and share self-generated sound files on Soundcloud. The business model is based on two forms of using the platform (link in German), a so-called “freemium” model: On the one hand, there is a free access. Users can upload up to two hours of music pieces without being charged. And there is a subscription-based access. Users can choose between two subscription plans : The “pro” plan allows them to upload four hours total and some additional features like extensive statistics. If you want to have unlimited upload capacity, you can subscribe the “pro unlimited” plan for a higher fee and use even more additional features. Soundcloud offers annual and monthly subscriptions, depending on users’ needs.

Soundcloud had 38 million registered users in April 2013, according to a Forbes estimate, only around 5% of them paying customers. The startup does without advertisements on the platform. And there is still no profit. But the value of Soundcloud is estimated $350 million to $400 million by Forbes. The startup receives a large part of its capital from investors, such as the venture capital firms Kleiner Perkins Caufield & Byers, Union Square Ventures and Index Ventures.

Connection to other platforms

Actually, Soundcloud itself can be considered as a social network. It allows users to “like” audio pieces, to comment and to repost (like Twitter retweets), which is similar to platforms like Facebook, Twitter, Youtube, etc. Moreover, you can comment on specific parts of a sound file (within the waveform visualization of the player). Producers can decide if they want to share songs publicly or only with certain people.

What the founders did very well, in my opinion, is that users can connect their content uploaded on Soundcloud easily to other platforms. Every sound file can be uploaded with a distinctive URL. It is easy to embed the sound files anywhere, whether on a WordPress blog, on Twitter, Facebook or Tumblr. This makes it simple to share and reach large audiences. This is a huge contrast to  music-focused Myspace, a platform which became less important during the last years.

I think this kind of easy connection to other platforms is very important. You have to think about that when developing a startup, because the internet consists of an enormous amount of connections. Maybe your users want to be on your platform, but they want to be elsewhere, too. This is what Soundcloud co-founder Ljung said in an interview in 2009, and I totally agree with this statement. He considers Soundcloud a “distributed thing”. The user uploads his content there, “but there is usually the aim of putting that widget on your own page or your blog.”

In this way, users who embed their Soundcloud files on other platforms not only promote their own content, but also the platform Soundcloud itself. This is certainly a specific characteristic of a startup designed like that.

Social media presence

Soundcloud runs various accounts on Twitter. There is a “SoundCloud Jobs” account (2,100 follower, 250 tweets) for instance, where the startup inform people about jobs at its offices in Berlin, San Francisco, Sofia, London and New York. There is a support account (9,300 follower, 42,500 tweets), too, where Soundcloud users get help. The general account currently counts 1,05 million followers and there are 12,800 tweets.

There is also a Facebook page (4.4 million fans) where Soundcloud mainly promotes content uploaded by artists, as well as a Soundcloud Tumblr. Moreover, Soundcloud offers an app for various devices. It can be accessed with iPhone and iPad, Android devices.

I think it is essential for a startup to promote itself in social networks. I like the idea of running a specific support and jobs account, so that users can choose the content they are interested in.

Website

Soundcloud’s website looks very simple and clear. I really like the personalized appearance: whenever you go to soundcloud.com, there is a new photo that takes up the whole page. It shows a person in an environment from her or his everyday life (probably). The person is hearing music (pretended? 🙂 ), and in the bottom of the site you can click the “play” button to hear her or his song.

Generally, this kind of personalization is a good technique for entrepreneurs to show their users/customers the role their  product could play in their customers’ lives. By using exemplary persons, you can easily show things like: This is where you can use the product, this is how you can use it, here you see that everybody uses it, so you have to use it, too. I think this is a good way of promoting a startup.

In conclusion, Soundcloud is a perfect example of how to succeed with a startup idea: Two musicians wanted a platform for sharing their music easily with colleagues, in order to get some feedback. Therefore they created it themselves and solved their very own problem. The idea is very obvious, but someone had to have it. The founders know their audience because they are part of it. They went to Berlin, where they found a good infrastructure for networking and launching their product. With their freemium model, the company generates money. Making it easy to embed Soundcloud files on other platforms was an important factor in their success. Soundcloud found investors, so the startup can spread over the world and win more and more users. Soundcloud is well on the way to getting the “YouTube of music.”

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