SoundCloud’s do-or-die moment came Friday – and it seems it’s do, not die. The company now takes on new executives, and a new direction.
First, it’s important to understand just what happened yesterday. Despite some unhinged and misleading blog reports, the situation didn’t involve the site suddenly switching off – following the layoffs, the company said it had enough cash to survive through the end of the fourth quarter. That said, the concern was, without reassurances the company could last past that, SoundCloud could easily have slipped into a death spiral, with its value dropping and top talent fleeing a sinking ship.
What happened: New investment stepped in, with a whopping US$169.5 million, for SoundCloud’s biggest round ever (series F). That follows big past investments from Twitter, early venture funding, and debt financing last year.
This gives the company a new direction, some new leadership and leadership experience, and the stability to keep current talent in the building.
Under new management
What changes: Plenty. When you invest that much money, you can get some changes from the company to ensure you’re more likely to get your investment back.
- New CEO: Kerry Trainor (formerly CEO of Vimeo)
- New COO: Mike Weissman (formerly COO of Vimeo)
- New board members: Trainor joins the board, alongside Fred Davis (a star investor and music attorney), and Joe Puthenveetil (also music-focused), each coming from Raine (the firm that did the deal).
- A much lower valuation: In order to secure funding, SoundCloud adjusted what had been at one point a $700 million valuation to a pre-investment $150 million. That’s not much above its annual run rate, and it indicates how far they’ve fallen.
- …but maybe we don’t do this runway thing any more. The good news – TechCrunch reports the company says it has a $100 million annual run-rate. This investment means they’re not in urgent need of cash. They’ve bought themselves time to genuinely become a money making business, instead of constantly needing to go back to investors for money. (“Dad??? Can I borrow $70 million?”)
What stays the same:
- SoundCloud as you know it keeps running. (Meaning, if you aren’t terribly interested in the business story here, carry on uploading and forget about it!)
- Eric Wahlforss stays on. The co-founder’s title is adjusted to “Chief Product Officer” instead of CTO, but it appears he’ll retain a hands-on role. That’s important, too, because no one knows the product – or how it’s used by musicians – than Eric does. It’s easy to criticize the executive team, but if you’re a current user, this is good news. (Just bringing in some Vimeo people and dumping the people running the product would have almost been very bad for the service you use.)
Now, most headlines are focusing on the cash lifeline, and that’s absolutely vital. But this is a major talent injection, too. Fred Davis is one of the key figures in New York around music and tech, from his role as an attorney to as an investor. (He was known to float around hackdays, too.) Oh, yeah – he’s also the son of Clive Davis, who started NYU’s music business school. Puthenveetil also represents some significant expertise in the area.
Kerry Trainor is about the single most experienced person you could find to lead SoundCloud – more so, in fact, than the executives who have steered the company before. His streaming experience, as SoundCloud points out in their press release, spans back 20 years. (They leave out the names, because kids don’t like AOL, Yahoo Music, or Launch Media any more, but experience matters.) And he is largely credited with making Vimeo a profitable company.
What’s the future of SoundCloud now?
For all the skepticism, Alex seems to have delivered on exactly the promises he’s been making in past weeks, vague as they may have seemed. SoundCloud does appear ready to re-focus on creators, and the financing means ongoing independence is a real possibility.
Whether it works or not, it’s tough to overstate what a significant shift in direction this represents. For years, people have casually referred to SoundCloud as the “YouTube of audio.” (Oddly, the phrase I first wrote when they started was a “Flickr of audio,” which, uh, dates that story. But it does also indicate creators, not consumers, were initially the focus, so I at least go that bit right.)
It seems SoundCloud aren’t just bringing on former Vimeo executives. They seem poised to follow Vimeo’s example.
We already know that endlessly expanding scale and more streaming is a disastrous business model. The issue is, if listeners aren’t paying, and any royalties are accruing, the more people listen, the more money you lose. Spotify is facing that now and may need a similar change in direction, and the entire music industry is caught up in this black hole. Companies like Google and Apple can absorb the losses if they choose; an independent company can’t.
So scale alone isn’t the answer. And just having more listeners doesn’t necessarily mean the kind of attention that gets you caring fans or lands you gigs.
Vimeo faced a similar challenge, in the face of challenges from YouTube and Facebook’s own video push – each backed by big companies and revenue streams that the creator-focused, smaller company lacked.
What’s unique about Vimeo, under Kerry Trainor in particular, is that they found a way to compete by focusing on the creators uploading to the service rather than just the viewers watching it. While YouTube always tried to encourage uploads, its focus was on scale – and ultimately, the toolset was geared more for advertisers and watchers, and casual content creators, than for serious content makers.
Vimeo offers an alternative that serious uploaders like. Actual streaming quality is higher. The presentation is more focused on your content. There are powerful tools for controlling that presentation and collecting stats – if you’re willing to pay. And there’s not only greater intangible value to those serious uploaders, but greater tangible returns, too. It’s easier to sell your content – and, because there’s a collected community of pro users, easier to get audiences that support paying gigs.
Now, to do that in the face of YouTube’s scale, Vimeo had to make money. And that’s where Trainor did, by encouraging more of its creators to pay.
We already know SoundCloud’s plans to make listeners pay have fallen flat. So, as users have been clamoring for years, now is a chance to refocus on the creators.
I think anyone who knew Vimeo figured this was the best guess as the company’s new strategy the moment they saw Trainor and Weissman rumored to take over executive roles. And sure enough, in an exclusive talk with Billboard, Trainor says point blank that’s his strategy:
SoundCloud’s Pro and Pro Unlimited subscription services provide insights into which tracks are most popular and where. The Pro service, which costs $7 a month, provides basic stats such as play counts and likes, see plays by country, turn on or off public comments and upload up to six hours of audio. The Unlimited offering, for a $15 monthly fee, lifts the cap on the amount of music that can be uploaded and provides more specific analytics.
Trainor hopes to increase the number of creators who pay to use SoundCloud Unlimited’s service by adding an even more robust creative toolkit.
Emphasis mine. And reaction from users I’ve seen is, even a lot of die-hard SoundCloud enthusiasts in my early adopter social feed suggest people found reason to pay for Pro, but not Unlimited. Poor differentiation and stagnant offerings just gave little motivation.
That’s not to knock even SoundCloud’s rocket growth. On the contrary, it’s pretty tough to argue against sharing your sound on a site that’s one of the Internet’s biggest, with one of the world’s most popular mobile apps alongside. But now having grown to a huge audience, SoundCloud needs to fresh its tools for creators.
Translating from video to audio isn’t going to be easy. Part of the reason SoundCloud presumably didn’t push as hard on creator subscriptions is, there’s no clear indication what would make musicians pay for them. Audio is simpler than video – easier to encode, easier to share. Serving video on your own server is a nightmare, but serving audio isn’t. And, sorry to be blunt, but then there’s the issue of whether music producers really earn enough to want to blow cash on expensive subscriptions. Compare a motion graphics firm or design agency using Vimeo, who could make back a couple hundred bucks in subscription fees in, literally, an hour of work.
Even beyond that, I’m not clear what SoundCloud creators want from the service that they aren’t already getting. (Okay, Groups – but those probably aren’t coming back, and I don’t know that people would pay a subscription for them.) The toolchain out of the browser is already powerful and sophisticated, which has always made Web tools a bit less appealing – why use a browser-based mastering tool like Landr when you already have powerful mastering tools in your DAW, for instance? If you’ve invested enough money in gear and software to want to share a track to begin with, what will make you spend a few dollars a month for more?
That said, there’s clearly a passionate and motivated community of people making music. And note that the new talent at SoundCloud has music experience and interest as well as video. Trainor is evidently an avid guitarist (what, you’re not a fan of “Etro Anime,” his band?). He cut his teeth in tech in the area of music. (LAUNCH Media went from CD-ROM-taped-to-a-print-magazine to Internet radio offerings that look a lot like how we listen to music now.) And he’s currently on the board of Fender guitar.
Vimeo also had a long-standing interest in music and the music community in the company’s native New York City.
These are tough problems to solve. But I can think of few better people to tackle them. Basically, Alex and Eric not only saved their company for now, but seem to have gotten what they wanted in the process.
Also, it’s worth pointing out – the music business wants SoundCloud to live, not die. I think it would be unequivocally bad for musicians and labels, in fact, with independent and international artists feeling the worst impact. But it’s also worth noting Fred Davis tells Billboard: “If I could show to you the number of people who have been calling us, expressing fear about it going away, you would be shocked.”
It’s still possible investors will look to sell, but I suspect with the valuation at its low point and the tech world in general losing interest in music’s money-losing propositions and legal mess, independence is probably the safe bet.
If SoundCloud can turn this around, it’ll be a great example of a tech company humbling itself and successfully changing course.
We’ll be watching, and when this team settles in, hopefully will get to talk to the new team.
Background:
SoundCloud saved by emergency funding as CEO steps aside [TechCrunch]
SoundCloud Secures Significant Investment Led by The Raine Group and Temasek [SoundCloud press release]
Exciting news and the future of SoundCloud [Alex on the SoundCloud blog]