Only a few days ago the word came out that Spotify is interested in buying SoundCloud.
SoundCloud is an audio platform that enables its users to upload, share, and listen to each other songs. SoundCloud was founded in September 2007 in Stockholm, Sweden. But moved quickly to Berlin, Germany. SoundCloud received multiple funding’s from different venture capitalists. In January 2012, SoundCloud had 10 million registered users and only four months later they reached 15 million registered users. The big problem for SoundCloud is that it is struggling to become profitable. In 2014 it reported a turnover of 17.4m euro and an operating loss of 39m euro (Financial Times, 2016).
Spotify viewed SoundCloud as a threat as long as it was offering a cheaper or free subscription service. But SoundCloud can not survive with no paying users, so they came up with a SoundCloud Go version earlier this year, costing $9.99 a month. (Soundcloud, 2016)
Looking at all this, it could be a very smart step for Spotify to acquire SoundCloud. Both being music platforms, one being more creative than the other, this is the way to tackle the fierce competition of Amazon and Apple’s music services. If Spotify and SoundCloud become one platform, it will draw it users into a social network, allowing them to upload and share music instantly (Financial Times, 2016). Becoming a social network, can give Spotify the advantages of network effects. The willingness to pay for a Spotify account will increase due to the more diversity of music supply, creating demand-side scale economies. For the upcoming years Spotify will stay a Mono-homing platform, but it can eventually become a winner-takes-all platform.
My prediction for the music platform industry is that if this deal goes on, Sportify will become the biggest and most important player. Apple, Google, and Amazon have to come up with very cheap or creative ways to become as good as the combination of Spotify and SoundCloud
Reference:
https://www.ft.com/content/d03bedbe-85bb-11e6-8897-2359a58ac7a5
https://soundcloud.com/press/releases/2013/03/11/new-pro-plans
Dear Laurens,
Very interesting post! I do agree that Spotify will increase its market share considerably when it would acquire Soundcloud. However, Spotify has been struggling with a profitable business model as well in the recent years. The revenues in 2015 were just under $2.2 billion in 2015, but their net losses also grew to $194 million. 80% of their revenues goes to the artists. (Forbes, 2016).
Additionally, SoundCloud and Spotify are targeting a different crowd. Spotify is targeting artists that provide- and listeners that are interested in – popular and more mainstream music, whereas on SoundCloud music is created and discovered. However, I do believe this content creating platform will become more and more similar to Spotify with the introduction of SoundCloud Go.
If Spotify and SoundCloud will become one platform like you suggested, it will be very interesting to see how they will create a profitable business model and how they will cope with the differences between customers and suppliers.
Thanks for the post Laurens. However I think that there are several drawbacks to a potential takeover. Firstly, Soundcloud’s valuation is enormous, ranging from 700 million to 2 billion dollars (Hypebot.com, 2016). Spotify will have to burn a lot of cash or other payments to afford it. Secondly Soundcloud has peaked. According to hypebot.com (2016) the amount of active users is increasing, negatively impacting the future outlook of Soundcloud. Thirdly most of the user base of Soundcloud is based on male super fans, which is not beneficial to Spotify’s strategy of diversifying their target audience.
“Spotify Potentially Buying Soundcloud, But Who Benefits?”. hypebot.com N.p., 2016. Web. 23 Oct. 2016.