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