SoundCloud: Another lesson in "disruption"

Things move so quickly in the disruptor Big Data category it's hard to take the long view. Back in January of 2016, TechCrunch ran an article entitled Why SoundCloud Will Be Worth More Than Spotify. And now, just over a year and a half later, the winds have changed. On July 6th, SoundCloud, the audio streaming site that is the darling of podcasters, indie kids, samplers and hiphop phenoms alike, let go of 173 of its employees. In a blog post written by co-founder Alex Ljung, the company also mentioned it would be shuttering a few of its offices (London and San Francisco) and consolidating strengths in Berlin and New York. Ljung ended the post on a particularly hopeful note: "The SoundCloud platform listeners and artists love will remain available in more than 190 countries globally. SoundCloud will continue to be the place for what’s new, now and next in music, powered by the world’s most diverse music community. I look forward to sharing more about our future plans in the weeks and months ahead." TechCrunch's new article on the heels of that post is entitled SoundCloud sinks as leaks say layoffs buy little time and paints a much bleaker picture. Far from being solvent by laying off forty percent of its workforce, SoundCloud may not even be able to keep the lights on by the end of summer, a notion that SoundCloud quickly denied. Yet the article paints a portrait of a company seemingly oblivious to the severity of its financial dire straits:

"Some of SoundCloud’s offices had catered lunches twice a week and had lavishly stocked kitchens and bathrooms, according to a source. When team members joined, they were given company swag, headphones and brand new Apple laptops. Employees were confused how the company was 'blowing through money, but now is saying they don’t have any money. People would have made sacrifices, to be honest. It’s a fun company to work at, but there was no indication.'"

Much like other tech companies specializing in disruption (Twitter, Uber, etc) the issues SoundCloud faces follow a familiar pattern: a revolving door of C-suite executives, relying too much on an exit strategy (i.e. being bought out) rather than becoming profitable, trying to move consumers to a paid tier after years of being free, running ads after years of being ad free, and making revenue but not sharing the revenue with content creators. Add to that pissing off record labels for copyright infringement, and never being a profitable company and its no wonder people are starting to ring the death knell for SoundCloud. Although it's interesting to note Spotify is also not profitable either, they at least have been paying royalties. As Music Business Worldwide points out, "by the end of 2015, SoundCloud was yet to spend a penny on music licensing fees." If they weren't paying royalties in 2015 and still couldn't turn a profit, it's going to be hard to keep the company going now without another massive infusion of cash. Why on earth people are still funding companies that aren't profitable after a decade or more is beyond me. But one thing is for certain--if you don't make a profit, eventually the revenue stream will dry up. And as usual it's the content creators who uploaded their work in good faith who will ultimately pay the largest price.

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