Soundcloud: victim of its own model

It should come as little surprise that Soundcloud, the free cloud audio streaming service, hit some serious financial trouble this month.

The problem for Soundcloud was twofold: massive outgoings and no revenue. Call me old fashioned but I always prefer to see those two reversed.

Runway …

I was shocked to read they laid off 173 staff and closed two extra offices, and that was only half the workforce. It’s a cloud streaming company. How can it take 300 people to basically just have a big computer? It’s not like they’re making steel. So strike one: ridiculous and irresponsible spiralling of payroll and overheads.

Insolvency chic

Second: when will tech start-ups understand that “freemium” is only a good idea if people actually want the premium version.

In the case of Soundcloud the free version is way too good. There is zero incentive for listeners to upgrade from the free version. There is little incentive for creators to do so either: there are storage limits on the free account but I always got around that by having multiple accounts. I paid briefly for the top tier, to look at stats, but then realised it wasn’t that useful as I actually don’t care what town my listeners are in.

So we’re left with basically a free product that is costing a fortune to deliver. You can do the math. Why can’t they?

Bubble boys

Here’s why: they are from the Bubble World, where it is not necessary to have a viable business. All you need is a bubble. They pitch a bubble-friendly idea (the “cloud”) to investors and get funded. They build the site, then they re-up. Funding rounds continue and valuations spiral: everyone is betting on flipping their investment and cashing out. No one is betting on building a sustainable business with slow, measured, reliable growth.

That’s why.

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