Soundcloud - Abhisek Jena PDF
Soundcloud - Abhisek Jena PDF
Soundcloud - Abhisek Jena PDF
• Spotify is very good at capitalizing during one of the most important periods of any
brand’s relationship with customer – onboarding. Per the case, about 25% of listeners of
Spotify’s free services converted to paying subscribers and holds 20% of global music
industry revenue.
• Economies of scale: Its subscription price is the comparable to other competitors.
However, considering it has a larger customer base, it can distribute the fixed cost of
licensing fees to record labels thereby keep the cost low.
• Customer captivity: Spotify has a huge number of users and this scale presents unique
advantage to the company in terms of user data. It can use this data to improve user
experience by improving search functionality and content discovery. It also uses data to
personalize user experience. Its recommendation algorithm can help surface right
content at the right time based on time of the day and user context. Level of
personalization in tough to copy and Spotify’s scale gives it a distinct advantage in that
realm.
• Network effect: Spotify’s has a huge user base streaming more songs than other players.
This implies record labels generate more revenue from Spotify compared to other
players. Hence, in the long term, Spotify can leverage this network effect to gain higher
bargaining power over record labels.
I think there is room in the market for 2-3 players. There is not much in the way of exclusive
content for music streaming. Pretty much every on-demand service offers the same song
catalog. It is a zero-sum competition industry and only so many customers that would subscribe
to the streaming services. Unless, there are only a few streaming services, it will be difficult to
be profitable thanks to the high fixed cost they have to pay to the record labels as licensing
fees. Record labels can operate without the streaming services, but not the other way around.
A few streaming services will help better negotiate/bargain with the major record labels and
charge an increased subscription fees to the consumers to make actual profit.
3. 11 pts – page limit 1 ½ page. Do you think SoundCloud should (a) keep their focus on the
emerging artists or (b) enter the mainstream streaming business? Whatever your choice
is, please explain what monetization strategy Soundcloud should follow to ensure
profitable growth and how these strategic choices will affect the bargaining power of
artists, recording companies and listeners.
SoundCloud’s unique value proposition is the music uploaded by independent artists. This
implies users cannot get these music anywhere else. However, SoundCloud has not been able
to exploit it
1. Its business model is inadequate that makes attractive to artists and users
2. It still has not been able to leverage its ardent artist user base to create customer
captivity and network effect
SoundCloud’s advantage over competitors is its engaged and passionate resident artists and
users – mostly early adopters. I think SoundCloud should keep its focus on the emerging artists
than entering the mainstream streaming business.
Despite encouraging Open Innovation with the artists, SoundCloud has lagged Spotify when is
comes to customer captivity and network effect. SoundCloud is unable to sustain an advantage
due to the network effects of its’s larger competitors such as Spotify. SoundCloud’s “creator-
first” perspective is essential but must be complemented by an equal focus on driving more
listeners to this platform. Meanwhile, SoundCloud should explore machine learning to improve
the recommendation algorithm for listeners and data analytics for artists, leading to a more
relevant and targeted offerings and increasing stickiness (customer captivity) of the platforms
for all users.
Music streaming services is already over-crowded with several big players with deep pocket and
SoundCloud will find it extremely difficult competing against them. SoundCloud should focus
and attract emerging artists by better revenue sharing, instant availability, direct connection /
communication with fans, and faster transparent payout to artists. This will help them
differentiate themselves and act as a niche player – like RedBull did in the energy drinks
market.
Monetization Strategy:
1. Freemium subscription-based model for Artists: Continue with the current model for the
artists to pay a monthly fee to upload and share content with the users on the
SoundCloud platform. We can perform a price sensitivity analysis to check which price
point might attract more paid artist subscriptions.
2. Profit sharing with popular artists: Sign deals with popular well-known artists to create
exclusive content for SoundCloud. Pay the artist share of the profit based on the
number of times their music was streamed by users.
3. Freemium subscription-based model for users: Users can listen to ad supported on the
platform for free. But pay a monthly subscription fee for ad-free version. Price is in the
range of $3 - $5 which is lower than the $9.99 Spotify and other streaming services
charge currently.
Bargaining power of artists: While independent artists will have higher bargain power as they
will not have to deal with major record labels, but they also will not have access to the kind of
resources – managing the nuts and bolts of an artistic career – as an artist who signed to one
record label. In an industry where artists are skeptical about label involvement, SoundCloud is
attempting to offer new alternatives to traditional music distribution.
Bargaining power of recording companies: Very low to no bargain power considering
SoundCloud will not stream any music from the record labels. This also helps SoundCloud keep
the cost low as they will not have to pay to the record labels. Further, if more and more artists
start to use SoundCloud for content publishing, SoundCloud can have bargaining power over
recording companies to possibly license out new music to them.
Bargaining power of listeners: Listeners will have high bargain power as they have many options
for music consumption. Hence, unless SoundCloud artists publishes great content, users many
do not stick with it. In the short term, listeners will have a strong bargain power and even may
not want to pay for streaming. But in the long term as SoundCloud has more content on its
platform, it will have a bigger bargain power.
Conclusion:
Ultimately, I think SoundCloud should follow the Netflix model of creating its own content and
not be dependent on the record label companies to start a music streaming service. It will be
difficult in the short term but will be beneficial in the long term as SoundCloud’s music library
increases, it will have a strong competitive advantage as a niche player hosting music that is not
available anywhere else.