SoundCloud is a music web platform that allows people to upload music content and share it with millions of other users on the platform in order to promote and make the artist famous. SoundCloud was founded by the Swedish sound designer Alexander Ljung and his countryman the artist Eric Wahlforss in Stockholm in 2007 and established in Berlin. The idea of SoundCloud came up when Ljung and Wahlforss found collaboration on music was complicated and people struggled to get feedback on tracks. From there on, they decided to create a platform for music, like Flicker for photos or Vimeo for videos, in order to facilitate the process of sharing music and provide a platform reserved for people interested in music only. Moreover, they aspired to become independent from other social media like Myspace where everything else other than music could be shared on too.
1. Barriers to entry: High so the potential number of new entrants are moderately low. Firstly, the industry is highly competitive with established firms such as Spotify, MixCloud, BandCamp. In addition, those brands have already obtained large number of loyal and active users. Furthermore, new entries will have to acquire different music catalogues which already existed in the industry.
2. Bargaining power of suppliers: The suppliers of the music streaming industry varies from independent artists to underground DJs. According to Crunchbase, SoundCloud relies on at least 10 investors such as The Raine Group, Temasek Holdings, Twitter Ventures as well as dependence on music from upcoming artists while there are various substitutes for free streaming proves the suppliers have high bargaining power.
3. Bargaining power of buyers: The highest percentage of customers using streaming platform at least 1/month is from 16-24 years old. There is a moderate to high bargaining power of buyers because without the yearly subscription, switching cost from one service to another is free. Moreover, client demand for product differentiation is high since most streaming services still offer similar features and prices.
4. Threats of substitutes: Music streaming industry composed with a high number of substitutes or illegal downloading. For instance, a customer of the SoundCloud is able to easily access services such as YoTtube or Spotify. However, while Soundcloud and Spotify puts limit on amount of time a customer can listen without subscription, YouTube remains free with unlimited usage of the website.
5. Complement: In order to listen to the music without any ads interruption or having access to more information regarding your own music, customers need to purchase subscriptions such as SoundCloud Go/Pro. Moreover, SoundCloud partnered up with Deezer and Spotify to join European lobbying organisation. The main purpose of this group is to save the factors that formulate a favourable business environment for streaming music.
6. Rivalry among existing firms: high, exit barrier is high due to fixed costs. The biggest rivals of the SoundCloud are Spotify worldwide and Pandora in the USA. All of these companies lack differentiation of their services or designs. According to The Guardian (2017), the IFPI reported that the music streaming industry increased by 5.9% growth.
Based on our analysis, SoundCloud relies heavily on music creators for more contents while facing potential competitors and substitutes who tend to draw them away so Soundcloud initiated its ad revenue share process to increase the number of talented creators to join its Premier Tier. As Premier artists receive some profit from adverts on the platform, this would be an incentive for more participation to SoundCloud, ranging from upcoming talents to mainstream artists. Moreover, advertisers would see more quality artists joining the platform as an opportunity, therefore this would generate more profit for SoundCloud.
Since its creation SoundCloud has grown at an incredible pace, the company announced that they had 1 million users in 2010, only 2 years after the company was launched. In 2011 the company reached 5 million users and 40 million users in 2013. Furthermore, SoundCloud listeners continued increasing to reach an average of 330 Million listeners monthly.
SoundCloud boasts an impressive 175 million users (New York Times, 2016) and over 150 million tracks available. (SoundCloud, 2017) It is the largest on-demand music and audio streaming provider, available globally. SoundCloudâ€™s platform is an easy to use tool that enables both smaller and larger content creators to post their music and podcasts, to see play counts, likes and read comments on their work. In short, SoundCloud combines both the value of a music streaming service and of a blog. This tangible asset also adds a lot of value for consumers who only need one platform to access a multitude of content. In addition, SoundCloud is available through the web and through two apps: one for content creators, SoundCloud Pulse, and the other original SoundCloud app for all user. It is important to note that all services are free as long as users are online. However SoundCloud is more than a streaming service, it also provides a community, for users and content creators. SoundCloud is capable of directly connecting users and content creators, all 175 million of them, which creates a lot of value especially for content creators, who can get direct feedback on their work. Even though SoundCloud is growing very fast it is not growing at its full capacity. The company has become very popular due to its unique offered value only and the company does not spend money in advertising the platform at all. This is the weakest spot in SoundCloud between its competitors like Spotify and Pandora, which spent $2.3 million and $3.6 million, respectively, on paid advertising during the first four months of 2016. This may affect the companyâ€™s image and will make it appear like a low budget company.
Spend money on advertisement
SoundCloudâ€™s traffic in over 99% organic which means the company does not spend money on paid traffic. (SimilarWeb, 2017) As we have discussed earlier this can place the company in a disadvantageous situation compared to its competitors because they would earn big market share through advertisement. The company should invest in paid traffic using Google ads or Facebook ads or any other advertising Platform, this can be done using two different type of ads. The company need to create ads especially for people who did not know about the platform before, where they have to show the value offered by SoundCloud and what makes it different from other platforms, this can be done by illustrating the platform independency of other social media and the pure traffic which only contain people interested in music content. Moreover the availability of features on the platform that will make creating and sharing music easier for content creators.
Additionally, creating ads for people who already knew about the platform but did not join, where they would need to make ads to incentivise those people to join using short term deals or free trials. This would make them try the platform for the first time and if they find it more useful than other platforms this means the company could poach some of its competitorsâ€™ users.
Furthermore, the company does not offer special deal for student while competitors like Spotify do. A lot of Spotify student users claim that they are not happy about the availability of tracks in Spotify and they are willing to switch to SoundCloud when the company starts offering a discount for students. (SoundCloud Community, 2017)
In order to make more profit the company needs to widen its market share and to do that SoundCloud should offer more deals to attract new users and charge less to its subscription. This is the strategy used nowadays by the biggest companies like Uber, they are giving high incentives to people by offering short term deals, referral bonus and discounts in order to get more people to try their apps and giving them good reason to stay by offering great value.
â€œGet to Know the Artistâ€ Podcasts
Our next idea is that SoundCloud could create a podcast which would work like a talk show where the most popular artists of the week would get to be interviewed. In this podcasts, artists would be able to talk about their music style, their latest tracks, their next gigs, etc. It would be a conversation about the artist themselves, to get to know them. The interviewer could go through the artistâ€™s most played tracks and explain meanings of songs. They could talk about who they would like to collaborate with given the opportunity, what their goals are with regards to their music. They could have different formats, short podcasts where the artist would only focus on one specific song, and longer formats to talk about more things, perhaps even answer questions that they have gotten from fans.
This new offer could potentially bring a lot of value for SoundCloud for two reasons. Firstly, the fans of the artist will want to listen to the podcasts, and if they are not already SoundCloud users, this would attract more users to SoundCloud. These people who tune in to listen to the podcast could potentially become paying users. This is why these podcasts would need to be hugely advertised, on the SoundCloud platform, but also on all other social media where the artist concerned is active. The second reason why this brings value for SoundCloud is because this will attract artists, who want to be given the chance to become more popular, so that they can get their music out there, eventually sell their albums. SoundCloud could also market this as a way for artists to perhaps connect with producers or other artists who would listen to the podcast and want to contact them. This service offered to artists would also be a chance for SoundCloud to reconnect with their content creators, and continue making SoundCloud the number one platform for new and upcoming artists. This would be in line with SoundCloudâ€™s values and increase the perception the public has of SoundCloud as a brand that truly enables artists and fans to connect. This would also be a cost-effective measure as the only resources needed would be an interviewer, a way to contact and record the artists, and the SoundCloud platform.
Add video clip/live features
In order to differentiate further from competitors, SoundCloud could upgrade its design by letting users add video clips and live recordings. Firstly, with video adding feature made available, upcoming artists who are getting more popular on the platform can share vlogs with their followers as listeners would view vlogging as a more personal connection and experiences with the performers. Secondly, 74% of internet traffic in 2017 is through video, and 65% of viewers watch more than three quarter of a video, this emphasizes the popularity of it in our society now. (Syndacast, 2017) Thirdly, this means independent artists could include more in the videos rather than just sound, making them more appealing to listeners, which would provide an incentive for the artists to remain with SoundCloud rather than using substitutes like YouTube. However, this feature should only be accessed by yearly subscribed users or Premier Tier creators.
Live recording is another important feature to add. Within it, users who pay extra would be able to exchange messages or communicate with the artists while watching them perform live. Moreover, according livestream, up to 45% of live video audiences would pay for their favourite speakers and singers in live performances, so this function could be exploited further in case of superstars (for instance Kings of Leon or Post Malone concerts), users would need to pay little extra (Â£5) to view, while SoundCloud would claim approximately 10% from that portion. Furthermore, another 67% of live viewers would more likely to buy a ticket to that concert or event after watching the live videos, this acts as incentive for music creators to utilise this feature. (Golum, 2017) For the event of new performers on the rise, SoundCloud will pay them according to the number of viewers on their videos. Another function should be included with live recording is the gift giving ability, subscribed users who are viewing live broadcast would be able to communicate and give the performers money or presents. In this practice, it encourages many users to try and be artists themselves as well, gifts such as flowers, clapping hands, hearts, etc. would cost Â£1 each and SoundCloud will claim Â£0.50 for each present. Furthermore, listeners can send how much they want to the entertainers (from Â£1); but deduct 10% as fee to SoundCloud. Subscribed users can also submit reviews from 1 to 5 stars, which 5 is best, to determine if the artists are doing well on live broadcasting.
Despite the fact that SoundCloud has provided a huge benefit for new artists by providing a platform specifically for music, a lot more can be done to help them succeed in the industry and make a name amongst famous artists. SoundCloud could create its own music label where they could sign the best artists arising from the platform and give them a chance to start in the music industry by supporting them financially and help them make music like famous artists. This should be easy and very profitable for SoundCloud because looking at the statistics on the platform, they are the first to notice which artists are generating the most interest. For example Post Malone, Don Monique, Bryson Tiller and Kygo all started on SoundCloud and signed recording deals after becoming famous on the platform. Usually labels spend from $500,000 to $2,000,000 on the artist covering the advance, recording, video production, tour support and marketing and promotion expenses (IFPI, 2017), in exchange of that they take percentage from the upcoming artist earnings whether itâ€™s an album release or concert or any other sort of income. In addition to that, SoundCloud can promote its own artists on the platform and drive more traffic to their tracks easily. This will be profitable to SoundCloud in many ways because they will be making money from investing in their artist and also appear like a big opportunity for others, and thus convince more artists to join the platform. With all this being said SoundCloud has a chance to become the best artist label because they possess the resources that no other label has, allowing them to reach out to artists first.
SoundCloud should provide the ability to advertise tracks for artists, for instance if an artist wants to boost the number of listeners for his track, he can pay to reach more people and appear to listeners as a sponsored artist. Artists intending to sponsor their tracks can have a budget starting from 5$, like advertising on Facebook. This will bring huge income to SoundCloud given its number of users.
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