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SoundCloud’s new $60M funding: Can it be the “YouTube of audio” when YouTube is already the YouTube of audio?

soundcloud youtube 02 300wAlthough the deal closed last year, the news is breaking only now: SoundCloud scored $60M of new funding from Institutional Venture Partners (IVP) and the Chernin Group. The Wall Street Journal reported the news.

IVP promoted the investment in a blog post ambitiously titled: Why SoundCloud Will Rule the Digital Audio World. IVP characterizes SoundCloud as the “YouTube for Audio”, just as SoundCloud has self-described in the past. It’s easy to see a parallel. Soundcloud is a UGC (User-Generated Content) platform, like YouTube, where a minority of users contributes the content, and a majority of users listens to it.

The creator/consumer balance has shifted over the years. SoundCloud was founded as a collaborative, promotional, and storage platform for audio producers. In December 2012 the site underwent a design and feature overhaul that skewed the experience more toward the listening audience. soundcloud explore 01 300wMany uploaders protested what they perceived as a reduction of social and marketing features. Tellingly, Soundcloud has left the “Classic” version available to users, running alongside the year-old update.

The strategy was clear: bring in more listeners and grow the audience. In that respect, Soundcloud is no different from Pandora, Spotify, and all the other services that license their music from labels and publishers. The new investment money reportedly will bring SoundCloud into even tighter league with that cohort, if rumors prove out that SoundCloud intends to license content to supplement the user content. If it plays out that way, SoundCloud will mimic YouTube more than it does today, opening the doors to all kinds of uploads that are now deemed illegal bootlegs and removed.

The question lies in the premise. Can SoundCloud, or anyone, be the YouTube of audio, when YouTube is already the YouTube of audio? Google’s platform is the most important, powerful, and popular music-delivery platform on in the world. The fact of its video conveyance is proven to be irrelevant. Or, to be more precise, it is probably an advantage.

legitimate businessA meaty and thoughtful article by Stan Alcorn has been circulating lately. Called Is This Thing On?, the essay questions why audio doesn’t go Internet-viral the way video does. Despite the heavy bandwidth load, glitchy performance, conflicting delivery standards, difficulty extending to mobile, and frequent lack of moving pictures in YouTube audio, the Internet citizenry definitely prefers looking at something while listening.

That underlying marketplace trend is one problem. Just as important is YouTube’s looming entrance into the music-streaming field with a dedicated subscription service. On that day, YouTube will formally become the “YouTube of Audio.”

But there is a legitimate business to be staked out in YouTube’s shadow and SoundCloud has already proven it. By November of last year, the Soundcloud site had 250-million visitors per month, and at least 20-million paying users. Music subscription sites achieve those numbers only in their fitful, feverish dreams.

SoundCloud has never put an advertisement in the service. Its sole revenue stream comes from the subscriptions, paid by creators for advanced features and extra storage space. SoundCloud must keep that group happy while growing the free-using listener audience. It’s a tricky balance, and IVP is betting on the Berlin-based SoundCloud team to pull it off.

Brad Hill

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