When music fan Eric Wahlforss and friend Alexander Ljung launched SoundCloud nine years ago, they never imagined it would one day be name-checked during a music awards show watched by 26 million people. Yet, when artist Chance the Rapper accepted a gong for best rap album at the Grammys in early 2017, he didn’t thank a record label – he thanked the music streaming platform. “It was a very memorable moment for us,” says Eric. “It was the first time a streaming-only artist had received one of music’s highest accolades. For this incredible artist to thank SoundCloud during a hugely significant moment in his life and career was truly special.”
The music streaming industry, especially ‘freemium’ business models, hasn’t always impressed musicians. Yet SoundCloud – the brainchild of an electronic musician and a sound designer – has been embraced by the music industry and earned a reputation as an artist-friendly tool, winning over music fans and creators in the process.
Today SoundCloud has more than 175 million monthly users. In Australia and New Zealand, over 8 million users interact with SoundCloud monthly – that’s more than a quarter of the mobile population. They’ve struck deals with Warner Music Group, the Universal Music Group and Sony Music Entertainment to stream albums by their rostered artists.
Currently, there are over 18 million creators on SoundCloud (of which one quarter are Gen Z), and it’s been called the “ultimate mixtape” because of the diversity of artists the platform showcases.
“We’ve always focused on building a product that we really want to use ourselves,” says Eric, who met Alex when they were both studying at Sweden’s KTH Royal Institute of Technology.
Fittingly, they bonded over their matching Mac computers. “In the beginning we focused on building an ecosystem where all forms of creative expression could live together.”
The original business model they started with in 2007 was simple. Part music platform and part social network, they took inspiration from Flickr and WordPress to create a platform that allowed anyone, from any background, to become an artist and build a fan base.
Eric and Alex got their first 1000 users by delving into their contact books. “We started by inviting friends and producers in the house and techno scene across European cities where this music was already thriving,” says Eric. “We started with Stockholm, Berlin and London, then we continuously expanded, evolving into a platform where new scenes can be cultivated.”
Today, the start-up has more than 300 staff members in full-time roles around the world. If an employee relocates to its Berlin HQ from elsewhere (there are also offices in London, New York City and San Francisco), they’re given access to temporary accommodation and in-house German lessons.
Their HQ occupies three levels of Google-funded incubator The Factory, a former brewery that overlooks The Berlin Wall Memorial, alongside other tenants including Zendesk, Mozilla and MyFitnessPal. It took three years and 3.4 million for KINZO Berlin architects to transform SoundCloud’s 4000 square-metre space – complete with indoor garden, yoga room, tech-free zone, soundproofed nap room and recording studio.
Opened in 2014, the office’s prominent staircase and surrounding atrium (that houses the printer and coffee machine) acts as a natural hub for staff to interact. There’s also a lecture space (which was designed to feel full with six or 60 people) and each themed meeting room was designed by a different carpenter, with its own unique feel and materials. But being an audio-focused company, sound quality is of the utmost importance. Looking like loudspeakers, each employee has a wooden locker with a table tennis ball-sized hole to help absorb deep frequencies, and acoustic materials – many of which are eco-friendly Heraklit – are showcased rather than hidden, sometimes featured as cases around drop lights or diffusers of ceiling lighting.
Prior to the move into the start-up district of Mitte, SoundCloud’s Berlin staff worked out of four offices and often were forced to have meetings at popular cafe and co-working space St Oberholz.
A similar spirit in the early days also saw market research conducted in nightclubs across Germany, where the founders approached partygoers on the dance floor to convince them to try the new website.
Nowadays you’ll find new releases from Drake and Azealia Banks alongside mixes of Super Mario theme songs, slam poetry versions of Kanye West tracks, and endless podcasts. It’s even birthed a new music genre tagged ‘Soundclown’, which is mainly tongue-in-cheek mash-ups of popular songs from every genre (think a Kendrick Lamar song edited to sound like The Beatles’ ‘Let it Be’).
But, the biggest surprise to many is that SoundCloud is managing to monetise a freemium model – and share those profits with artists. They did, however, have a helping hand; SoundCloud has raised US$298 million across several funding rounds, including US$70 million from Twitter Ventures in June 2016.
In 2014 they introduced their first paid advertisers (including Red Bull, Jaguar and Comedy Central) and they also have sponsored playlists – Asics created one for running to promote a new sneaker last year, and six months ago Lululemon released a series of meditation tracks.
The company has since released a subscription option and, in 2014, they launched ‘On SoundCloud’, which allows selected artists to earn revenue from SoundCloud plays in countries where the platform is monetised. It’s invite-only.
“We have a dedicated team who assess creators on a case-by-case basis,” says Eric. “It was previously only open to independent creators who wrote and recorded their own original tracks, but we’ve expanded the program to allow DJs and producers.”
Thanks to agreements with record labels, there are far fewer ‘takedowns’ (where music has to be removed because of copyright restrictions) of content from SoundCloud. “We want to provide all artists with more freedom to share their work, with less fear of having content removed for copyright issues,” says Eric. “Our goal is to empower creative culture and, due to the agreements we have in place with the industry, takedowns are at an all-time low.”
In the past year, SoundCloud’s finances have been under scrutiny, with reports the founders were considering a fire sale after being unable to raise enough money to continue operating. They denied these claims and, just a few weeks later, announced they had secured a US$70 million credit line from three investors – Ares Capital, Kreos Capital and Davidson Technology – to “enable SoundCloud to strategically grow”. They’re predicting two-and-a-half times year-on-year growth in 2017.
It helps that Eric likes to keep his DJ skills sharp while maintaining his duties as SoundCloud’s Chief Product Officer. “My last gig was a DJ set on the Robot Heart bus at the Burning Man festival two years ago,” he says. “It was an unforgettable experience. I think it’s important for founders to make time for their personal interests throughout their company’s journey. Rather than being a distraction, it’s a valuable stimulation.”
On a flight back from Greece, Eric struck up a conversation with two musicians in the airport about improvisation. One of his latest playlists combines Moroccan Gnawa music, Sahara rock and “influences from the Rub’ al Khali desert”. “I’ll always be a musician,” he says. “I’m very fortunate to work somewhere which is such a hub for musical creativity and home to so much music that can’t be heard anywhere else.”
So, what’s the secret to making a freemium business model profitable – and also popular with the industry?
“I think it’s about listening to the needs of your community. Providing greater selection in subscription options is key to successful freemium models,” says Eric. “I love the virtual ‘crate digging’ you can do on SoundCloud, delving deep into our vast catalogue to connect with artists and labels in remote places. I’m always amazed by what I can find.”