Harvard Case - SoundCloud: Subscription Streaming?
"SoundCloud: Subscription Streaming?" Harvard business case study is written by Ashish Nanda, Eric Van Den Steen, Andy Wu, Jeffrey Boyar, Bonnie Bennett Slater. It deals with the challenges in the field of Strategy. The case study is 23 page(s) long and it was first published on : Jan 11, 2019
At Fern Fort University, we recommend that SoundCloud pursue a hybrid business model incorporating a freemium tier with a premium subscription service. This approach leverages SoundCloud's existing user base, strengthens its competitive position, and unlocks new revenue streams. This strategy will be implemented through a phased approach, focusing on user engagement, content quality, and strategic partnerships.
2. Background
SoundCloud, founded in 2007, is a popular online audio platform that allows users to upload, record, share, and listen to audio content. The platform has gained significant traction in the music industry, particularly among independent artists and emerging musicians. However, SoundCloud has faced challenges in monetizing its vast user base and competing with established streaming giants like Spotify and Apple Music. The case study explores SoundCloud's strategic options for navigating the competitive landscape and achieving sustainable growth.
The main protagonists of the case study are Alexander Ljung, SoundCloud's CEO, and the company's executive team. They are faced with the critical decision of how to evolve SoundCloud's business model in a rapidly changing digital music industry.
3. Analysis of the Case Study
Industry Analysis:
- Porter's Five Forces: The music streaming industry is characterized by intense competition, with numerous players vying for market share. The threat of new entrants is moderate, while the bargaining power of suppliers (artists and labels) is high. The threat of substitutes is high due to the availability of free or low-cost alternatives. The bargaining power of buyers is also moderate, as users have numerous options for music consumption.
- Industry Lifecycle: The music streaming industry is in a mature stage, with established players dominating the market. However, there is still room for innovation and growth, particularly in niche segments and emerging markets.
SoundCloud's SWOT Analysis:
Strengths:
- Large user base: SoundCloud boasts a massive and engaged user base, particularly among independent artists and creators.
- Brand recognition: The platform has established a strong brand identity, associated with creativity, discovery, and community.
- Focus on independent artists: SoundCloud's focus on independent artists and emerging musicians gives it a unique competitive advantage.
- Open platform: SoundCloud's open platform allows for a wide range of content and user-generated experiences.
Weaknesses:
- Limited monetization: SoundCloud has struggled to generate significant revenue, relying heavily on advertising and limited subscription offerings.
- Lack of exclusive content: SoundCloud lacks the exclusive content deals that its competitors have secured.
- User experience: The platform's user interface and features have been criticized for being complex and difficult to navigate.
- Financial instability: SoundCloud has faced financial challenges, including multiple rounds of funding and layoffs.
Opportunities:
- Expanding subscription services: SoundCloud can leverage its user base to attract subscribers to a premium service offering enhanced features and benefits.
- Partnerships with labels and artists: SoundCloud can forge strategic alliances with music labels and artists to secure exclusive content and drive user engagement.
- International expansion: SoundCloud has the potential to expand its reach into new markets, particularly in emerging economies with growing digital music consumption.
- Developing new technologies: SoundCloud can invest in innovative technologies like AI and machine learning to enhance its platform and user experience.
Threats:
- Competition from established players: SoundCloud faces intense competition from established streaming giants like Spotify and Apple Music.
- Copyright infringement: The platform has faced legal challenges related to copyright infringement, which can impact its reputation and financial stability.
- Changing user preferences: User preferences for music consumption are constantly evolving, and SoundCloud needs to adapt to these changes.
- Technological disruption: The emergence of new technologies could disrupt the music streaming industry, requiring SoundCloud to constantly innovate.
Value Chain Analysis:
SoundCloud's value chain consists of the following key activities:
- Content acquisition: Sourcing and acquiring audio content from artists and labels.
- Content management: Managing and organizing audio content on the platform.
- User acquisition: Attracting and retaining users through marketing and community building.
- User engagement: Providing features and tools to encourage user interaction and content creation.
- Monetization: Generating revenue through advertising, subscriptions, and other revenue streams.
Business Model Innovation:
SoundCloud needs to innovate its business model to address its financial challenges and compete effectively in the music streaming market. This can be achieved through:
- Hybrid Business Model: Combining a freemium tier with a premium subscription service.
- Value-Added Services: Offering additional features and benefits to subscribers, such as offline listening, ad-free experience, and exclusive content.
- Strategic Partnerships: Collaborating with music labels, artists, and other industry players to enhance content offerings and drive user growth.
- Data-Driven Insights: Utilizing data analytics to understand user behavior, personalize content recommendations, and optimize monetization strategies.
4. Recommendations
SoundCloud should implement a hybrid business model that combines a freemium tier with a premium subscription service. This approach will allow SoundCloud to retain its existing user base while attracting new subscribers willing to pay for enhanced features and benefits.
Phased Implementation:
Phase 1: User Engagement and Content Quality (6 Months):
- Improve User Experience: Enhance the platform's user interface and navigation to make it more intuitive and user-friendly.
- Content Quality Initiatives: Partner with music labels and artists to secure exclusive content and improve the overall quality of audio content on the platform.
- Community Building: Foster a strong sense of community among users by encouraging interaction, collaboration, and content sharing.
- Data Analytics: Utilize data analytics to understand user behavior, personalize content recommendations, and optimize platform features.
Phase 2: Premium Subscription Launch (12 Months):
- Develop Premium Features: Introduce exclusive features and benefits for premium subscribers, such as ad-free listening, offline playback, high-quality audio, and early access to new releases.
- Pricing Strategy: Implement a competitive pricing strategy that balances value proposition with market demand.
- Marketing and Promotion: Launch a targeted marketing campaign to promote the premium subscription service to existing and potential users.
Phase 3: Strategic Partnerships and International Expansion (18 Months):
- Strategic Alliances: Forge strategic partnerships with music labels, artists, and other industry players to secure exclusive content, cross-promote services, and expand reach.
- International Expansion: Target new markets with high growth potential in digital music consumption, focusing on emerging economies and regions.
- Localization: Adapt the platform and marketing materials to meet the specific needs and preferences of different international markets.
5. Basis of Recommendations
These recommendations are based on a comprehensive analysis of SoundCloud's strengths, weaknesses, opportunities, and threats, as well as the competitive landscape of the music streaming industry.
Core Competencies and Mission Alignment:
The recommended hybrid business model aligns with SoundCloud's core competency of providing a platform for independent artists and creators. The premium subscription service will allow SoundCloud to generate revenue while continuing to support its mission of empowering creative expression.
External Customers and Internal Clients:
The recommendations consider the needs of both external customers (users) and internal clients (artists and labels). The freemium tier will continue to provide free access to the platform, while the premium subscription service will offer enhanced features and benefits for paying users.
Competitors:
The recommendations are designed to position SoundCloud competitively against established players like Spotify and Apple Music. The hybrid business model, focus on independent artists, and strategic partnerships will help SoundCloud differentiate itself in the market.
Attractiveness:
The recommendations are expected to be financially attractive, with the potential to generate significant revenue from premium subscriptions and strategic partnerships. The hybrid business model will allow SoundCloud to reach a wider audience and diversify its revenue streams.
Assumptions:
The recommendations are based on the following key assumptions:
- User demand for premium features: There is sufficient demand among users for the enhanced features and benefits offered by the premium subscription service.
- Partnerships with labels and artists: SoundCloud will be able to secure strategic partnerships with music labels and artists to secure exclusive content and drive user engagement.
- Successful international expansion: SoundCloud will be able to successfully expand into new international markets, adapting its platform and marketing materials to local preferences.
6. Conclusion
By implementing a hybrid business model and focusing on user engagement, content quality, and strategic partnerships, SoundCloud can position itself for sustainable growth and profitability in the competitive music streaming market. This approach will allow SoundCloud to leverage its existing user base, attract new subscribers, and compete effectively against established players.
7. Discussion
Alternative Options:
Other alternative options for SoundCloud include:
- Focusing solely on the freemium model: This option would maintain SoundCloud's current business model, but it would likely limit revenue growth and make it difficult to compete with established players.
- Acquiring a competitor: This option would provide SoundCloud with access to exclusive content and a larger user base, but it would be a costly and risky strategy.
- Exiting the music streaming market: This option would be a last resort, but it would be a significant setback for SoundCloud and its users.
Risks and Key Assumptions:
The recommendations are subject to several risks, including:
- User adoption of the premium subscription service: There is no guarantee that users will be willing to pay for the premium features and benefits.
- Competition from established players: SoundCloud may face intense competition from established players, which could limit its market share and revenue growth.
- Copyright infringement: SoundCloud could face legal challenges related to copyright infringement, which could impact its reputation and financial stability.
Options Grid:
| Option | Advantages | Disadvantages | Risks |
|---|---|---|---|
| Hybrid Business Model | Increased revenue, user engagement, competitive advantage | Requires investment and execution | User adoption, competition |
| Freemium Model | Low cost, existing user base | Limited revenue growth, competitive disadvantage | Market share loss, financial instability |
| Acquisition | Access to exclusive content, larger user base | Costly, risky | Integration challenges, cultural clashes |
| Exit | No further investment, avoids financial losses | Loss of market share, user dissatisfaction | Reputation damage, brand erosion |
8. Next Steps
Timeline with Key Milestones:
| Milestone | Timeline |
|---|---|
| Improve user experience and content quality | 6 Months |
| Launch premium subscription service | 12 Months |
| Secure strategic partnerships and expand internationally | 18 Months |
| Continuously monitor and adapt the business model | Ongoing |
By implementing these recommendations and focusing on user engagement, content quality, and strategic partnerships, SoundCloud can navigate the competitive music streaming market and achieve sustainable growth and profitability.
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Case Description
Established in 2007, by early 2014 SoundCloud already boasted the second largest number of active music listeners among all streaming services and was recognized as the go-to platform for new artists. Yet, its founders Alexander Ljung and Eric Wahlforss were questioning whether the firm should continue to focus on serving as a lab for emerging musical artists. They were wondering if the firm should instead enter the booming mainstream music-streaming market.
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