{"id":34546,"date":"2018-11-13T18:09:49","date_gmt":"2018-11-13T23:09:49","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-rctom\/submission\/soundclouds-open-innovation-approach-to-reinventing-itself-survival-instinct\/"},"modified":"2018-11-13T18:09:49","modified_gmt":"2018-11-13T23:09:49","slug":"soundclouds-open-innovation-approach-to-reinventing-itself-survival-instinct","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/soundclouds-open-innovation-approach-to-reinventing-itself-survival-instinct\/","title":{"rendered":"SoundCloud\u2019s Open Innovation Approach to Reinventing Itself: Survival Instinct?"},"content":{"rendered":"

As the music industry continues its\u2019 global digital transformation, and a revenue recovery trajectory driven by an increasing share of streaming revenues, the conversation has been dominated by two main competitors: Stockholm-based publically traded Spotify leading the way with 36% global market share of streaming revenue and 83 million paying subscribers and Apple Music gaining with 19% share and 44 million paying subscribers[i]<\/a>. In the realm of music publishing, the industry continues to be led by the \u201cBig Three\u201d: Sony, Univeral Music Group and Warner. SoundCloud, a Berlin-based online audio publishing and streaming platform which predated its\u2019 streaming competitors, has been unable to make a meaningful dent in this emerging ecosystem, neither as a streaming service nor as a publisher<\/strong>. With an estimated 76 million monthly users, a mere 100,000 paying subscribers, and a valuation that is now $150 million after a 2014 high of $700 million[ii]<\/a> \u2013 where should SoundCloud pivot to next to achieve growth?<\/p>\n

Source: Music Watch<\/figcaption><\/figure>\n

The fundamental problem that SoundCloud has failed to solve for throughout is two-fold: (1) what is the adequate business model and value proposition<\/strong> that enhances my attractiveness and competitiveness to artists and users<\/strong> in an increasingly consolidated music industry, and (2) how can I leverage my ardent artist user base<\/strong> to spur further adoption and network efforts? And it is at the intersection of these two questions that SoundCloud can best generate learning and relevant new product development through Open Innovation<\/strong>. SoundCloud\u2019s advantage over its\u2019 competitors lies in its\u2019 engaged and passionate resident artists and users, such as early adopter and brand champion Chance the Rapper[iii]<\/a>. These heavy users are best positioned to give constructive feedback to SoundCloud as to how they interact with the platform, what works and does not work, and barriers to greater adoption by their network. In addition to its\u2019 user base, SoundCloud can also work with other nodes in the music industry such as artist management teams, record labels and casual listeners to discover creative solutions to the problems outlined above.<\/p>\n

As a company in crisis, SoundCloud\u2019s modus operandi has been reactionary and they are working to salvage their valuation and cash position in the immediate short term. Having acknowledged a lack of compatibility between their previous iteration of a monetized business model, a subscription streaming service similar to Spotify, and their users\u2019 needs, Spotify worked directly with indie artists and distinguished SoundCloud alumni<\/strong> to understand their needs. They held conversations with their most ardent artists and found direct monetization<\/strong> as their main pain point. They then co-created the solution with this group leading to the development and launch of SoundCloud Premier for creators<\/strong> in October 2018. SoundCloud Premier offers industry-leading revenue sharing, instant availability, a direct connection with fans, and fast payouts.[iv]<\/a> This product launch has been widely perceived as a positive step forward and as addressing a key user need. However, Spotify detailed a similar approach less than a month later in their quarterly report[v]<\/a>, which calls into question the sustainability of SoundCloud\u2019s position on this front. In addition to this example of NPD sourced by an open innovation approach, SoundCloud has also been engaging with consumers directly to source new insights and ideas. Consumers demanded greater social integration, in line with the global trend of music consumption converging into overall content consumption, and SoundCloud responded with Instagram story integration[vi]<\/a><\/strong>. This move serves to address a consumer need as well as increase awareness and adoption through the network effects of social media, targeting some of the problems identified above. In this instance, SoundCloud is a laggard behind Spotify as they had incorporated this feature first. Despite an evolved product offering harnessed via open innovation, SoundCloud is unable to sustain an advantage due to the network effects of its\u2019 larger competitors and a market-delayed product development cycle<\/strong>.<\/p>\n

Source: Route Note<\/figcaption><\/figure>\n

In order to build a sustainable competitive advantage in this increasingly consolidated market, SoundCloud should harness Open Innovation to dive deeper into the listener experience<\/strong>, and uncover drivers and solutions for greater adoption and use<\/strong>. SoundCloud\u2019s \u201ccreator-first\u201d perspective is essential but must be complemented by an equal focus on driving more listeners to this platform. In the medium term, SoundCloud should also explore machine learning<\/strong> to improve the recommendation algorithm for listeners and data analytics for artists<\/strong>, leading to more relevant and targeted offerings and increasing the stickiness of the platform for all users.<\/p>\n

Open Questions:<\/strong><\/p>\n

    \n
  1. Is SoundCloud able to sustain any product advantage considering the deep network effects of Spotify and Apple Music?<\/li>\n
  2. How relevant is Open Innovation in sourcing the future of creative content consumption? Do consumers know what they want?<\/li>\n<\/ol>\n

    768 words<\/em><\/p>\n

    <\/a>References<\/strong><\/p>\n

    [i] IFPI (2018).\u00a0Global Music Report 2018: Annual State of the Industry<\/i>. [online] Available at: https:\/\/www.ifpi.org\/downloads\/GMR2018.pdf [Accessed 12 Nov. 2018].<\/p>\n

    [ii]\u00a0Nicolaou, A. (2018).\u00a0SoundCloud on track for growth after financial rescue | Financial Times<\/i>. [online] Ft.com. Available at: https:\/\/www.ft.com\/content\/2985ef90-3561-11e8-8eee-e06bde01c544 [Accessed 12 Nov. 2018].<\/p>\n

    [iii]\u00a0HipHopOverload.com. (2018).\u00a0Chance The Rapper Has Saved SoundCloud, after reports of bankruptcy<\/i>. [online] Available at: https:\/\/www.hiphopoverload.com\/chance-the-rapper-says-he-has-saved-soundcloud-after-reports-they-were-running-out-of-money\/ [Accessed 12 Nov. 2018].<\/p>\n

    [iv]\u00a0SoundCloud newsroom. (2018).\u00a0SoundCloud Premier Monetization Program Opening to Hundreds of Thousands of Original Music Creators<\/i>. [online] Available at: http:\/\/press.soundcloud.com\/169082-soundcloud-premier-monetization-program-opening-to-hundreds-of-thousands-of-original-music-creators [Accessed 13 Nov. 2018].<\/p>\n

    [v]\u00a0Sanchez, D. (2018).\u00a0Spotify for Artists Will Charge for Certain Services, Daniel Ek Says<\/i>. [online] Digital Music News. Available at: https:\/\/www.digitalmusicnews.com\/2018\/11\/06\/latest-spotify-for-artists-freemium\/ [Accessed 13 Nov. 2018].<\/p>\n

    [vi]\u00a0SoundCloud newsroom. (2018).\u00a0SoundCloud Makes it Easier to Share to Instagram<\/i>. [online] Available at: http:\/\/press.soundcloud.com\/169376-soundcloud-makes-it-easier-to-share-to-instagram [Accessed 13 Nov. 2018].<\/p>\n","protected":false},"excerpt":{"rendered":"

    SoundCloud is on the brink of extinction, can open innovation help them build a better product?<\/p>\n","protected":false},"author":11923,"featured_media":34547,"comment_status":"open","ping_status":"closed","template":"","categories":[2187,2606,249,4239,2738],"class_list":["post-34546","hck-submission","type-hck-submission","status-publish","has-post-thumbnail","hentry","category-content","category-livemusic","category-music","category-open-innovation","category-spotify","hck-taxonomy-organization-soundcloud","hck-taxonomy-industry-music","hck-taxonomy-country-germany"],"connected_submission_link":"https:\/\/d3.harvard.edu\/platform-rctom\/assignment\/rc-tom-challenge-2018\/","yoast_head":"\nSoundCloud\u2019s Open Innovation Approach to Reinventing Itself: Survival Instinct? - Technology and Operations Management<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/soundclouds-open-innovation-approach-to-reinventing-itself-survival-instinct\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"SoundCloud\u2019s Open Innovation Approach to Reinventing Itself: Survival Instinct? 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