Why I Never Built My SoundCloud Killer

What else might a paid user's funds be going to, that he's not thinking of?

* paying for the time of people who maintain and develop the site

* paying for the time of people who support the people who maintain and develop the site (receptionist, office manager, etc)

* paying for the time of people to deal with copyright issues - both in terms of having people whose job is to build and maintain the automated copyright infringement detection systems (and to liase with the recording industry people they need to), and in terms of maybe having some kind of batch of people whose sole job is to do it manually

* possibly paying for the time of other content monitoring humans, doing the equivalent of the poor bastards whose job it is to monitor facebook/youtube/flickr/whatever for child porn, snuff, and other horrible things, is there an audio equivalent to that?

* office rent (SoundCloud apparently has offices in Berlin, New York, London, San Francisco, Los Angeles & Sydney, none of these are exactly cheap places to rent - and that drives up the salaries of your workers as well)

* bandwidth to play the songs for the people who are getting a lot of views

* advertising SoundCloud

* perhaps some measure of profit-sharing with the users who generate popular content (I don't think SoundCloud has ads, though? Looks like it does, I guess I've never spent enough time using it as my music source to hear any.)

* maybe paying back the VC/founder money that's been put into getting the site to where it is

* who knows what kind of financial arrangements with the music industry, I can't even begin to speculate how complex those get

Sure, the carrot SoundCloud holds out in front of you of "more storage space" is negligible in value. But don't neglect all these other costs. Money for those doesn't just come out of thin air. Unless they've figured out a way to massively parallelize mining BTC with the spare CPU cycles of everyone listening to a song or something.

(Limiting the upload bandwidth of free users may also be a deliberate choice to keep the quality of SoundCloud's content slightly better on average. If you're not making enough money off your music to feel like $7/mo is worth it then it's probably not very good yet to be honest. But I'm getting off into total theorizing here and I'm not even stoned.)

Consider that Apple sets the market price for music, from a consumer perspective, and at a flat $0.99 per track with some tracks priced higher and lower. For brevity, I'm going to use the $0.99 price. This price does not reflect actual costs for providing the service, rather, it is a price point to encourage adoption by the masses. At $0.99 per track one can argue that Apple was seeing maybe 5 to 7% net margin.

Any competing company could not set the price higher than $0.99 as the audience would just go to Apple for the lower amount. So as a competitor; e.g., PressPlay who became the legal Napster, would need to compete at an 7% net margin which is extremely low. Businesses generally can't survive on less than a 10% net margin and most aim for 20% to 40% net margin.

How does Apple get away with running a business at essentially a loss? They sell ancillary products (hardware) at very high margins and the music is the loss leader that makes those products more valuable.

Apple made music a commodity and Google Music and Amazon Prime Music just reenforce the situation by essentially charging you near nothing for unlimited music.

Streaming services, by comparison, have very little they can sell in addition to their subscription fees, and those fees cannot be much higher than what Apple, Google, Amazon would charge for similar services. The phrase "they'll make it up in volume" holds no water when licensing fees scale in proportion to usage. Just look at P's 10Q for reference.

BTW, I was involved in building or supporting the following music services in one way or the other back the early 2000's:

* MP3.com

* Trusonic

* Pressplay -> Napster under Roxio

* eMusic

* Rollingstone.com

* MP4.com

Since 1999 it was clear that streaming was the future of music. Just not a very profitable future as it turns out.