SoundCloud has done everything right. Everything. It created a bottoms-up, platform-based tool with an exceedingly high viral coefficient and a delightful UX. Utilizing precisely the same thesis that Instagram has utilized for photos, and Twitter Twitter has for short messages, SoundCloud has revolutionized and democratized the sharing of audio. In so doing, SoundCloud has attracted massive amounts of customers, and retained them by proving its utility over and over. Its done everything right.
Sowhy then have Twitter, Instagram, Tumblr, Facebook, Reddit and others each with the same bottoms-up, User Generated Content, platform-based approach as SoundCloud all enjoyed massive liquidity events while according the scuttlebutt SoundCloud is having trouble raising additional capital, and resorting to things like (gasp) paid membership models?
The answer to this question is not only bad for SoundCloud, but bad for innovation and investment in the music space, generally.
Heres why. The difference between SoundCloud and the above-mentioned companies, of course, is the type of C that the (U)sers are (G)enerating on SoundCloud: Music.
I believe were at the eve of a massive change in terms of what users will and wont contribute, but, for now, most people are plenty happy to contribute their photos to help Instagram attract and retain users. Similarly (with the exception of, apparently, comedians), people (myself included) are happy to contribute their pithy updates to help Twitter attract and retain users. Musicians too, have happily contributed music to help SoundCloud attract and retain users.
But copyright, as it applies to music, is ostensibly more complicated, or, at least more litigated, than it is for tweets and photos.
For instance, when a SoundCloud user creates a song that also contains elements of someone elses song a mashup or a remix, for example they have created what in copyright-ese is known as a derivative work. Absent a license from the copyright holders of the works that have been remixed/sampled, the user is infringing on the exclusive rights of the authors of the other works to create derivatives, as well as to distribute, reproduce, publicly perform, and, because of SoundClouds slick visual waveform, even to display.