Why Did Twitter Invest In SoundCloud?

After previously walking away from a SoundCloud acquisition deal at the last minute, Twitter recently invested 70 million in the company, and although such an investment is likely good for SoundCloud, it's a little harder to tell how the exchange benefits Twitter.

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Guest Post by Bobby Owsinski on Music 3.0

Twitter has made an investment in SoundCloud for a reported $70 million and if you’ve been following the story between the companies, you have to ask yourself “Why now?”

About two years ago Twitter almost acquired SoundCloud before walking away at the last minute, and an acquisition certainly would have made a lot more sense at the time, even though it might not have changed the futures of either company.

Back then Twitter wanted to capitalize on its high profile music users like Taylor Swift, Justin Bieber and Katy Perry, who had massive followings on the service (and still do) but weren’t able to take advantage by directly serving up their music to them. SoundCloud was struggling with both monetization issues (which still exist) and licensing problems, and theoretically could have provided the infrastructure for Twitter to transition to at least a partial music service.

Many think that Twitter was better off for walking away from the deal and keeping the focus on its core business, which in theory worked fine except for the fact that the company’s user base has plateaued in the meantime even with a focused agenda not diluted with delivering music.

SoundCloud has actually come a long way in that it now has signed licenses with the three major record labels, and has since worked hard to roll out its $9.99 monthly subscription service called SoundCloud Go. Still, it’s a cash-starved company and needs another round of funding to stay alive, so having Twitter as an investor in this round is most welcome.

That said, the benefit for Twitter isn’t as apparent. It’s not getting any of the technical goodies that come with an acquisition, and it’s buying a piece of a company that essentially hasn’t grown in valuation since its last go around.

In fact, out of all the music streaming companies currently in the space, SoundCloud may be the most baffling. It’s long been a boon to artists, bands and songwriters as a tool for free music distribution, and at that it may very well be #1 in the space. That market isn’t large enough to add enough subscribers to make the platform go however, and may be tapped out already. Attracting regular music consumers to its paid Go service may be limited to electronic music fans, since the platform is a favorite of DJs, but that genre seems to have plateaued as well. [Read more on Forbes…]