Is Twitter getting ready to buy SoundCloud?

Steven Loeb · May 19, 2014 · Short URL: https://vator.tv/n/3709

Acquistion would help Twitter gain ground in the music space, plus help beef up its user base

It is no secret that Twitter wants a closer relationship with the music industry. And while those efforts have come up short in the past, it may have found a way to do it that is considerably less risky than trying a to launch a new app every year.

The company is "considering a deal" to acquire SoundCloud, a service that allows anyone to upload, and share, audioclips online, according to a report out from ReCode on Monday. SoundCloud calls itself the "YouTube for audio," and the fact that Twitter wants to buy it should not come as a very big surprise.

First of all,, only a few days afer the demise of #Music, Twitter's first attempt to break into the space, it was reported that Twitter was already trying to enter into a partnership with numerous music companies, including SoundCloud. The others were Vevo and Beats Music. 

Secondly, there is a big advertising opportunity, given that SoundCloud is, by far, the most popular music service on the network. With 42 million tweets over the course of 15 months, it more than doubled the second place service, Spotify, which only had 16 million. Users are already synching up the two services, and owning the company would give Twitter even more control over which ads ran alongside those tweets.

Plus, there is SoundCloud's user base. It reached 250 million in October of last, meaning that is no doubt grown even bigger since then. That has to be enticing to Twitter, a company whose user growth has been stagnating over the last couple of quarters.

In its most recent earnings report, the company saw its average monthly active users (MAUs) grow 25% year to year, to reach 255 million. That is slower growth than it saw in the previous quarter, when MAUs went up by 30% year to year. Analysts had been expecting MAUs to hit 257 million.

As a result of those anemic numbers, Twitter's stock has been slammed since it released its fourth quarter, and full year, earnings report back in February. At that time it was trading at $65.97 a share, roughly $32 more than it is now.  The stock is currently at $32.07 a share.

So there are obviously a lot of benefits to Twitter if it were to buy SoundCloud, as it looks to gain ground in the music space and potentially expand its user base at the same time, but there are some downsides.

First, as ReCode pointed out, SoundCloud does not have any licensing deals with the big music labels. And that has caused problems for Twitter before, specifically when it was launching #Music. By becoming part of Twitter, SoundCloud would be pressured into entering into such agreements.

Second is the cost. SoundCloud has raised over $120 million, most recently a $60 million round at a $700 million valuation. Twitter most expensive acquisition so far was when it bought ad network MoPub for $350 million last year. SoundCloud would absolutely be a more expensive acquisition if Twitter decides to go through with it.

When asked about the report, a Twitter spokesperson gave us the old, "We don't comment on rumor and speculation" response. SoundCloud could not be reached for comment. 

(Image source: cocoacontrols.com)

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What is Twitter?

Twitter is an online information network that allows anyone with an account to post 140 character messages, called tweets. It is free to sign up. Users then follow other accounts which they are interested in, and view the tweets of everyone they follow in their "timeline." Most Twitter accounts are public, where one does not need to approve a request to follow, or need to follow back. This makes Twitter a powerful "one to many" broadcast platform where individuals, companies or organizations can reach millions of followers with a single message. Twitter is accessible from Twitter.com, our mobile website, SMS, our mobile apps for iPhone, Android, Blackberry, our iPad application, or 3rd party clients built by outside developers using our API. Twitter accounts can also be private, where the owner must approve follower requests. 

Where did the idea for Twitter come from?

Twitter started as an internal project within the podcasting company Odeo. Jack Dorsey, and engineer, had long been interested in status updates. Jack developed the idea, along with Biz Stone, and the first prototype was built in two weeks in March 2006 and launched publicly in August of 2006. The service grew popular very quickly and it soon made sense for Twitter to move outside of Odea. In May 2007, Twitter Inc was founded.

How is Twitter built?

Our engineering team works with a web application framework called Ruby on Rails. We all work on Apple computers except for testing purposes. 

We built Twitter using Ruby on Rails because it allows us to work quickly and easily--our team likes to deploy features and changes multiple times per day. Rails provides skeleton code frameworks so we don't have to re-invent the wheel every time we want to add something simple like a sign in form or a picture upload feature.

How do you make money from Twitter?

There are a few ways that Twitter makes money. We have licensing deals in place with Google, Yahoo!, and Microsoft's Bing to give them access to the "firehose" - a stream of tweets so that they can more easily incorporate those tweets into their search results.

In Summer 2010, we launched our Promoted Tweets product. Promoted Tweets are a special kind of tweet which appear at the top of search results within Twitter.com, if a company has bid on that keyword. Unlike search results in search engines, Promoted Tweets are normal tweets from a business, so they are as interactive as any other tweet - you can @reply, favorite or retweet a Promoted Tweet. 

At the same time, we launched Promoted Trends, where companies can place a trend (clearly marked Promoted) within Twitter's Trending Topics. These are especially effective for upcoming launches, like a movie or album release.

Lastly, we started a Twitter account called @earlybird where we partner with other companies to provide users with a special, short-term deal. For example, we partnered with Virgin America for a special day of fares on Virginamerica.com that were only accessible through the link in the @earlybird tweet.

 

What's next for Twitter?

We continue to focus on building a product that provides value for users. 

We're building Twitter, Inc into a successful, revenue-generating company that attracts world-class talent with an inspiring culture and attitude towards doing business.

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