The impending demise of music streaming service Rdio is the result of “the classic startup mistake”, according to a former employee.
Rdio was a pioneer of modern mobile music streaming services, but never really posed any competition to the likes of Spotify.
It was announced last week the company will be filing for bankruptcy, with rival Pandora to pick up the remaining IP and technology for $US75 million.
It was also revealed the company has $US220 million in debt and is losing $US2 million per month.
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In an extensive article on the Verge documenting the failures of Rdio, former design lead at the startup Wilson Miner says the company focused too heavily on generating profits early on before it had a critical mass of users.
“Rdio, I guess, made the mistake of trying to be too sustainable too early,” Miner told the Verge.
“That classic startup mistake of worrying about being profitable and having a business that makes any sense before you’ve reached this astronomical growth curve.”
Online streaming services need a huge number of users to be sustainable. Spotify currently has over 75 million users but is still yet to reach profitability.
“Because of the content licensing deals, the margins for the business were so incredibly thin,” Miner said.
“No matter what we did, the labels made the lion’s share of revenue. You have to be able to make it up with extreme volume, which is why you see Spotify going after every human being in the world.”
The article also pinpoints a lack of a marketing team as contributing to Rdio’s demise.
“No one was looking over marketing whatsoever,” a former employee told the Verge.
“Ultimately, that was the beginning of the end there.”
According to Miner, last week’s announcement was inevitable.
“For the last few months it seemed weird that Rdio existed,” he said.
“There were a lot of things working against it. It was just a matter of time.”