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What exactly would Twitter stand to gain in buying SoundCloud?

If the rumour mill is to be believed, then the recent spate of massive tech acquisitions is unlikely to slow down any time soon. This time the target is SoundCloud and the company apparently looking to buy it is Twitter.

According to Recode, if the deal goes through then it will be the social network’s largest by some distance.

SoundCloud, which styles itself as a “YouTube for audio”, recently announced a US$60-million funding round, which gave it a valuation of around US$700-million. To date, the largest purchase Twitter’s made is the US$350-million it paid for mobile advertising platform MoPub just prior to its IPO.

That purchase has, to a large degree, paid off but will the social network be able to say the same of SoundCloud?

Forget Twitter’s core product

In order to answer that, one thing needs to made very clear: much like Facebook’s acquisition of WhatsApp, a deal between Twitter and SoundCloud wouldn’t really be about adding any features to Twitter the social media network. Sure, it could take advantage of the fact that a fair portion of Twitter’s users share links to to music they’re playing, and that a fair portion of those links are from SoundCloud but that’s pretty much a side benefit.

Any deal between the two companies would be all about Twitter the business, and when you look at it from that point of view, it starts to make a little more sense.

A look at the numbers certainly makes SoundCloud seem like an enticing prospect. The audio service claims to have a user base of 250-million active users, up from 200-million in June 2013. It’s unclear what proportion of those users are taking advantage of its paid subscription offering but there’s a reason it’s the podcast vehicle of choice for online publishers around the globe (including this one).

It seems well on track therefore to delivering on its promise of becoming the “audio platform of the web”.

Those aren’t the only potential benefits from a deal between the two companies:

“A deal like this makes sense for Twitter, [because] it gives them a much needed push into media and adds into their business another really interesting and popular publishing platform,” Gartner analyst Brian Blau told Cnet.

Those potential benefits do not, however, mean that SoundCloud is an automatic buy.

A lot of work

The trouble is, the deal would probably be a lot more to SoundCloud’s than Twitter’s. It would, after all, mean that SoundCloud would have the force of team that’s had to build an advertising platform pretty much from scratch behind it. It would also help the Berlin-based company to resolve its own licensing issues with the music industry. And that’s the problem — right now, SoundCloud requires too much work.

As TechCrunch’s Josh Constine notes, these and a couple of other factors mean that SoundCloud will probably battle to convince investors to put real money into an IPO. A deal with Twitter, would simply transfer those issues onto the social media network.

As Constantine notes, Twitter needs to focus on its core product right now. Its most recent set of results were encouraging, with advertising revenue growing 125% year-over-year to US$226-million but the fact that it still made a US$132-million net loss means that there’s very clearly still work that needs to be done.

The MoPub deal made sense. It had an established revenue model that Twitter could make immediate use of and easily bake into its own platform. SoundCloud would be a distraction, and would force Twitter into concentrating on a product that could potentially have even bigger issues than its own.

It’s hardly surprising then that the deal is looking a lot less likely.

If the SPIEGL article linked above is correct, then Twitter may just have dodged a big bullet.

Author | Stuart Thomas

Stuart Thomas
Stuart is the editor-in-chief of Engage Me Online. After pursuing an MA in South African literature, he spent five years reporting on the global technology scene. Intrigued by the intersection of technology and work, he joined Engage Me as the editor-in-chief. He is a passionate runner, and recently ran... More

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