Why Rdio died

It’s easy to forget now, but the first real music streaming service to arrive in America was Rdio. Like its founders, Skype billionaires Janus Friis and Niklas Zennström, Rdio was awkwardly spelled and a little hard to pronounce. When it arrived in August 2010, the smartphone era was young enough that the company offered a $5 web-only streaming plan (on the assumption you might not have a mobile device) and a BlackBerry app (in case you had a bad one). The company’s catalog was limited to 7 million songs, well short of the 30 million tracks that it and its rivals now provide. From the start, Rdio had more product sense than business sense, and its cautious approach to growth and marketing would ultimately spell its doom.

For a solid year, though, using Rdio felt like the future. Securing label deals took so long that the app was in development for two years before it launched, and it showed in the polished product delivered by its team. There was that calming blue-and-white design, its simple grid of album artwork — a powerful rebuttal to iTunes’ nightmare spreadsheets. There were its innovative social features, showing you what your friends were streaming in real time, and a “heavy rotation” playlist that highlighted albums based on how many friends had listened to them. “Social from the ground up — it sounds like marketing speak, but it was legit,” says Chris Becherer, Rdio’s head of product. “The founding premise was the best music recommendations come from the people you know. That was the whole idea.”

“The best music recommendations come from the people you know. That was the whole idea.”

In the end, it wasn’t enough. Rdio is seeking bankruptcy protection and plans to wind down its service. Pandora is acquiring its intellectual property and some of its employees. Among them are Becherer, who will become vice president of the company’s consumer-facing products, and a majority of the product and engineering team. But Rdio’s apps will soon stop working — the exact timing depends on when the deal closes — and its modest subscriber base will have to do its music streaming elsewhere.

In interviews with current and former employees, a picture emerges of a company that developed an excellent product but faltered when it came to marketing and distributing it. Early as it was to the United States, Rdio was born in the shadow of Spotify, a cunning and well-financed competitor that excelled at generating buzz — and using that buzz to acquire paid subscribers. As streaming music became a playground for giants, Rdio turned to a terrestrial radio company in a last-ditch effort to grow the user base. Ultimately, executives decided that Rdio’s only future lay in becoming part of an internet-based platform — even if it meant disassembling the service they had been building for more than five years.

Rdio first bubbled up to my attention in 2011; after a three-month trial, I gladly subscribed. For a decade I had amassed a large collection of mp3s, backing up my old favorites and tending to their metadata as if iTunes were a zen garden. But when Rdio arrived, it got me to explore. I listened to more new music than I ever had before — and more old music, too. In the former case: EMA, the War on Drugs, Frank Ocean, Miguel. In the latter: Faces, A Tribe Called Quest, and a dozen REM albums I had never gotten around to listening to. All of this before Spotify arrived in the United States. And I attribute those finds in large part to Rdio’s design: it always had a knack for surfacing things I didn’t yet know I should be listening to.

People thought Spotify was free iTunes

From the start, though, Rdio was in trouble. Even in late 2010, when it began to spread among design-savvy early adopters in San Francisco, people were already talking about the coming launch of Spotify. The Swedish streaming service wouldn’t launch in America for several months, but it quickly came to define online music in the popular imagination. Its secret: free on-demand streaming, supported by advertising. By contrast, Rdio required a paid subscription. Becherer, who worked at Apple at the time, recalled the excitement around Spotify. “People would go, ‘It’s free iTunes!’” he says. “I’d say, I think it’s a streaming service. They’d say ‘No, it’s free iTunes!’ People just got that in their heads — this is the Napster we always wanted.”

rdio

In Spotify’s shadow

Rdio eventually developed a free tier, but it came long after Spotify launched in the United States. More pressingly, the company struggled to make the case for its own unique service. One major problem: Rdio never had a dedicated marketing chief for more than a few months at a time. Early on, the company contracted with West, a San Francisco-based agency run by Allison Johnson, Apple’s former head of marketing. But many people inside the company blamed the lack of in-house marketers on its lack of traction. Later, Mark Ruxin, who joined Rdio after it acquired his app Tastemaker, served in the role. But he only served in it for a few months before leaving. “No one was looking over marketing whatsoever,” one former employee told me. “Ultimately, that was the beginning of the end there.”

Looking back, some former employees say Rdio sometimes focused on the wrong things. It invested many product cycles in refining its queue — a place to collect things you want to listen to later. Every other music streaming service offers a queue that’s a simple list of tracks. But if you dragged an album or a playlist into Rdio’s queue, Rdio would recognize it as a distinct object, so you could drag and drop an album above a track, or a full playlist below an album. “At the end of the day, that was not a major differentiating factor,” says Wilson Miner, who led design at Rdio from its launch until May 2012. “If we hadn’t had something like that, nobody would have noticed and it would have been fine. I still wish we could have solved it, but it was more of a personal quest than a brutally honest assessment of priorities.”

“No one was looking over marketing whatsoever.”

By 2013, Spotify had rocketed to 24 million users, 6 million of whom paid. Struggling to stand out, Rdio turned to Cumulus Media, which operated 525 terrestrial radio stations. Cumulus took a large equity stake in the company; in return, its sales force began selling ads for Rdio, which enabled the company to finally offer the free, ad-supported version of the service that Spotify had been offering in various forms since 2008. Cumulus also promised to promote Rdio on its popular stations. But the resulting signups were apparently nothing to brag about — Rdio never disclosed how many paid subscribers it had.

Looking back, this appears to be the point at which Rdio began to unravel. In June 2013, just before the Cumulus deal was announced, Rdio CEO Drew Larner announced he was stepping down. Former employees say Larner was never totally comfortable being CEO; his expertise was in dealmaking, and he thought the company needed a leader whose talents lay in product and user growth. (Larner declined to comment.) Malthe Sigurdsson, its head of product and the person who oversaw its innovative design efforts, quit a month after Larner. In November, Rdio laid off a third of its staff.

And while development on the core product continued, it increasingly felt radio-focused. In August it added live radio stations to the app, a move designed to capitalize on the success of iHeartRadio, an app developed by the company formerly known as Clear Channel. For Rdio, it turned out to be another dead end. Earlier this month, Cumulus wrote down its investment in Rdio by $19 million.

rdio

Waiting for the end

The economics of streaming music are brutal. Record labels have nearly all the leverage, and take most of the gross revenue from streaming services. The only way to win is to achieve a massive scale — which is why Spotify has raised more than $1 billion, spending heavily to add subscribers in hopes they will lead to a sustainable business.

Rdio realized this only belatedly. “Rdio, I guess, made the mistake of trying to be sustainable too early,” Miner says. “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. Which is partly the trap of the business model itself — because of the content licensing deals, the margins for the business were so incredibly thin. No matter what we did, the labels made the lion’s share of the revenue. You have to make it up with extreme volume, which is why you see Spotify going after every human being in the world.”

“The classic startup mistake of worrying about being profitable.”

And yet even with more than 75 million users and 20 million paid users, Spotify still isn’t profitable. It remains to be seen whether Apple or Google can turn their own streaming offerings into viable businesses — or whether they will simply use music as a loss leader to draw consumers further into their respective ecosystems, making the money back on hardware sales or other services.

Ultimately, it is not a game Rdio was ever built to win. The people who made it focused to a fault on making something beautiful, something that celebrated the music they love. Sigurdsson “wanted to build a music service that was social at its core but was also beautiful,” Becherer says “There was a real focus on that.” Mary van Ogtrop, a copywriter for Rdio, says there will be no replacing the service’s attention to detail. “Rdio taught me to slow down, let it marinate, and make my final decision the right one,” she says.

Miner jokes the design was aimed at “snobby album purists.” Among its subscribers were a small legion of user interface and user experience designers — one reason you see little touches of Rdio everywhere you look. It’s there in the blurred album art that you now see in the background of other streaming music services. It’s there in the translucent panes and gradients that Apple introduced with iOS 7. It’s there in the redesigned app for Pandora, the company that ultimately acquired it. For its part, Pandora says that Becherer and his team will build a new on-demand product for the company using Rdio’s intellectual property. It is expected to launch in late 2016.

Ever since the layoffs two years ago, Rdio users have been waiting for the end. In recent months more and more bugs have surfaced in the app, and music has gotten slower to load. It squatted on the phone like a sick old dog, waiting to be put down. “For the last few months it seemed weird that Rdio still existed,” Miner says. “There were a lot of things working against it. It was just a matter of time.”

Casey Newton