Opinions and disagreements are the lifeblood of Twitter. When it comes to the company's $70 million investment in SoundCloud, there are no shortage of them. Some analysts say the deal will spur engagement. Others say it shows the company still lacks direction. And still others think it's nothing more than a gimmick and a distraction. Put it all together and it's safe to say the deal lacks an overwhelming logic.
Yet the move is arguably Twitter's most high-profile play since Jack Dorsey's reinstalllment as CEO last fall. The news also briefly gave a 5 percent boost to the company's otherwise free-falling stock price on Wednesday (it's down again 2 percent on Thursday). The investment, whose details were not disclosed, ties Twitter more closely to one of the tech industry's other "cool" companies. But when it comes to jump-starting user growth or fitting in within the identity Dorsey has been trying to give Twitter, this move is a head scratcher.
Since its birth, the only constant about Twitter is its perpetual identity crisis. In an effort to correct that issue, one of Dorsey's top objectives since his return has been to make Twitter the go-to place for live events. This is why Periscope, Twitter's live-streaming app, is such a good fit within the company. It's the same reason why Twitter paid $10 million to live stream NFL games this fall. SoundCloud, an on-demand music streaming platform, has nothing to do with tapping into live events.
The music app reaches an audience of more than 175 million monthly active listeners who tune in to discover new bands and listen to unique projects uploaded by their favorite artists. But how SoundCloud's vast trove of pre-recorded audio files and music fit in with Twitter's live town hall mission is unclear.
"This is another indication of Twitter trying something because they need to try anything," said James Gellert, CEO of Rapid Ratings, a research and analytics firm.
Most experts agree Twitter's top priority should be stimulating user growth. Though the company now claims more than 310 million monthly active users, that figure has increased at a snail's pace over the past couple of years -- a major concern for any social network. Yet this investment in SoundCloud does little, if anything, to bring in more users, many experts said.
"This could maybe increase engagement," said Dan Burrows, feature writer at InvestorPlace.com. "But they really need to scale. They need to add a lot of people, not just a sub-cohort of people who use SoundCloud."
Moreover, SoundCloud faces significant challenges of its own, and Twitter has a less-than-stellar history with music initiatives. After launching the SoundCloud Go subscription service in March, the German company has formally entered the highly saturated on-demand music-streaming market. SoundCloud Go must compete against top players like Spotify and Apple Music as well as other fierce competitors, including Jay Z's Tidal, Amazon Prime Music and Google Play Music. Pandora, too, is set to enter this market later this year.
Twitter, meanwhile, has never been able to make music a key part of the service. The company in 2013 launched Twitter Music, a major app blunder that was quickly shut down just one year later. Then in late 2014, Twitter introduced Audio Cards, a feature that lets users listen to songs tweeted out by others from certain streaming services. The feature rolled out with SoundCloud and iTunes as launch partners. Just this year, Twitter added Spotify as another partner, but so far, Audio Cards are a feature that has largely gone unnoticed.
"My guess is that the SoundCloud deal is an attempt to position Twitter as the go-to platform or place for people to talk about music," said Andrew Tonner, tech and telecom analyst at The Motley Fool. But SoundCloud is "the smallest player in an industry where size definitely helps."
The good news for shareholders is that Twitter has more than $1 billion of cash to toss around and try out different things. But by only purchasing a minority stake in SoundCloud, rather than acquiring the company entirely, the worst case scenario for Twitter will be if the investment turns out to be a distraction.
"It's not clear what they gain with an investment, given they're already able to integrate SoundCloud in Twitter," said Jan Dawson, chief analyst at Jackdaw Research. "Given all that needs fixing in Twitter itself, it seems odd for them to spend their money here."