Lack of funds meant their staff camped on the roof, but after last week's CBS buyout, Last.fm's founders are the first British Web 2.0 millionaires, writes Jemima Kiss
Monday June 4, 2007
The Guardian
Co-founder Martin Stiksel is shuffling between interviews and photoshoots, patiently retelling the Last.fm story and explaining exactly what the fuss is all about.
And it is a big fuss. Five years ago, Last.fm's first team of developers lived in tents on the roof of the office when the company had no money to pay them; now the three co-founders - including 24-year-old Richard Jones - are multi-millionaires.
Big-money acquisitions are not uncommon in internet space, with NewsCorp's acquisition of MySpace in 2005 and Google's purchase of YouTube last year both regarded as milestones for the media technology industry. But Last.fm, the poster child for a resurgent London tech scene, is the first big British Web 2.0 breakthrough.
Understandably, the success of Last.fm's three founders, Jones, Martin Stiksel and Felix Miller, has generated a tangible sense of pride among those in the British tech scene. "I don't get this talk of a real London tech scene, because it is just a few companies and individuals doing things," says Stiksel. "But we straddle a divide and from a music point of view, London is the best place in the world. People have been very supportive of our project and there is a positive patriotism and pride about what has been achieved in this town."
The project's roots began with Austrian-born Stiksel, a former DJ and music journalist, and ex-punk band member Miller launching an online record label in 1999. They started experimenting with various ways of promoting their artists, developing a customisable web radio station.
Stiksel happened upon a story in the Guardian's Online section in March 2003 about Richard Jones, a Southampton computing student who had devised a recommendation system called Audioscrobbler that tracked listening habits and recommended music accordingly. A train ride and a few pints later, RJ and his "lazy way to discover new music" was on board and the new Last.fm was born.
The idea is relatively simple: users can create their own profile on the social networking site with the familiar bells and whistles of blogs and friend-finding, but the clever part is that users then start building a profile of their music tastes by tracking what they listen to through their computer, including iTunes and Last.fm's own media player.
Last.fm then suggests similar music, based on the listening habits of its 20 million users processed by its "scrobbling" technology, which indexes each track listened to. Enter a favourite band and the site compiles a freakishly accurate array of suggestions, and this is why the site is so popular with music addicts - it really does work.
"The idea is that everything out there to do with music is put in one central place, and everybody gets their own stream of music and recommendations," says Stiksel. "We've given music a home on the internet."
Last.fm has also found favour with artists: users are directed to a home page for each band with sample previews and a link to buy the full track through sites such as Amazon and 7digital. Significantly, Last.fm has started to sign deals with record labels so that the user can download tracks for free. Major labels EMI and Warner have both signed up, as well as thousands of independent artists and labels through The Orchard and IODA.
The concept is that Last.fm will be the last music radio station you need - which is not likely to be great news for conventional radio. "The internet has taken over as the place where bands break through," says Stiksel. "It's not MTV or daytime radio any more because they can't take risks. Things are much more based on what peers and friends are doing. The internet is the new rock'n'roll."
Last.fm's rapid rise meant it became an attractive acquisition target. "There hasn't been a month since we started in 2003 that we haven't been approached by someone," says Stiksel.
The web is teeming with comment on the cash deal and the pay-off for the Last.fm trio. Some estimated their personal share of the deal at just over £19m each, while venture firm Index, which invested an estimated £2.5m for a 20% stake last May, is expected to reap £28.2m from the deal. All three founders are insistent that the company will stay in London and that both sides agree Last.fm needs to operate at arm's length from CBS.
Different doors
"Everybody has learnt from the MySpace experience, so even the big media organisations recognise that it is better not to meddle with a concept if it is already working," says Stiksel. "The US is the biggest market for us and having CBS as a partner opens different doors."
Some commentators have said Last.fm has sold out, implying that CBS paid far less for the site and its technology than it would for an equivalent US firm. The Last.fm team is bullish about the price: discussion is futile because the deal has been done, and they also reject any idea that the big media CBS brand might cause loyal Last.fmers to abandon ship.
MySpace actually had fewer unique users than Last.fm - 16 million compared with 20 million - when it was bought by News Corp, and is now a staple showcase for underground musicians.
"When MySpace was sold there was a lot of shouting about the loss of cool, but it turned out not to be true," says Miller. "It's about who is running the company and we have a very credible team. We hire people who use Last.fm and are really into their music, so they want to address that fundamental problem that with so much content out there, people need a way to navigate through that."
Stiksel points out that CBS is something of a neutral brand in the UK and without the "emotional baggage" of Fox and News Corp. And though the site's roots are with tech-savvy music fans, it is slowly edging towards the mainstream along with other social web tools like Facebook and Bebo.
Entrepreneur Robert Loch, who regularly hosts events for London's technology crowd, says the site did well to agree the £141m price. Last.fm is very niche, and it is thought the site will not turn a profit until this year.
"It's an insane amount really for such a young company, but this is frontier land and there are no barriers to stop anyone getting into this game," he says. "In how many other industries is it possible to create a £100m company in four years?"
"Last.fm was able to do that because it had a brilliant product that people loved, and that's the lesson for wannabe entrepreneurs - the core proposition has to be rock solid."
Crucially, these new web companies don't have big budgets for marketing - their audience is grown virally through friends and relies on the product's strengths. "There are no medium successes," says Loch. "You can't just throw marketing money at something and make it work."
Austin Wilde, vice president of A&R and creative exploitation at EMI Music Publishing, says that his role identifying new talent is no longer about discovery but about filtering. Last.fm is part of a new generation of tools that empowers musicians and music fans directly, and spans both the tech and music scenes in London. "The London scene is about competition and community, and the two things work both together and against each other," he says. "It is incredibly competitive and that spurs people on, but the same community also fosters that talent."
An analysis of Last.fm's traffic by web research firm Nielsen//NetRatings shows roughly a 60/40 split between male and female users, and an older bias. Of the site's four million US users, 60% are over 35 and only 25% are between 18-34. In the UK, users are more equally spread between the two age groups, but data shows heavier usage and more time spent on the site than in the US.
Last.fm's tiny US audience is not an obstacle, say the founders. "One of the reasons CBS liked us is because we have an international spread," says Stiksel. Around 66% of the site's traffic comes from outside English-speaking countries, so the potential for growth is unquestionably huge. The site's 50-strong staff team is also very international and already publish in 10 languages including Chinese, Japanese, Polish and Portuguese.
It is fascinating to ask why, with such limited resources, Last.fm was able to come up with such a compelling service when the multi-million dollar CBS Corporation could not do that in-house.
"There is a certain alchemy, a certain voodoo, a certain magic to creating something like this," admits Stiksel. "We've been rolling in our own sauce for years and thinking about nothing else. We are soaked in it."
The CBS strategy to roll out the Last.fm model across different media fits with the plans that Stiksel and Miller had from the start. They even registered the domain Last.tv in 2003. "We realised at the beginning that the scope for this was very large, and that it would work not just for music but for films, TV and video. But there is a lot for us to do in the music space and that will be first and foremost."
As I pack up, I realise that by complete coincidence I have a packet of luxury tissues with me that have $100 bills printed on them. These really are very silly, I say to Stiksel. "Would you mind if I had one of those?" he asks, with the wry smile of a man who has just made millions doing exactly what he loves.
