The cash will be used to continue developing its music data platform, while hiring more sales and marketing staff to fuel its international expansion.
The round takes The Echo Nest’s total funding to more than $25.6m following rounds of $1.3m in January 2010 and $7m in October 2010. Its first round in September 2008 was for an undisclosed amount.
The new round comes as The Echo Nest also unveils a new feature called Taste Profile Similarity on its platform, which will help digital music services match fans with similar tastes in music. The company’s technology is used by music services including Spotify, Vevo and iHeartRadio, who could all take advantage of the new feature.
But first, the new funding. The Echo Nest CEO Jim Lucchese tells Music Ally about the twofold reasoning for taking new investment now. “First, we want to continue growing on the sales and marketing front,” he says.
“We are still a heavily engineering-based company, and that’s probably never going to change. But we are currently getting a lot done with just a few sales and marketing people, and seeing huge inbound [enquiries] from territories all over the world. So expanding sales and marketing internationally is a top priority.”
The second reason to take investment is to continue developing The Echo Nest’s products in response to demands from its partners, and to stay ahead of other people trying to be “the big data company for music”, as Lucchese puts it.
He adds that investment is easier to secure now for this kind of company than it was a couple of years ago.
“There was a lack of sophistication in being able to distinguish between companies monetising music directly – but who had licensing dependencies – and companies taking advantage of music consumption in some way, but without those label dependencies,” he says.
“That made the entire space difficult. We’re never going to send a cheque to a record label! We’re not in the business of selling content, we’re about understanding how people connect with music. But there is a pretty substantial number of investors now who get that.”
Recent funding rounds for the likes of Songkick ($10m in March 2012) and SoundCloud ($50m in January 2012) bear that out – all three are companies without what Lucchese calls “the hairier content dependencies that raise questions for Pandora, Spotify and others”.
When it comes to customers, there are two distinct strands to The Echo Nest’s business: individual developers and emerging startups on one side, and the big digital music services on the other.
The latter represent around 90% of the company’s revenues today, although Lucchese says the former are still hugely important to The Echo Nest’s strategy.
“Hopefully we’ll remain the hub of the most innovative application development community out there,” he says. “It helps us in so many ways, including evangelising and showing the market what’s possible on our platform. And of course, many of these individual developers go on to work at places like Spotify and iHeartRadio.”
Lucchese adds that The Echo Nest’s partnership with Spotify in particular is starting to generate “real revenue”, particularly from the emerging crop of branded Spotify apps. For example, Intel has a Spotify app that is powered by The Echo Nest’s platform.
The new Taste Profile Similarity feature is interesting, though. It fits into The Echo Nest’s wider Taste Profiles service, which can build a profile for each user of a digital music service based on their music collection and listening habits. The new feature sets about matching these fans up.
“Our first big growth spurt as a company was driven by our ability to help customers understand music content – the 20-30m songs in their catalogues – so they could deliver a more meaningful discovery experience,” says Lucchese.
“We see an even bigger opportunity in understanding each music fan, though. Think about the social side of things: today if you look at a firehose of music consumption data you’re getting on Facebook, without any context it’s hard to drive any meaning from that.”
This is an important point. A lot of the current activity around ‘social music’ relies on the assumption that ALL your friends’ music listening is interesting to you, rather than the few who you actually share tastes with.
Taste Profile Similarity should help digital music services get smarter about that, while also matching strangers’ tastes – which is less about getting them to be friends, and more about providing better recommendations with a human touch.
Which is another key point. The best music recommendations come from people. The last three or four new bands that I really loved were all recommended to me by flesh’n'blood people rather than algorithms – usually with a variation on “You will love this”.
Historically, music recommendation engines have been less “you will love this” and more “you might like this”. I’ve yet to find an algorithm that I feel truly understands me, musically.
Now, Lucchese and The Echo Nest aren’t making grand claims that their technology will, but something like Taste Profile Similarity is another step along the road to music recommendations that are about people as much as algorithms.
“We’ve never taken a man versus machine approach to discovery, or even an approach where we feel we have the answer to music discovery,” says Lucchese.
“We look at it as a very diverse data problem. Recommendations from people you trust and know well are always going to carry a ton of weight, and right now, they happen largely in the analog world.”
The Echo Nest plans to push on with its efforts, anyway. It has already been used for more than 340 applications, making the company one of the two key platforms (the other is Facebook, obviously) that music app developers are building on top of.
That could mean tensions if The Echo Nest was a consumer-facing business, of course. Twitter has been taking flak in recent weeks over the way it deals with its developer community – from telling them not to make straight Twitter apps through to wanting to control how tweets are displayed in third-party apps.
There’s an interesting blog post by Dave Winer on this very topic, suggesting that “corporate APIs are good for the corporations that own them, and bad for everyone else”. How does The Echo Nest avoid becoming a bad guy in its ecosystem?
“There’s always an inherent tension if it’s a consumer-facing application-driven business, which is also exploiting an API to enable other consumer-facing applications,” says Lucchese.
“It’s a little bit of an oversimplification to paint the platform provider as the bad guy. That tension is always there, and as the business evolves, those conflicts can emerge that no one anticipated originally.”
Even so, this is why The Echo Nest has taken a clear position throughout its life.
“Our sole business is enabling application developers, whether they be large companies or small dev teams, to create cool music experiences. There were licensing and business reasons for that, but also we did not want an app developer to feel that they run the risk of us basically competing with them.”
The concern here: what is The Echo Nest’s exit strategy? When big Silicon Valley VC firms are investing millions of dollars in a company, they’re usually thinking about an exit a few years down the line.
One of the big theories behind The Echo Nest’s Taste Profiles is that you can tell a lot about someone from their music collection and listening habits.
Just today, Lucchese’s fellow co-founder Brian Whitman has published a fascinating blog post on trying to use Taste Profiles to determine people’s political affiliation in the US. All this data can be valuable, which will in turn make The Echo Nest valuable. To acquirers.
Or to put it bluntly, if Facebook, Apple, Google or Amazon were to buy The Echo Nest, would that be a worry for its community of developers?
“Exit opportunities? If we can be the data engine for understanding music, it can be an incredibly valuable and incredibly profitable business,” says Lucchese. But he also stresses that The Echo Nest is in it for the long haul, not for a lucrative exit.
“For the management team and the people here driving the product and R&D, understanding music is our life’s work. We are really committed to building a company that pushes forward musical understanding, and which if you’re one of the smartest people out there in the space, is hopefully the best place for you to work.”