Social Internet radio service Social.fm has gone silent for good, according to a message posted by parent company Mercora Inc. on its Web site. Backed with $5 million in Series B funding from Norwest Venture Partners in early 2005, as well as a nominal Series A from company founders including CEO Srivats Sampath, Mercora re-branded itself as Social.fm about a year ago, adding discovery, broadcasting and networking tools.
Mercora's decline is emblematic of how quickly consumers' expectation of free music has taken hold. At the time of the Series B round, Sampath told me he expected consumers to pay $30 to $40 annually to stream music from other people's hard drives. The company was one of many to pitch itself as a "legal peer-to-peer" service, specifically as a paid alternative to file-swapping applications that often delivered low-quality results and incorrect songs and were plagued with spyware. Today, services such as Last.fm Ltd. and Imeem Inc. offer free streaming of a massive catalog of songs licensed from major labels, supported by advertising.
In becoming Social.fm, a free service that included social networking components, Mercora's adjustments were too little, too late, as the company was well behind competitors such as Last.fm, acquired by CBS Inc. for $280 million in May 2007. Although Mercora was right that consumers would want personalized radio stations, their first attempt personalized the stations based on the broadcaster's taste, not the listener's.
Norwest's Tim Chang, who joined the firm after its investment in Mercora, recently suggested to me that companies that infringe on content owners' rights may be the best-positioned to succeed. "The royalty structures for ad-supported streaming music are too high for startups that haven't scaled yet, so they have no choice but to infringe in order to get to scale," he said. Chang told a conference audience in May that Social.fm was "looking for a way to gracefully wind down operations."
Sampath was the co-founder and CEO of security software vendor McAfee.com Inc. prior to its reabsorption by Network Associates Inc.in 2001. -- Paul Bonanos
See Jan. 2005 story about Mercora in The Deal
For more, see GigaOm and The Register
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