Martin Stiksel

It’s the biggest rags-to-riches story of an internet start-up ever to come out of the UK. Having launched just after the dotcom bubble burst, Last.fm was faced with a long and rocky road, but last May, the London-based company finally hit gold when US entertainment giant CBS snapped them up for £140million ($280m). Nobody had ever paid morefor a European Web 2.0 service.

Last.fm had been courted by several companies for some time. So, the sale itself didn’t come as a surprise, but the fact that Last.fm went to CBS was unexpected. Many industry insiders had touted Viacom as the buyer, with a rumoured $450m in the game. Martin Stiksel, Last.fm’s co-founder and chief communications officer, says the deal with theUS media giant made perfect sense. “CBS, as anold media company, realised that it had to understand its audience more,” he says. “It had to get in touch with its audience and it had to see what people actually want to watch and listen to. There was no better place than Last.fm, because weknow everything about our listeners’ favourite music. We were the ideal partner.”

Industry analysts also think that CBS was after Last.fm’s unique “scrobbling” technology, which records and analyses details of a user’s listening preferences, but Martin says it’s not on the roadmap yet. “We haven’t really discussed it. Scrobbling currently happens on Last.fm and 45 different media players. Some hardware devices are also starting to integrate Last.fm scrobbling, but it’s only happening within the Last.fm project frame.”

Last.fm’s three founders, Martin Stiksel, Felix Miller and Richard Jones, continue to run the company independently. They’re in charge of product design and strategy, and look after the day-to-day business without CBS interfering. “We’re a more serious partner for a lot of companies now. When you’re a start-up, sometimes there’s the problem that companies don’t know if you’re going to be around for long enough, or who is going to purchase you, or what your long-term strategy is. Now all this is out of the way. We’re taken more seriously as a player in the online music scene.”

Enjoying the freedom

Of course, having a considerably larger budget alsohelps. “Before the acquisition, we had to run everything at arm’s length,” Martin remembers. “The focus was on making sure the money was there at the end of the month to pay everybody. We had about 45 employees and there was quite abit of responsibility. Now we can go back, look atthe bigger picture, and dust off some off our whiteboards full of ideas that we had collected overthe last couple of years and thought we’d never get around to doing.”

One of the features the founders were able to realise, post-CBS acquisition, was the addition of music videos. They had registered the last.tv domain as early as 2003, but just didn’t have the time and money for the needed partnerships. Stiksel says: “Music videos were very important for us because they were one of the last missing pieces of our music offering. Last.fm always prided itself on being the last music platform that you’ll ever need. You can listen to music, read about it, look at pictures, discover a lot of extra info about the artist, find events and free downloads, purchase music and tickets. Beforehand, you had to go to 10 or 15 sites to do this. Last.fm brings all these features together. Now we have artists and record labels uploading music videos every day, and the partnership with YouTube has helped us to get a lot of music videos in one go. We realised that putting a stream together based on your musical preferences works nicely for audio but also for video, so we’re looking into expanding this in the near future. We’re actually working on something that’s a bit like your own personalised MTV.”

Today, the Last.fm site (last.fm) is available in 12 languages and has more than 20 million users in more than 200 countries. Stiksel says that the foreign markets are growing strong and the company is finding out a lot about Chinese and Russian music. Last summer, Last.fm also managed to strike a deal with Sony BMG, which followed previous agreements with Warner and EMI. But things weren’t always looking so bright.

How to survive a dotcom crash

The timing for the launch of Last.fm, in 2002, couldn’t have been worse. Martin Stiksel and Felix Miller, originally from Austria and Germany, were already in London running an online record label, but they didn’t know anything about the internet industry. “Miller and I were working in the music industry. We were tangentially aware of the first dotcom bubble, because we were living in East London and saw people running around with laptops, pitching to investors in cafes, but we didn’t quite know what was happening to be quite honest.”

Before Last.fm integrated Richard Jones’ Audioscrobbler project, it was just another online radio station and music community site. Users still had to rate songs to define their musical profile, but the scrobbling technology gave Last.fm its unique twist. “We just thought Last.fm was a great idea, and there must be a lot of interest from investors and sponsors. But then we realised not only did the whole internet bubble burst, but also, as soon as you mentioned the word “MP3”, people were running away.”

There were days when Last.fm was close to bankruptcy, and Stiksel remembers his parents asking him what he was doing with his life and whether it was time to get a real job! “We had zero starting budget,” Stiksel says. “We had converted Miller’s bedroom into our office. We had our first programmers sleeping under the table or sleeping on our roof terrace with only food for pay. But people were into the idea. Our enthusiasm, the enthusiasm of our first couple of employees, and the feedback from a lot of the independent record labels and all the musicians that we worked with carried us through, until there was light at the end of the tunnel. As a team, we survived. If I’d have done it on my own, there’s no way that we would have got so far.”

Developing goodwill

Last.fm was growing on a minimal budget, so the team quickly learned how to scale the site without investing “shedloads of money” as Stiksel puts it, an experience they can still fall back on today. Miller and Stiksel, who used to work as a music journalist, also made sure they had the right contacts, and that the record labels as well as the royalty collection societies knew what they were up to. “We didn’t go ahead like a lot of other companies that became successful, which didn’t give a damn about copyright. People saw that we were not really taking the piss. That created a lot of goodwill in the music industry. It was a good starting point when we began negotiations.”

In 2006, the money was back, and Last.fm received the first round of venture capital funding. Last.fm started to heavily invest into product development, especially when it realised that a couple of companies in the US were starting to copy the idea. The company, however, stayed firmly rooted in London. “We met here in London,” Stiksel explains. “We started the company here and thought that London was the best place for music. Full stop. Some investors wanted us to move to Silicon Valley, but we were still in the music business, at least with one foot of our project, soLondon was a natural choice.”

Last.fm’s founders could probably retire or turn to new ventures, but for Martin Stiksel, that’s out of the question. Unlike Skype’s Zennstrom and Friis, they are “conviction entrepreneurs”, not serial entrepreneurs, as they’ve recently told the Second Chance Tuesday event. Their heart lies in music and there’s still a lot of things to do to fulfil the Last.fm mission. It’s unlikely, however, that Martin Stiksel’s parents will ever have to worry about their son’s income again.