Nov. 1 (Bloomberg) -- Four years ago, Ethan Diamond underwent an ordeal trying to buy an album online that a band had self-released: First the website crashed, then the download failed and left him struggling to find a link to report the problem.
Eventually the band’s singer e-mailed him a link to the songs, which were low-quality audio files with no titles or track information. “Every one of those problems was something I felt like I could solve,” says Diamond, a programmer whose previous venture was bought by Yahoo! (YHOO) and became Yahoo Mail.
He left Yahoo in 2007 and started Bandcamp the next year to create an easy way for bands to publish and sell music online. Artists can plug Bandcamp’s player and storefront into their own websites to stream entire albums for free and sell or give away downloads. Today, hundreds of thousands of artists use Bandcamp, and Diamond says about 25,000 join every month. That makes the company a fast-growing contender to succeed Myspace as the go-to online tool for musicians to get music directly to fans. As Myspace users decamped for Facebook, “there was basically a huge vacuum left,” says Aram Sinnreich, founder of media consultant Radar Research. “There were more than 10 million bands on Myspace. All those bands needed someplace to go.”
(This graphic shows how Sufjan Stevens sold 10,000 albums on Bandcamp in one weekend. For more stories about entrepreneurs changing the music business, see our special report.)
Other companies catering to independent musicians, including TuneCore, ReverbNation, and CD Baby, distribute songs to online stores such as iTunes (AAPL) and Amazon MP3 (AMZN) for a fee. Bandcamp doesn’t distribute to digital retailers and many artists on Bandcamp also sell on those sites. The difference: Bandcamp lets musicians set their own prices. Plenty of bands seeking exposure use it to give songs away. They can offer downloads in exchange for joining a mailing list or they can use a Radiohead-style “pay what you want” model. The site also handles orders (though not shipments) for CDs and merchandise. The 12-employee company takes 10 percent to 15 percent of any sales made through the site. (Bands pay PayPal (EBAY) separately for processing transactions.)
Business Model: WordPress
To build Bandcamp, Diamond recruited veteran programmers from tech companies that include Yahoo, Apple, and Adobe (ADBE). The company’s team is spread as far as Australia and Hawaii, with the founders based in San Francisco, where they worked out of a public library until moving into a co-working space two months ago. With blogging tools like WordPress as their model, their goal was to make it as easy to distribute music on the Web as it is to put up a blog post. Toni Schneider, chief executive officer of WordPress.com’s parent company, sits on Bandcamp’s board; True Ventures, where he is a partner, invested a seed round in the company in 2008.
Some musicians are seeing impressive results from Bandcamp: Amanda Palmer of the Dresden Dolls self-released an album of Radiohead covers on the ukulele and brought in $15,000 in minutes. Sales via Bandcamp alone were enough to propel Sufjan Stevens to the Billboard 200. Diamond says artists have sold $7.3 million of product on the site in the last 12 months. That’s a tiny sliver of annual digital music sales, which the International Federation of the Phonographic Industry estimates at $4.6 billion globally. Two-thirds of digital sales in the U.S. went to Apple last year, according to market researcher NPD Group.
Consultant Sinnreich expects Bandcamp to have to find new ways of making money as listeners shift from buying downloads to subscribing to such streaming services as Spotify. “I don’t think anyone’s investing in Bandcamp based on 10 percent of indie music sales,” he says. The fate of Myspace offers an exemplary reminder of how fast shifting tastes can undermine a business. Sinnreich, who plays bass in a soul band called Brave New Girl, says he used to get leads for new gigs every week through the band’s Myspace page. That hasn’t happened in years. Now, he says, the group is thinking of putting its next album on Bandcamp.
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