Why DistroKid is Valued at $1.3 Billion

Bloomberg reported that DistroKid, the music distribution service, has raised money from Insights Partners and is now valued at $1.3 billion.‍

The music industry's long tail. According to Bloomberg, artists on DistroKid upload over 15,000 - 25,000 songs per day. If we assume all those songs are uploaded to Spotify, that's at least 25% of all music released to Spotify. With millions of users, the $19.99 per year distribution tool is the music industry's long tail.

When DistroKid launched in 2013, 250 songs were uploaded per day. In 2015 it hit 2000 per day. The hockey-stick growth has taken off with the rise of the streaming era.‍

Focus on one thing. Most distribution services offer additional benefits for their top customers. They want to extract more value from power users and justify variable costs like customer support.

But DistroKid's growth and valuation speak to its focus on doing one thing well. Even its competitors give props! The service is quite limited on customer service, but it's a tradeoff that the company accepts. It's committed to its low-cost service that breaks the lowest of entry barriers.

DistroKid's business models work because it has massive scale. Its financials aren't public, but it's a business with moderate fixed costs and low marginal costs. With "millions" of customers paying at least $19.99 per year, it has at least $40 million in annual recurring revenue.

‍Long tail models still need star success stories. DistroKid's homepage features testimonials from artists like Ludacris, Megan Davies, and 21 Savage's manager Kei Henderson. Technically, DistroKid earns the same revenue whether its customer is Ludacris or a hobbyist. But Luda's success attracts more hobbyists to the platform and more artists like Luda, who then attract even more artists.

Both DistroKid and major labels need star success stories, but for slightly different reasons.

‍Increase the total addressable market. In a quote to Bloomberg, Kaplan said "DistroKid set out to make it as easy to release a song on streaming services as it is to post a photo on Instagram."

This is the thread that connects several consumer tech companies of the past decade. Twitter made it easy for anyone to be a microblogger. Instagram did the same for photography. Shopify did it for online merchants. Tools like Anchor and Clubhouse have done the same for audio. DistroKid has done the same for music. The list goes on.

Read more about DistroKid's partnership with Snapchat in Billboard.