Every entrepreneur dreams of building a successful startup, but the harsh reality is that many businesses fail. In today’s world, the startup failure rate is extremely high, with around 90% of startups failing within the first five years. The reasons for this high failure rate are many and varied, including a lack of market demand, inadequate funding, poor management, and fierce competition.
The rise and fall of Musical.ly is a prime example of how even the most successful startups can stumble and fall. Launched in 2014, the social media app quickly became a sensation among teenagers, amassing millions of users and raising hundreds of millions in funding. However, just four years later, Musical.ly was merged into another app, TikTok, and essentially shut down. In this blog, we will explore the reasons behind Musical.ly’s failure and what startup founders can learn from it.
The history of Musical.ly
Musical.ly started as a social media platform that allowed users to create, share, and discover video-based content. It was founded in 2014 by Alex Zhu and Luyu Yang, both of whom had experience in the tech industry. Zhu’s initial idea was to create a short-form video platform, called Cicada, that would include educational content that is between three to five minutes long. However, the idea failed to gain traction with its intended audience, and Zhu and Yang began looking for other ideas.
One day, Zhu saw young people recording themselves using their front-facing camera while lip-syncing to music they played. He realized that he could combine music, videos, and social networking to attract the early-teen demographic in one single platform. Thus, Musical.ly was born. The platform struggled to take off at first, but the team made some key changes that completely altered its growth trajectory. For example, the team repositioned the watermark logo, vastly increasing the reach that each video had. They also pivoted to focus on lip-syncing content, which became a huge draw for young users.
Musical.ly’s user base exploded, and it quickly became one of the world’s most popular social media platforms. In just a few years, the app had more than 200 million registered users, and its value was estimated to be around $800 million to $1 billion. The company raised hundreds of millions of dollars in funding from prestigious investors such as Greylock and GGV Capital, and it inked licensing deals with major record labels such as Warner Music. The platform also expanded its offerings to include a livestreaming app called live.ly and partnerships with Viacom, NBCU, and Hearst to create short-form and original content.
Despite its massive success, Musical.ly ultimately failed. In 2018, ByteDance, the Chinese company behind TikTok, acquired the platform for around $800 million. ByteDance then merged Musical.ly into TikTok, effectively shutting down the original app. The reason for Musical.ly’s failure is complex, but it can be attributed to a combination of factors.
Reasons for the Company’s Success:
Musical.ly’s success can be attributed to several factors, including:
- Unique Concept: The app’s lip-syncing feature was unique and had not been seen before in the social media world. This unique concept quickly captured the attention of the younger generation and made the app incredibly popular.
- User Interface: The app’s simple user interface was easy to use, and its ability to create fun and engaging videos quickly made it a hit.
- Strategic Partnerships: The company signed deals with Warner Music and MTV, allowing content creators to legally use music in their videos, which further fuelled the company’s growth.
- Funding: Musical.ly was able to secure significant funding from prestigious investors, such as Greylock, GGV Capital, and others, which allowed the company to scale and expand.
- App Store Promotion: The app was featured prominently in the App Store, which helped it gain visibility and attract more users.
The reasons for failure
In August 2018, ByteDance, the parent company of TikTok, announced that it was merging Musical.ly into TikTok. Although the app’s user base was still growing at the time, the decision to merge it with TikTok suggests that there were underlying issues that made it difficult for Musical.ly to continue operating as a standalone platform. So what were these issues, and what led to Musical.ly’s eventual failure? Here are some of the key reasons:
As with any successful startup, Musical.ly faced competition from other companies looking to capitalize on the short-form video format. In particular, the app faced competition from Dubsmash, which also enabled users to create and share short lip-sync videos. However, the biggest threat came from Facebook, which began testing its own lip-syncing features in 2018.
In November 2018, Facebook launched a competing product called Lasso, which was widely seen as an attempt to take on TikTok. Although Lasso failed to gain significant traction, the competition from Facebook was a clear indication that the short-form video market was becoming increasingly crowded.
Lesson for startup founders: It can be hard to compete in social plays!
Difficulty Penetrating the Chinese Market
Although Musical.ly was headquartered in Shanghai, China, it struggled to gain traction in its home market due to vastly different browsing patterns. The Chinese market is dominated by super apps like WeChat, which offer anything from food delivery to booking hotels. Co-founder Alex Zhu, in an interview with the New York Times, furthermore thought that Chinese youth simply wasn’t aligning well with the app’s purpose. “Teenagers in the U.S. are a golden audience,” he emphasized in the interview. “If you look at China, the teenage culture doesn’t exist — the teens are super busy in school studying for tests, so they don’t have the time and luxury to play social media apps.”
In addition to competition from other platforms, Musical.ly also faced regulatory issues that made it difficult to operate. In 2017, the company was fined $5.7 million by the Federal Trade Commission (FTC) for violating children’s privacy laws. The FTC found that the app had collected personal information from children under the age of 13 without obtaining parental consent, which was a violation of the Children’s Online Privacy Protection Act (COPPA).
The fine was a significant blow to Musical.ly, as it highlighted the company’s failure to properly monitor its user base. In the aftermath of the fine, the company implemented stricter age verification measures, but the damage had already been done.
Lesson for startup founders: Regulators aren’t messing about these days, so you need to know the rules and stay within them once you are large enough to be noticed, even if it might constrain growth.
Failing to find product-market fit
Musical.ly’s initial idea was to create Cicada, a short-form video platform for educational content. However, the concept failed to resonate with its intended audience or educators. Content creators struggled with the format, and users found the videos too long. It wasn’t until the founders stumbled upon teenagers lip-syncing to music on their phones that they saw an opportunity to pivot to a different kind of content. They quickly adapted to the new use case, heavily promoting lip-syncing features and revamping the app’s home screen to make it easier to navigate. The changes paid off, and Musical.ly quickly became the number one app in the App Store. However, the initial failure to find product-market fit could have been avoided if the founders had done more research and user testing before launching Cicada.
Lesson for startup founders: Finding product-market fit is crucial to the success of any startup. Don’t be afraid to pivot if your initial idea isn’t working, but make sure to do your research and listen to your users.
Lack of age verification and safety measures
Musical.ly’s focus on teenagers and lip-syncing content made it popular among young users. However, the company’s lack of age verification and safety measures led to some public backlash. Many children below the age of 13 were using the app, even though it was only intended for users aged 13 and above. The company’s CEO acknowledged the problem but admitted that there was little they could do to prevent underage users from lying about their age. The lax stance on age monitoring and safety measures ultimately led to Musical.ly being accused of exposing minors to inappropriate content.
Lesson for startup founders: Safety should be a top priority for any app or platform that caters to young users. Implement strict age verification measures and invest in safety features to prevent minors from accessing inappropriate content. This is something Tik Tok has faced with their question in the USA senate.
Lack of a sustainable revenue model
Musical.ly’s initial focus was on building a large user base and generating buzz around the app. The company did not have a clear revenue model in place, and it wasn’t until later in its lifespan that it began to experiment with advertising and other revenue streams. While the company was able to secure licensing deals with major music labels, it wasn’t enough to sustain the business in the long run. Additionally, the lack of a sustainable revenue model made it difficult for the company to justify its valuation to investors.
Lesson for startup founders: A sustainable revenue model is essential to the success of any startup. Don’t focus solely on building a large user base without a clear plan for monetization. Experiment with different revenue streams early on and be prepared to pivot if your initial revenue model isn’t working.
Inability to monetize effectively
Like many social media platforms, Musical.ly struggled to monetize its user base effectively. Although it had partnerships with major music labels and had launched a second app called live.ly that enabled users to launch livestreams, the company was not generating significant revenue. As reported by TechCrunch, Musical.ly’s business model relied heavily on user-generated content, with only a small portion of the app’s content coming from partnerships with music labels.
In addition, the app’s focus on teenage users made it difficult to attract advertisers. Many brands are hesitant to advertise on platforms that are predominantly used by teenagers, as they may not have the same purchasing power as older demographics. This made it challenging for Musical.ly to generate the revenue it needed to sustain itself.
Lesson for startup founders: You need to make money at some point. If you focus on broke people, where is that money coming from?
Overspending and mismanagement
Musical.ly’s rapid growth led to a lot of overspending and mismanagement. The company raised hundreds of millions in funding, but it also burned through a lot of cash trying to keep up with its competitors. The company’s focus on hiring expensive talent and investing in new products and features without a clear plan for profitability contributed to its downfall. In addition, the company’s management was criticized for its lack of transparency and communication with employees.
Lesson for startup founders: Overspending and mismanagement can be fatal for a startup. Duh!
Another factor that contributed to the downfall of Musical.ly was the issue of content moderation. As with any social media platform, Musical.ly had to deal with inappropriate content and cyberbullying. However, the company’s approach to content moderation was not effective. The platform had a large user base, but a small team to monitor and remove offensive content. This led to the proliferation of inappropriate content, which drove away users and put the platform’s reputation at risk.
Lesson for startup founders: Kids are assholes. Plan for that. Many other startups have failed for this reason.
The company also struggled with issues related to user privacy. While the platform had strict policies against collecting data from children under 13 years old, many young users lied about their age to create accounts. This led to concerns about the safety and privacy of minors on the platform. In 2016, the Federal Trade Commission (FTC) launched an investigation into Musical.ly over allegations of violating the Children’s Online Privacy Protection Act (COPPA). The investigation found that the company had collected personal information from children under 13 without parental consent. As a result, Musical.ly was fined $5.7 million by the FTC, which marked the largest COPPA-related penalty in history.
Lesson for startup founders: Again, regulators aren’t messing about in the USA.
In conclusion, Musical.ly was a popular social media platform that was highly successful for several years. However, the company’s downfall was caused by a combination of factors, including inadequate content moderation, issues with user privacy, intense competition from established social media platforms, and the rise of TikTok. While the company had a dedicated user base and raised significant funding, it was unable to keep up with the changing landscape of the social media market. As a result, it was acquired by ByteDance and merged with TikTok, effectively ending the Musical.ly brand.