Deezer rides a doozy of a storm as CEO is ousted by investors

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[France] Music search and discovering service Deezer is currently caught up in a storm of controversy: its co-founder and CEO Jonathan Benassaya has effectively been forced out by his investors. After Deezer faced mounting competition from services like Spotify, it’s emerged that investors ousted the founder in order to put in place a more experienced business manager to both reorganize and perhaps prepare some kind of exit. They’ve been disappointed with Deezer’s performance towards a premium service and low advertising revenues.

The rumour that this was about to happen began last week grew a head of steam over the weekend, as reported by music expert Philippe Astor on French site Electronlibre (Google translation). Midem, the annual conference for the music industry, is currently taking place in Cannes, France and the departure of Jonathan Bessaya from Deezer was one of the buzzing topics during the weekend. One of the things that confirmed this rumour was that the CEO was due to participate on a panel on Saturday during Midemnet (the part of Midem focused on the online music industry) but he conspicuously did not show up. His name was even up on screen during the panel he was supposed to attend. On this panel was also Paul Brown, SVP of Spotify, that is widely regarded as a Deezer killer.

Deezer had tried to make changes to its model over the last months, from a free service to a premium based one (€9.99 for unlimited streaming a month). Announced in November 2009, this premium model probably (according to Electronlibre) attracted only 10,000 people in about three months. The 100,000 target before the end of 2010 seemed impossible to reach. Of course, Deezer still has 10 million users in Europe, 6m of them in France, but if it cannot monetize these users, or make them switch to the premium model, it’ll be hard going for the company.

Deezer raised €6.5 million in October 2009 in a series B round, bringing the total amount invested to approx €12.2 million, but a big part of this money was used to pay royalties to majors (one of the strengths of Deezer were these agreements, but it seems they had weakened the company). That’s certainly a reason why, as explained by Philippe Astor in his article, Deezer could not invest in the development of a new rich desktop client (such as Spotify, or iTunes) since desktop clients are clearly seen by music experts or even by consumers as the winning format, the “digital jukebox”.

Mike Butcher adds:

There are two ways to take this news. Either it’s part of a worrying pattern in the French tech scene where founders are ruthlessly replaced by investors who are hungry for the business to be run by a more career professional manager. To a greater or lesser extent, this effectively happened to Benjamin Bejbaum of DailyMotion. And similar happened to Tariq Krim, founder of Netvibes.

The other way to take this is that the controversy has arisen because, in French tech culture, being the CEO is considered to be everything. This is not the case in the U.S., where startup founders are usually quite happy to be kicked upstairs to a Chairman role or somesuch, because founders are still considered the rockstars. Not so in mainstream French business culture, where, to be the rockstar, you have to be the CEO. This is the reverse of the UK or US scene, where founders get the respect, and the CEO is generally seen as just a business person brought in to make things run smoothly. In France, once a tech founder is not the CEO, it’s like Samson losing his hair. I wrote about this at length a while ago.

Thus you get a scenario where the CEO is dragged kicking a screaming out of the building, or just starts not turning up to big events (see above) rather than making a more dignified transition to a chairman role and saving the investors the problem of having to mount a coup d’état.

  • http://www.ofit-travel.com.ua/fr/index.php Lviv

    if some engine is legal it’s great.
    in ukraine we don’t have any legal search engines for music or video

  • http://www.twitter.com/julesmorgan Jules Morgan

    ‘coup d’état’ ?

    Very clever. I see what you did there… ;)

  • http://blog.david.bailey.net davidjwbailey

    To quote a rather wonderful movie:

    “What we’ve got here is… failure to communicate.”

    It is a sad day if the investor is setting all the corporate targets, but not backing the CEO to achieve them. We only have part of the story here, but it reads like ‘investors pumped in $6.5m on top of $6m, the CEO spent it on music royalties and admin, as he said he would, the investors panicked around August 2009 and demanded monetisation and a new desktop client. The CEO had no funds to deliver them, and was ousted’.

    If so, shame on both of them for not communicating their intentions, constraints and strategic understanding more clearly.

    Sadly, that is $6.5m that won’t go to (say) 70 $100k start ups that might have got something right.

  • http://pegobry.tumblr.com/ PEG

    Mike: I think you’re making too much of this. Maybe being a CEO is slightly more high status in France than in UK/US, but you’ve had plenty of high profile bitter CEO ousters on the other side of the pond.

    I think the problem is not so much the CEO as the investors, who are less sophisticated and are still in the 90s mentality of put-an-MBA-at-the-helm-ASAP even though the biggest startup successes from Microsoft down to Facebook keep the founder as CEO.

    Also US/UK startups are more PR savvy so even though knives are drawn backstage everyone will put on a happy face and the founder will say “it was time to move on to other things” or some such.

    • http://pegobry.tumblr.com/ PEG

      Also I should add that in France as well the biggest startup successes have kept the CEO at the help: Free/Iliad, Meetic, Vente privée, PriceMinister…

  • http://makeitcheaper.com/business-gas.aspx Business Gas

    I think Deezer went through too much too early. No plan as such and ended up having to withdraw a lot of it’s listed artists leaving peoples playlists 80% inactive.

  • http://www.ge3k.co.uk Matt Auckland

    It’s always sad to see a founder get side stepped, or in this case booted out altogether, but these are the pitfalls of not performing when you have investors.

    Deezer is always going to be playing catch up to Spotify in my opinion. Spotify has generated a massive amount of press both in Europe and the US, and unless they make a massive cock-up (which is possible in tech) they should do extremely well.

    As for Deezer’s future, most likely a quick exit of some sort for the investors, maybe selling out to another well established music or internet giant. Either way meeting there defined quoter for paid Pro users by the end of 2010 is a challenge and a half, one I don’t think the service is up to considering the choice out there.

  • Kwyjibo

    Deezer is like Spotify but without the lashings and lashings of undeserved press attention. Spotify’s PR must have been shit hot.

    Who the heck wants a “rich desktop application”? It’s streaming, it should be in the browser, and you shouldn’t have to listen to adverts.

    It’s such a great product, shame it makes no money, and has no audience. Because, like, Spotify? Seriously?

    • Adam

      So you shouldn’t have to listen to adverts but it’s a shame they don’t make money? How do you propose they’d make money without ads?

  • http://macarieweb.com/musique-en-ligne/deezer-benassaya-prie-de-partir/ Deezer : Benassaya prié de partir | MacarieWeb Le Blog

    […] du côté des autorités Françaises, aurait été remercié par ses actionnaires. Plus de détails croustillants sur TechCrunch. Tags: Deezer, Musique en ligne […]

  • Gab

    Well not really a surprise… Dailymotion and Deezer have the same Equity firm behind them… Maybe a “AGF Equity” effect ?

  • http://macarieweb.com Fabien

    I met Benassaya once and I know a little bit of the business context when Deezer grew so fast without any legal agreement with the majors. I guess the pressure of doing business without respect of certain rules has been to hard.
    I don’t mean thinking out-of-the-box is bad. I mean it is not so difficult to increase its traffic by giving music as a free and legal gift when it’s not yet legal to do so (CQFD ;o])

  • http://www.itbreaks.com maroufle

    http://www.itbreaks.com is a good alternative…

  • Michel Demaison

    Mike, for the record, Netvibes VCs are not French. http://about.netvibes.com/investors.php

  • http://www.freddestin.com Fred Destin

    I met Jonathan a number of times and he is a real entrepreneur and good businessman. I was disappointed by version 2 of Deezer which I found too heavy, but I have always been impressed by the execution skills of Jonathan; I wish him all the best.

    Mike, I believe the comment on founder / CEO comes from a discussion we had at a cafe around Seedcamp Paris. I do think founder transition is a fundamental issue in general and it makes life hard when companies grow.

    If we could get to an “aspirational model” where transition was accepted as natural, we would have much smoother growth paths for our companies where we could lay solid foundations over time, rather than deal with crises.

    The Netvibes, DailyMotion and Deezer cases are really quite different and need to be looked at separately.

    Re DM, Ben Bejbaum is a fundamentally talented founder; he is also absolutely not the right “manager” for a 100-person company. For the record AGF had nothing to do with the exit of Ben from DailyMotion. Partech and Atlas need to take responsibility for this (which we do) after trying hard to maintain / transition Ben over time. In the end we have Ben on the board and benefits from his insights. Co-founder Olivier Poitrey is in the company and a key contributor to the company. BTW I would watch what Ben is doing next; he is a smart startup guy with real insights into the future of the web.

    Netvibes is different; what is certain is that Freddy Mini, also a typical entrepreneur profile, does a great job as CEO. Tariq’s new project is exciting; let’s see where he takes us.

  • http://eu.techcrunch.com/2010/01/27/we7-puts-faith-in-premium-packages-but-what-about-the-product/ We7 puts faith in premium packages, but what about the product?

    […] already potentially killing off local competition in France, where Deezer is going through huge problems and has failed to get a desktop application […]

  • http://pix-geeks.com/marketing/changement-pdg-deezer Changement de PDG pour Deezer ou pas, quelle importance ?

    […] qui relaye l’information […]

  • Andrew K

    Deezer *was* amazing and *could have* been monetized had they retained their music catalogs… but now, as it stands, 80% of my old playlists are no longer playable. Why would I — or anyone else — pay for music they can no longer listen to??

    The music industry put the nail in this coffin. Which is why I hate them even more.

  • http://fhyatt.net/we7-puts-faith-in-premium-packages-what-about-the-product/ We7 puts faith in premium packages, what about the product? | Something For Everyone

    […] It’s already potentially killing off local competition in France, where Deezer is going through huge problems and has failed to get a desktop application […]

  • http://deals-n-discounts.com/after-the-bloodletting-deezer-appoints-a-new-ceo/ After The Bloodletting, Deezer Appoints A New CEO | ~ Deals & Discounts ~ | iPhone Downloads | iPhone Games | iPhone Apps | Symbian S60v5 Application | Symbian S60v5 Games | Symbian S60v5 Themes |Symbian S60v5 Downloads |Symbian S60v5 Troubleshoot |Al

    […] controversial moves in which its CEO went missing from a major conference and initially appeared to have been ousted, […]

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    […] controversial moves in which its CEO went missing from a major conference and initially appeared to have been ousted, […]

  • http://www.seslisohbetbk.com/ Sesli Sohbet

    Re DM, Ben Bejbaum is a fundamentally talented founder; he is also absolutely not the right “manager” for a 100-person company. For the record AGF had nothing to do with the exit of Ben from DailyMotion. Partech and Atlas need to take responsibility for this (which we do) after trying hard to maintain / transition Ben over time. In the end we have Ben on the board and benefits from his insights. Co-founder Olivier Poitrey is in the company and a key contributor to the company. BTW I would watch what Ben is doing next; he is a smart startup guy with real insights into the future of the web.

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