Ash Alhashim * Lily Ho * Christiana Lee * Jem Nguyen * Christina Santamaria

Pandora’s Strategy: An Analysis

Agenda Background and Objective

Network Effects

Pricing Strategies

Versioning

Strategic Alliances

Final Recommendation

PandoraCompany Background Automated music recommendation service 2012: 150M users, 1M tracks, 100K artists

Competitive Landscape iTunes, Jango, Playlist, Rhapsody, and Spotify

Challenge High royalty costs, how to monetize user base, lack of strategic leadership

Revenue and Profit/Loss: 2012 - Present

Pandora v. Spotify: At a GlancePANDORA SPOTIFY

Monthly Unique Users 65.6 million 20 million

Company Facts: Launched: 2000; 180+ Employees Launched: 2008; 300+ Employees

Community Comparisons Available in 3 countries Available in 21 countries

Music Library Size 1 million songs 20 million songs

Type; Rating Available? Discovery; Yes Discovery & On-Demand; Yes

Create Custom Stations? Yes Yes

Free Version Available? Yes: limited skips, ads, reduced quality Yes: ads, limited listening time

Paid Tiers PandoraOne: $36/year or $3.99/monthUnlimited: $4.99/mo for desktop & laptop with no ads; Premium: $9.99/mo for all devices with no ads

Stations Custom stations, supported by Pandora algorithm Custom, unlimited skipping

Social Media Integration Yes (Limited) Yes

Mobile Apps iOS, Android, Windows Phone, BlackBerry

iOS, Android, Windows Phone & Mobile, Blackberry, S60 (Symbian)

Versioning: Freemium ModelPandora

Free users• Basic with limited number of skips• With advertisements

Paying Users• Pandora One

$3.99/month or $36/year Ads removed Increased number of skips Higher quality Desktop application

Spotify Free users

• Spotify radio version• With advertisements

Paying Users• Tier 1: Unlimited

$4.99/month Ads removed No access on mobile devices

• Tier 2: Premium $9.99/month Ad-Free Service Radio access on all devices

Network Effects Historically, functioned as a genuine information good

• Recently added social features Automated music recommendation service

• Selection based on user’s feedback

Pandora

Music Database

Individual Engagement

Collective Feedback

No direct effect, but creates an indirect, cross-side network effect

Network Good • Adds value as network size grows • Can create and share playlists

New features: “Follow” and “Discover” • Follow friends, musical artists and celebrities • Two-sided network, serving both music industry and consumers.

Network Effects

Mobile Monetization Creating revenue from mobile ads

Mobile revenue in increased by 86%

Focuses on solutions that bring targeting, interactivity and measurability

Relationship with Record Labels 2012: Pandora paid out 60% of its

revenues to the music industry

Royalty remain higher for online radio providers than traditional radio stations

Internet Radio Fairness Act • Reduce royalty costs for online

radio providers.

Alliances: Record Labels

Pandora Spotify

20 MM songs v. 1 MM of Pandora

Exclusive rights w/ smaller labels

Positioned as a friend of artists Playlists and applications created

by artists and influencers

Both Pandora and Spotify have partnerships with the 3 corporate labels that controls the majority of the market in the United States: Universal Music Group, Warner Music, and Sony Music.

Relationship with music industry and artists is lukewarm

Alliances: Distribution Alliances in the music streaming industry is necessary for distribution and

product

Pandora: Car manufacturers, internet TV New cars, X-box, Roku, has Pandora pre-installed Not exclusive alliances

Spotify: Facebook Makes music sharing social and viral Proves to be effective with growth in new subscriptions in short period Recent partnership with Ford and Volvo

Music Industry

Listeners

PANDORA

RecommendationsSocial virality Convert from an information good into a two sided network

• Decreases risk of losing users• Creates a higher switching cost

Pricing Create a three tier system Limit their free version Keep current $3.99 for ad free with limited service Add $9.99 for their premium version, for all devices

Continue efforts  to pass the Internet Radio Fairness Act Reduces royalty costs

RecommendationsAlliances Be social to attract young users Rebuild alliances with music industry to ensure continuity of product Pandora and Spotify should build alliances to bundle its product with others

International growth Pandora in 3 countries Spotify in 21 countries

Additional content category eBooks, comedy, and news

Pandora has the advantage of having a larger user base than Spotify, butif they don’t act strategically, that gap will narrow.