People's Choice Award: Pandora v Spotify


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Project slide-deck submitted for a Technology Competition and Strategy graduate course taught at the University of California, Davis by Associate Dean Hemant Bhargava. The full analysis can be found here:

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People's Choice Award: Pandora v Spotify

  1. 1. Pandora’s Strategy: An AnalysisAsh Alhashim * Lily Ho * Christiana Lee * Jem Nguyen * Christina Santamaria
  2. 2. AgendaBackground and ObjectiveNetwork EffectsPricing StrategiesVersioningStrategic AlliancesFinal Recommendation
  3. 3. PandoraCompany Background Automated music recommendation service 2012: 150M users, 1M tracks, 100K artistsCompetitive Landscape iTunes, Jango, Playlist, Rhapsody, and SpotifyChallenge High royalty costs, how to monetize user base, lack of strategic leadership
  4. 4. Revenue and Profit/Loss: 2012 - Present
  5. 5. Pandora v. Spotify: At a Glance PANDORA SPOTIFYMonthly Unique Users 65.6 million 20 millionCompany Facts: Launched: 2000; 180+ Employees Launched: 2008; 300+ EmployeesCommunity Comparisons Available in 3 countries Available in 21 countriesMusic Library Size 1 million songs 20 million songsType; Rating Available? Discovery; Yes Discovery & On-Demand; YesCreate Custom Stations? Yes YesFree Version Available? Yes: limited skips, ads, reduced quality Yes: ads, limited listening time Unlimited: $4.99/mo for desktop &Paid Tiers PandoraOne: $36/year or $3.99/month laptop with no ads; Premium: $9.99/mo for all devices with no ads Custom stations, supported by PandoraStations Custom, unlimited skipping algorithmSocial Media Integration Yes (Limited) Yes iOS, Android, Windows Phone, iOS, Android, Windows Phone &Mobile Apps BlackBerry Mobile, Blackberry, S60 (Symbian)
  6. 6. Versioning: Freemium Model Pandora Spotify Free users  Free users • Basic with limited number of skips • Spotify radio version • With advertisements • With advertisements Paying Users  Paying Users • Pandora One • Tier 1: Unlimited  $3.99/month or $36/year  $4.99/month  Ads removed  Ads removed  Increased number of skips  No access on mobile devices  Higher quality  Desktop application • Tier 2: Premium  $9.99/month  Ad-Free Service  Radio access on all devices
  7. 7. Network Effects Historically, functioned as a genuine information good • Recently added social features Automated music recommendation service • Selection based on user’s feedback Music Database No direct effect, but creates an indirect, cross-side network effect Pandora Collective Individual Feedback Engagement
  8. 8. Network Effects 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.
  9. 9. Mobile Monetization Creating revenue from mobile ads Mobile revenue in increased by 86% Focuses on solutions that bring targeting, interactivity and measurability
  10. 10. 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.
  11. 11. Alliances: Record LabelsBoth Pandora and Spotify have partnerships with the 3 corporate labels that controls the majorityof the market in the United States: Universal Music Group, Warner Music, and Sony Music. Pandora Spotify  Relationship with music industry and artists  20 MM songs v. 1 MM of Pandora is lukewarm  Exclusive rights w/ smaller labels  Positioned as a friend of artists  Playlists and applications created by artists and influencers
  12. 12. Alliances: DistributionAlliances in the music streaming industry is necessary for distribution and productPandora: Car manufacturers, internet TV New cars, X-box, Roku, has Pandora pre-installed Not exclusive alliancesSpotify: 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
  13. 13. RecommendationsSocial virality Convert from an information good into a two sided network • Decreases risk of losing users • Creates a higher switching costPricing 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 devicesContinue efforts to pass the Internet Radio Fairness Act Reduces royalty costs
  14. 14. 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 othersInternational growth Pandora in 3 countries Spotify in 21 countriesAdditional content category eBooks, comedy, and newsPandora has the advantage of having a larger user base than Spotify, butif they don’t act strategically, that gap will narrow.
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