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:
http://www.ashalhashim.com/2013/03/16/pandora-versus-spotify-a-pricing-and-technology-analysis/
3. Pandora
Company 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
5. Pandora v. Spotify: At a Glance
PANDORA 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
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 Pandora
Stations Custom, unlimited skipping
algorithm
Social Media Integration Yes (Limited) Yes
iOS, Android, Windows Phone, iOS, Android, Windows Phone &
Mobile Apps
BlackBerry Mobile, Blackberry, S60 (Symbian)
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. 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. 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. Mobile Monetization
Creating revenue from mobile ads
Mobile revenue in increased by 86%
Focuses on solutions that bring
targeting, interactivity and
measurability
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. Alliances: Record Labels
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.
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. 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
13. Recommendations
Social 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
14. Recommendations
Alliances
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, but
if they don’t act strategically, that gap will narrow.