Pandora.com is an internet based radio service that takes the listener’s personal preferences and provides them with user-specific music playlists. Pandora.com offers music by streaming personalized channels for each listener based on the pre-set preferences and feedback that he or she provides. Pandora internet radio has just over 100 million registered users, and 36 million monthly active users.
Pandora.com’s value proposition is basically providing mobility for its listeners and customization for both listeners and advertisers. According to Doug Sterne, Pandora’s VP of audio sales, “Today, people are constantly on the go, so mobile marketing is becoming an important part of the marketing mix. It all starts with the value proposition that Pandora gives people music they love that’s simple, easy and free. Advertisers can then serve relevant messages in this one-to-one environment that are hyper-targeted and provide immediate listener feedback”.
The company earns most of its revenue on advertising. It is estimated that mobile advertising contributes almost 60% of the company’s revenue however much of Pandora’s growth is being driven by smartphone users. Besides its web-based music platform, Pandora also has smartphone apps that are available on Apple’s iPhone, RIM’s BlackBerry, and Google’s Android operating systems, which are helping to drive growth in mobile ad revenues.
One way that Pandora.com is currently looking to increase revenue is by developing relationships with auto manufacturers to develop applications that will sync Pandora with a vehicle’s stereo system. The company already has existing agreements with Ford, BMW’s Mini, Daimler’s Mercedes, and they are in talks with several other car companies.
To outline Pandora.com competitive environment and competitive advantage using Porter’s 5 force model analysis:
Competitive Rivalry Within as Industry
Rivalry among competitors is high when competition is more intense within industries. Pandora has positioned themselves to be the most well-known internet radio company at this time. They have very competitive pricing, they have effective advertising and they have pulled in their target audience. So far Pandora.com has an advantage but rivals such as iHeartRadio are chipping away at their success.
Bargaining Power of Suppliers
Supplier power is higher when buyers have fewer choices from whom to buy. The music industry is basically controlled by four big record labels – Sony, Universal, Warner, and EMI. In addition to these four, there are many independent music artist and independent labels. Pandora has access to all of these labels which puts them at an advantage.
Bargaining Power of Buyers
Buyer power is higher when buyers have more choices. Music is important to the users of Pandora.com however Pandora.com itself may or may not be important to them. Pandora has made their service highly mobile and accessible to users through their smartphone app. This gives Pandora an advantage with buyers.
Threat of New Entrants
Threat of new entrants is high when it is easy for new competition to enter the market. New entrants need product differentiation, capital, access to distribution channels, and the ability to meet government standards. Pandora.com may have a disadvantage in this area with companies like Sirius XM, iHeartRadio and even Facebook and their ability to compete in the market.
Threat of Substitute Products
Threat of substitute products or services is high when there are many product alternatives. There are “free music” options, other internet radio sites, traditional AM/FM radio and satellite radio such as Sirius XM. This puts Pandora at a disadvantage.
Pandora is strengthening its marketing by attracting advertisers such as Hallmark Cards Inc. and Miller Coors LLC to its streaming service and gearing up to chase the lucrative drive-time market. Commuting hours are especially valuable to advertisers. Pandora needs a foothold in cars to challenge traditional radio and attract more advertisers, which pay a premium to reach listeners during commute hours, according to the Radio Advertising Bureau.
Pandora aims to get a bigger chunk of the more than $17.1 billion radio-ad market. For now, advertisers mostly reach its 65 million listeners via personal computers and smartphones. Pandora is one of the most popular applications on both Apple Inc.’s iPhone and Google Inc.’s Android devices.
Potential threats to Pandora will obviously include “copycat” services like iHeartRadio and Spotify plus satellite services like Sirius XM. Also traditional radio AM/FM radio poses a threat to Pandora because it is in every home, every automobile and it is completely free. I think that Pandora already has the best advantage in name recognition. They can survive their challenges and continue to grow if they are among the first to keep up with technology. To do that, they have to have a solid plan to grow their revenue.