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/

1. Pandora’s Strategy: An Analysis
Ash Alhashim * Lily Ho * Christiana Lee * Jem Nguyen * Christina Santamaria

2. Agenda
Background and Objective
Network Effects
Pricing Strategies
Versioning
Strategic Alliances
Final Recommendation

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

4. Revenue and Profit/Loss: 2012 - Present

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.