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Why do we need Pandora? An investment in the ecosystem, perhaps?

February 24, 2009

Pandora founder Tim Westergren has been doggedly getting his 22 million users (me included) riled up about the serious structural problems faced by the Internet Radio broadcasters. In 2007, the government decided to double the royalties paid by web music providers.

Pandora Internet Radio

Pandora Internet Radio

Pandora is one of those services that impacts not only the music industry, but also the mobile market. It is one of those apps that can potentially lift the fortunes of the mobile app ecosystem that is in desperate needs of killer apps. Despite the clutter now emerging on Apple Store, Pandora still manages to rise above. So, Westergren made a brilliant move in asking for a bailout – not directly from the bozos in DC, but people who could make an impact – his loyal user base. Over 1.7m people wrote to Congress, and now, according to Inc. Magazine, Pandora might be on the road back to a decent business model.

I, for one, am rooting for this success story for consumer-facing mobile apps, web music and building a successful internet business. It is apps like this, that seamlessly transition you from a desktop to a mobile device and back, that will continue rising above the noise.

As a related thought – join us for a panel at TiE Silicon Valley on March 3rd that will pull together (gurus) – VCs, analysts and corporate M&A heads – in the field of Mobility. We will explore this and several relevant topics in more detail.

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8 Comments leave one →
  1. February 26, 2009 9:02 am

    The problem with Pandora is not so much with music royalties but more with its business model, or lack off. Music licensing costs have always plagued online music businesses. The reality is that you just need to find a better way of making money. If you look at the sister sites such as Last.fm, beebo and myspace music, they are doing fairly well because they are constantly trying to monetize on their user base. Even though Pandora provides a better user experience, they just haven’t executed on making money. What they really need to do is have a good subscription model on all platforms. Although the problem with that is, a very small percentage of people will actually pay for something like that. Although with their large user base they can recover their royalties costs just by that.

  2. February 26, 2009 10:18 am

    Akshay, FYI, Pandora has 100+ team size. Which means they are making serious cash. Venture money can stretch only so far.

  3. ryan permalink
    February 26, 2009 1:16 pm

    Ramneek
    I think Pandora is a great service but it really is an internet radio station – albeit a much better one. I wish them the best of luck in figuring out how to deal with the royalties problem. Its not about mobile imho. FM radio and its revenue model works just fine. Its about figuring out an ad model or subscription model that people will tolerate.
    —–
    Ryan – I agree. Pandora is personalized internet radio with multiple delivery vehicles, with mobile being one of those. As I mentioned, it is user experiences like Pandora’s that seamlessly go across desktop and handhelds, that have the potential of becoming killer apps. This in turn helps both internet radio and gives mobile a boost because of the elegant use case. The royalty issue looms large for all digital music delivery channels. A reasonable resolution will clearly assist in improving the efficiency of their business model and customer adoption. [Comment added by Ramneek]

  4. February 26, 2009 3:17 pm

    Vivek,

    I find that hard to believe. I think they are far from profitability, otherwise they would have been acquired already. They have huge liabilities, in terms of licensing costs. They might be making some money with their Sprint deal, sponsorships on the page and recent audio ads. They also recived 21 million in funding over 3 rounds. With 120 employees they are burning $1 million/month. The basically are having to sell out (homepage ads) in order to keep up.

    They have about 3 million monthly visitors which is not entirely that much to be profitable just based on ads. They really need a better monetization model. As Ryan mentioned at the end of the day they are a radio station, they really deliver on the experience but online music is a tough business.

  5. February 26, 2009 4:10 pm

    Every startup does not dream to be acquired. Also, Pandora is not really licensing music, in those terms. They are an online radio company. This means, licensing laws of radio world apply, which are quite different from what Rhapsody or iTunes or Lala or Amazon have.

    Also, among other things, Pandora refreshes ads on the loaded page with every new song played. Which means, pages views!=ad views. Plus they also have ads on iPhone app, and this app is one of the top apps. Besides that, while listening to music on Pandora, if you dont return to the site in few mins, like 5-6 song plays, they prompt……and make sure you have a look at the page and end up clicking an ad. Also, have you looked at their ads? Just awesome.

    As for burn rate, $1 million/month = $12 million/year. And i think they have been out there for a while, if you go by the page on crunchbase.

    By the way, i hate concept of radio.

  6. February 27, 2009 11:48 am

    Please let me present you MOOGA for in mobile and understanding web 2.0 enviorments!! It is a state-of-the-art personalization and recommendation framework to enable true personalization. Mooga is a patent pending viral, self learning software platform incorporating Artificial Intelligence techniques and methodologies to track, understand, predict, adapt and recommend contents based on individual user tastes, downloads and popular contents. Mooga is an adaptive storefront technology solution which allows for a vastly superior end user experience. This solution essentially creates an infinite real estate over infinite time; and eliminating the distribution losses allows our customers to sell everything for everybody (www.ikensolutions.com) Here you cand find SONYBMG leading case
    http://www.slideshare.net/ikensolutions/mooga-sonybmg-case-study-update-nov-08-presentation
    DEMO FLASH
    http://www.infinitemoco.com/english/mooga.htm

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