Challengers Strive To Knock Pandora Off Perch
Have you ever heard of Pandora? This is often the question that music and tech executives open a conversation with when they are talking to people that
exist outside of their bubble. Everyone, it seems, responds that they use Pandora or nods in acknowledgement that they have heard of the Internet radio
service before. Considering that Pandora recently surpassed 200 million registered users in the United States, with over 140 million of them tuning into
the service via their mobile device, it’s not surprising that most people have top-of-mind brand awareness of the application.
Such awareness, though, has long been the subject of envy among ambitious upstarts that believe they can do better. Slacker, for one, released an attack ad
that swipes at Pandora for having a small music library that is prone to repeating songs. So far, Slacker has struggled to land a square punch on Pandora,
but established companies are winding up in hopes of delivering a devastating blow.
To get a better sense of the competitive landscape, sidewinder.fm talked to four influential product executives in the music and tech industry.
Specifically, we asked them: With increased competition from SiriusXM Radio, iHeartRadio, Spotify, and Slacker Radio, as well as potential rivalry from the
likes of Apple and Google, how do you think Pandora will fair against these challengers?
Music Recommendation Is Becoming Commoditized
The real risk is that music recommendation is becoming increasingly commoditized. Companies like The Echo Nest make building a discovery platform simple
via their API, so differentiation becomes difficult for a company like Pandora. While many loyal Pandora listeners would be hesitant to try a new
personalized radio service because of the switching cost of establishing a new taste profile, retention is only part of the puzzle.
I worry that Pandora solves a feature problem, but not a service one. Spotify and Rdio both offer radio station features, and so a user has little reason
to leave their primary music consumption context in order to simply get a radio experience. At the other end of the spectrum, SiriusXM Radio offers an
editorial voice through curation, which breathes personality into the listening experience and ensures that a music fan feels like they are discovering new
and relevant music.
If someone were to ask me why I use Pandora over other services, my response would be, “Well, I’ve been using it for a while, so it knows me well, and I
think its recommendations are better.” Unfortunately, that loyalty isn’t enough to sustain a business. In order for Pandora to remain relevant, they’re
going to have to differentiate themselves more clearly. My recommendation to them would not be to try to compete with Spotify, Rdio, and other subscription
library services, but to instead appeal to music fans looking to discover new music. I would love it if Pandora could build me a playlist of the most
recent releases I’ll most likely love, or have helped me prepare for SXSW by telling me the bands playing that I shouldn’t miss but have never listened to.
Internet Radio Must Claim Clear Channel’s Market Share
Rather than looking at product offerings, I'd like to look specifically at business models. Let's split up the competitors into their respective
categories: on-demand services (Spotify), device manufacturers (Apple, Google), and lean back radio (SiriusXM, iHeartRadio, and Slacker).
On-demand services target the music lover who desires control and access to all the music in the world. Their belief is that more control converts users
into $10 monthly subscribers. Hence they have focused on free on-demand desktop access, mobile radio that upsells saving tracks for on-demand access, and
even free on-demand for mobile with limited track access. A successful, lean back discovery service goes against the desire to pay for control, and as such
will cannibalize subscription revenues. Simply put, radio is not good for this type of business.
Apple and Google's strengths lie within the fact that they need only build a service that sells more devices, not necessarily yields a profit. They are the
only two companies that can actually use music as a loss leader to sell other products, and that allows them to offer services that others could never
dream of doing profitably. Yet the labels also recognize the power they have, and are thus very cautious to offer any deal to a company that could
eventually devalue music to free. Just as BlackBerry was limited to a handicapped music product that never took off, Apple and Google will be limited in
their offerings simply because the labels don't want to cede any more control to them.
SiriusXM's business is so deeply tied to expensive, outdated satellite infrastructure that it will be difficult for them to switch to Internet radio
profitably. iHeartRadio is similarly tied to their terrestrial business, making it difficult to over-invest in Internet radio and risk jeopardizing their
current favorable royalty rates and advertising revenues. Slacker and other pure-play radio services are good for Internet radio in the long-term, yet all
Internet radio services (Pandora included) are babies compared to terrestrial radio. For now, the challenge is around how Internet radio as a whole (and
not individual services like Slacker or Pandora) can claim market share from Clear Channel’s 600 million listeners.
Tech That Helped Grow Pandora Could Undermine It
Where the limited library might be a drawback for some, including me, it is also a strength. Pandora — in terms of digital radio — has a very mainstream
approach that gives people what they want: familiar music, even the “new” music they “discover” sounds familiar to them. It’s much like FM radio, which
relies on heavy repetition. It’s what coined the term “overplayed” but it is also what the majority of people seem to want.
Pandora basically invented the idea of artist-led radio, which is helpful because many people think about different streaming services always in terms of
Pandora. Spotify also does the same thing, but only as an additional feature; it’s not why people come to Spotify. Other services might do artist radio
better in the future (looking at you Google!), which could be a threat to Pandora’s long term success, but it seems to be too far in the lead right now in
the ears of mainstream consumers to be threatened.
The real danger to Pandora is not other services, but its technology. The devices required to use Pandora can also access any other (mobile-enabled)
streaming music service. One of the reasons why FM radio is still so popular is because people are stuck in their cars with nothing to do while they drive.
So they listen to the radio, even if it is not their first choice for listening. The more that people bring tech with them everywhere to enable Pandora,
means that people will just as easily be able to use other services. It won’t be one new service necessarily that pulls everyone away from Pandora, but
rather one service will pull one user away, and a different service will take another, and another, until Pandora becomes less of a leader.
In that case, it is up to Pandora to innovate and offer other services to stay ahead. Partnerships with car companies can help, but only temporarily.
Pandora must continue to earn its advantage by staying ahead of the competition when it comes to music consumption.
Next Generation YouTube Could Knock Pandora Down
Pandora has a strong and established brand, as big as, if not bigger than, any other player in the US music industry. Being first to market, they have a
huge lead in terms of distribution on mobile and now in cars. They also have a strong proprietary technology for making great music selections.
More than Sirius, iHeartRadio and Spotify, I would have thought that Songza may have put a dent in Pandora’s market share with their new “Concierge”
offering, but after a huge push with incredible downloads late last year, it appears that they are settling in to be just another strong player in the big
game. Each of these companies have come at Pandora from a different angle: Songza with a novel and effective offering for users, Slacker with carrier
distribution deals, Spotify with a free to use “interactive” desktop offering, and iHeartRadio with the backing of Clear Channel, and yet Pandora has held
strong. When it comes to Internet radio, while these companies may grow their market share, I have a hard time seeing any of them take over Pandora’s
position as the market leader.
Apple and Google on the other hand have a meaningful competitive advantage in that they each control significant mobile distribution channels and those
distribution channels have reach outside the US. Within the US, I think Pandora will continue to maintain their position. Outside the US, I think Google
and Apple have a great opportunity to create a winning music experience.
Of course, there is the dark horse in YouTube, which has become the music service of choice for the world’s youth market. These tech savvy kids consume
more music than adults on average, and as they get older, bandwidth will become more readily available on mobile, video will become much more accessible
and popular, and with Google behind it and some innovative product design, I think YouTube has the best chance of knocking Pandora off its perch.