Case Study - Pandora

Case study: Pandora

In case you are unfamiliar with Pandora, it can best be described as a (mostly) free, music streaming radio-website that allows for users to customize their playlists based on genre and artists similar to the desired interest. The company’s value propositions include things that interest the consumers. Characteristics such as: the ability to play similar music tracks that are of interest, and not having to purchase these songs are all a part of Pandora’s claim. The service is personalized to the user’s preference, and allow for a significant number of free hours per month before any charge is issued. Pandora’s current revenue model is based on the “freemium” business revenue model. The service is given free to 99% of the customers, relying on the final 1% to pay for premium service, making up a large bulk of the final profits. Other revenue is brought in through advertisements and links to music outlets such as Amazon.com and iTunes. The reason this revenue model works so well (especially giving away 99% of the product) is because of the digital content provided. Because the marginal cost is nearly zero, the 99% costs almost nothing whereas the 1% brings in large profit percentages. This is similar to their competitive advantage. For example, Best Buy sells hard copies of music in their stores and online. However, if you want a wide selection of music in a specific genre you are limited to buying multiple CD’s from various artists. Also, their marginal costs are much higher due to the physical copies of the music, meaning less percentage of profit. Now when you look at Pandora, they can offer free hours of music to everyone, and if that customer does choose to pay the premium price, they can still get the unlimited variety that is offered without paying more per artist. Other digital music providers such as iTunes can provide the musical tracks individually, at a low price for the consumer to own, but can rack up costs to those consumers if...