New Models Of Doing Business: Pandora Radio
As if the music industry has not seen enough change in recent years, Pandora Radio has started yet another music revolution. This time, however, the revolution is not about how the music is stored and collected (LP/CD/MP3 transformation), or how music is purchased (Record Stores/ iTunes transformation), but how we actually listen to music. Pandora Radio has created an amazing technology, which allows users to create and customize their own radio stations that automatically play new and unique songs that cater exactly to the users tastes and interests. Pandora has created a radio station that never plays that bad or annoying song. With Pandora, the user will never have to turn that proverbial dial ever again.
Pandora Radio is an internet radio station that is doing business in an entirely new way, and all by harnessing self-service, disintermediation, mass customization, and high technology. What makes Pandora Radio different from traditional radio conglomerates such as Clear Channel, the largest owner of AM, FM, and XM radio stations in America, is that listeners of Pandora are able to customize what they are listening to in real-time (Loeb). Pandora utilizes the technology of the Music Genome Project, a technology that can identify and classify over 2,000 musical focus traits such as rhythm syncopation, key tonalities, vocal and instrumental harmonies, and instrumental complexity (Pandora.com). The process of building out a customized station works like this: Initially, a station is set by specifying an artist or song. Each song played thereafter can be responded to with favorable (thumbs up) or unfavorable (thumbs down) buttons. These inputs help tailor the station to the users favorite music. Songs similar to those earning thumbs up reviews will be played more, songs getting thumbs down reviews will be stopped immediately, eventually Pandora only songs that are sonically similar to the previous songs you found favorable. Users can also make as many channels as they want, and Pandora automatically saves them for you, allowing the listener to switch from their Beethoven channel to their Beatles channel instantly (Intruder).
Aside from applying the Music Genome Project technology (which was created by Pandora’s founder Tim Westergren), Pandora Radio operates a typical business model as a radio channel, with a few innovative exceptions (Anderson). The service is free for the user, with revenue being generated from advertising sales. One brief advertisement is aired between songs every thirty minutes or so on Pandora, which actually is much less than the amount of advertisements aired on traditional radio channels. Alternatively, users can purchase a premium membership for $ 0.99 a month to listen to Pandora commercial free. As of 2010, Pandora had 48 million registered listeners in the United States alone, and is still growing.
Pandora has seen tremendous success since its humble beginnings as the Music Genome Project in 2000 (Anderson). This high technology has completely revolutionized the way people discover music they love, and has certainly rendered the old way of doing business on the radio obsolete. The success of Pandora’s technology enables mass customization on a level that is unrivaled in today’s business; every single channel on Pandora has been customized, and is entirely unique. Traditional radio companies like Clear Channel now seem archaic. With the old model, listeners had no choice but to listen to a limited number of radio stations, targeted to no one in particular. The “poor fit, low cost” model was the most viable solution at the time, and has remained basically unchanged since the 1920’s and the advent of commercial broadcasting.
Pandora’s business model is also completely dis-intermediated. Users interact with the Music Genome Project directly; customization is an exclusive and direct exchange between the user and Pandora. The interface is...
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