Pandora and the Freemium Case Analysis

Pandora currently has over 80 million users in the United States and adds nearly 600,000 new subscribers every week. They also dominate the internet radio market segment with over 50% of all internet radio hours being listened to on the internet being done at Pandora.com. Pandora’s unique music listening system allows users to select a favorite musician, genre or class of music and using specialized computer algorithms, create a personalized radio station that not only plays the music the user selects, but also closely related music by different artists. These algorithms have over 400 identified factors to help classify songs, and select appropriate matches based on a user’s particular interest. In 2005 Pandora was launched as a premium music service, streaming musical content for a price. The content usually came with free introductory offers, followed by monthly and annual subscriptions. At the time this business model was risky considering “over 80% of online music was downloaded from peer-to-peer (P2P) networks for free.” (Laudon & Traver, P. 371) For a couple years Pandora struggled to find the best business model. In 2006 they added an ability to immediately purchase the music they heard on Pandora, followed by an iPhone app that brought 35,000 new users every day. The app introduced a “free” ad-supported model that attracted over 20 million users. These new models and company additions came with varying levels of restrictions by the music companies that own the music. They restrict the ability to request a single song on demand, no replaying songs and a limitation on how many times a song on an individual station could be skipped per hour. In 2009, Pandora, while still struggling to solidify their business model, added a new ultra-premium music service called Pandora One. Utilizing this service dropped many of the traditional restrictions and annoyances associated with traditional Pandora use, but still expensive by internet radio standards. Pandora had

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