Pandora case evaluation essay

Abstract

Pandora delivers personalized Net radio stations to its customers. Pandora provides this personalized radio free of charge to nearly all people. In combination with different business designs, Pandora has successfully implemented the freemium business model by which 99% of its users receive a free support and 1% of the users pay for premium services. This business model is usually not suitable for every type of business but can be successful for some types of businesses which has a planned implementation process and a clear knowledge of customer ideals.

Analyzing the achievements of Pandora provides information on the required requirements to ensure business to earn a profit using the freemium business model.

Pandora Case Analysis

Pandora provides an Internet the airwaves service, which usually tailors the background music played, based upon user inclination. Pandora started out as a cost-free service to their consumers, when they located a way to make a profit. The planet pandora utilized a number of different business designs before employing the freemium model. The freemium business design provides free services to 99% from the customers and expects 1% in the customers to pay fees for high grade services (Laudon & Traver, 2011).

This business structure can be very successful and lucrative for certain types of business when managed correctly.

Inspecting Pandora’s powerful use of the model supplies insight which conditions have to be present in order for the freemium business structure to be effective and profitable. The freemium business structure is appropriate to work with when the service or product is accessible and there are low variable costs in offering the product or service to each customer. It is additionally important that the business takes into mind the timing of setup and knows their client’s values.

Great Pandora

The building blocks of The planet pandora began with the creation from the Music Genome Project in 2000 as well as the service officially launched in 2005 (Westegren, 2009). Pandora’s founder Tim Westegren attempt to create a great on-line radiostation that categorizes music depending on 400 distinct attributes including melody, beat, instrumentation and harmony (Westegren, 2009). To be able to accomplish this process, Westegren employed musical experts who believed music and created a databases which backlinks songs together based on likeness of those qualities (Shelly, 2009). This databases provides the foundation for users to log into Pandora and enter an artist or maybe a song that they want to know. The search is a “seed and the databases creates a place based on the characteristics of the tune entered for the search. The station includes artists and songs which might be similar to the search, but does not actually enjoy the exact track or musician entered (Shelly, 2009). Pandora is online as users provide feedback to the repository by giving a song thumbs up, thumbs straight down, or by pass the music entirely (Shelly, 2009). The greater the user listens to The planet pandora, the better the system is aware of their personal preferences (Shelly, 2009). In other words, simply by frequently reaching the repository, users get a more personalized radio stop.

Pandora Organization Models

Pandora continues to check out different earnings building business models in order to maximize monetization. These versions include monthly subscription charges, advertising, contracting with online retailers plus the freemium business structure. When Pandora launched in 2005, all their first business model was to offer 10 several hours of free music and then require users to pay a monthly fee of $36. The planet pandora found that users listened to their 12 hours of totally free music, nevertheless were not offering the month-to-month subscription fee (Laudon & Traver, 2011). When this subscription version failed to produce a profit, The planet pandora modified the model and provided forty hours of totally free music to get a month after those several hours were used, customers could either pay $. 99 per music, sign up for the premium services, or do neither of the and not hear any more music (Laudon & Traver, 2011). Even with this modification, The planet pandora struggled to earn money.

Pandora continued to improve all their business model by having advertisements for the site and radio stations. During the time, Pandora had almost 90, 000 users; so many businesses were offering for advertisements on the site (Laudon & Traver, 2011). As the advertisements helped Pandora economically, it was nonetheless not enough to create a profit. Pandora then startedcontracting with Amazon online marketplace and other across the internet retailers and included a choice for users to purchase tracks. Users may click the “buy button, which will redirects those to the retailer’s website. The planet pandora receives fees for rendering business to the retailer (Laudon & Traver, 2011). In addition , Pandora commenced contracting with Apple enabling users to become music issues iPhones (Laudon & Traver, 2011).

The current model of Pandora combines advertising, contracts with retailers plus the freemium business model. It is common pertaining to established businesses to earn a smaller percentage of its revenue from the premium unit (Hung, 2010); therefore incorporating multiple revenue models boosts monetization. The planet pandora continues to generate revenue from businesses having to pay to advertise on the website and through contracts with Amazon and Apple once users buy music. The planet pandora implemented the freemium unit in which 00% of users receive the assistance free and 1% of users pay for additional providers. Approximately 1% of The planet pandora users pay $36 each year for premium services, which include no advertisements and top quality content (Laudon & Traver, 2011). While Pandora is actually a popularly utilized site, that 1% sums to around 500, 500 customers spending $36 each year which equates to almost 18 million us dollars in earnings.

Business Requirements

Pandora’s effective use of the freemium business design provides information on which circumstances need to be present in order pertaining to the freemium model to reach your goals including the type of business, time of setup, and understanding customer values. The freemium business model is not appropriate for all types of businesses. It is most beneficial when the organization provides a products or services that is acquireable, has a customer base of above one million, and the variable expense of providing the free service or product must be low or near zero (Laudon, & Traver, 2011). The planet pandora meets the two requirements of getting a large consumer bottom and low variable costs.

Currently, The planet pandora has roughly 47 , 000, 000 users (Statista, 2012), the large target audience and surpasses the choice of one , 000, 000. The cost of Pandora providing the service to one person is near to the cost it takes to provide the service to 47 million persons. The adjustable costs per user are relatively low, as the primary cost come fromsoftware to supply Internet a radio station and the repository to create stereo. Once the software and repository are created, they might be used many times without adding additional costs.

Timing of Implementation

Businesses who met the criteria of having a sizable enough consumer bottom and low variable costs also need to consider the timing of applying the freemium model. Clients become accustomed to receiving a totally free service and expect that services to be free. Requiring customers to pay for the assistance may result inside the customer not anymore being enthusiastic about the services. Research implies that waiting by least 12 months after providing the cost-free service and a month following growth of the free use slows is the most effective a chance to move to fees service (Pauwels & Weiss, 2008). All the wait period allows the site to gain popularity and customers to comprehend the free service’s value (Pauwels & Weiss, 2008).

When Pandora first came out, customers are not willing to pay the subscription charges, as they hadn’t yet established the value of the service. Users listened to their very own free music until it sold out, and then anxiously waited until the the following month when the free of charge service was available. Because the website received popularity and customers recognized the value of using a personally designed radio stop, they started to be more willing to subscribe to superior services. The planet pandora successfully integrated the freemium model almost six numerous years of offering the free assistance.

Customer Beliefs

One of Pandora’s strengths is a perceived worth of its service to customers. Research demonstrates the identified value of totally free content versus fee content material determines in the event that users will choose to pay for the support (Pauwels & Weiss, 2008). Pandora strives to provide every individual user a radio place that only plays their favorite music. Most businesses fail to personalize their products with each individual consumer, so Pandora brings a personalized service to the customer (Westegren, 2009).

An added benefit to the fee articles is no advertising. Most other buffering radio stations and traditional radio stations play many commercials, which will result in listeners changing the station. Pandora’s premium companies provide business free, marketing free, individualized radio intended for only $36 per year. The benefit of the fee content encourages a few users to pay the annual membership.

Pandora likewise allows users to connect with and advise stations to their friends. This connection with friends through social networking can be just like effective since receiving a assessment from a professional critic (Shelly, 2009). Most people have identical tastes in music because their friends and value their opinions. The personalized modification, no advertising and reference to friends improves customer value resulting in readers who are able to pay for the service.

Bottom line

Analyzing Pandora’s successful execution of the freemium business model provides insight how other businesses can also take advantage of this model. The freemium business design is not really appropriate for all types of businesses. Two criteria that businesses need to have are a large customer base, preferably in the thousands, as well as low variable costs of providing a free service to customers (Laudon, & Traver, 2011). Businesses that fulfill these conditions must also take into consideration the timing of applying the unit and appreciate customer beliefs. Pandora presently has well over a million active users and relatively low variable costs in rendering the service.

Reviewing Pandora’s history shows that timing plays an important function. Customers were not willing to pay for the assistance until they understood the importance of the assistance. Pandora is aware that buyers value individual customization and sharing their music with the friends. By providing a service that creates specific radio stations depending on the wearer’s preferences and allowing them to share that music with the friends, features resulted in users who are prepared to pay for premium services. Businesses interested in implementing the freemium business model can benefit from analyzing Pandora’s success in the model.

Sources

Put up, J. (2010). Economic basics of on-line publishing with associated styles and patterns. Publishing Exploration Quarterly, 26(2), 79-95. doi: 10. 1007/s12109-010-9158-3. Laudon, K. C., & Traver, C. G. (2011). E-commerce: organization, technology, world (8th impotence. ). Uppr Saddle Water

NJ-NEW JERSEY: Pearson Education, Inc. Pauwels, K., & Weiss, A. (2008). Going from free to fee: just how online businesses market to alter their business model successfully. Log of Marketing, 72(3), 14-31. doi: 10. 1509/jmkg. 72. a few. 14 Shelley, A. (2009). Pandora. Records, 66(1), 138-142.

Statista. (2012). Pandora’s active users by 2009 to 2012 (in millions). Retrieved from

http://www.statista.com/statistics/190989/active-users-of-music-streaming-service-pandora-since-2009/. Westegren, T. (2009). Tailor the product to 1 million consumers. (cover story). Financial Exec, 25(8), 37.

one particular