Pandora to Face Apple Disruption

By Gary Kim September 07, 2012

Among the most difficult of all business problems is the emergence of a new competitor with deep pockets, high brand awareness, extensive retail distribution assets, domain competency, and a huge installed base of existing customers. And that’s precisely what Pandora, the music streaming service, now faces as Apple plans its own streaming music service.

Particularly troubling for Pandora, which is among the biggest recipients of mobile advertising revenue, is that Apple is likely to offer its own music streaming as a loss leader. In other words, Apple will merchandise music streaming to sell more content and devices, forgoing the key revenue stream that Pandora relies upon.


Image via Shutterstock

And Pandora has been struggling to maintain profits, even as it already has established itself as a big and growing venue for mobile advertising. Pandora mobile ad revenue increased by 86 percent in its second quarter.

Total revenue was $101.3 million, a 51 percent year-over-year increase.  Advertising revenue was $89.4 million, a 53 percent year-over-year increase.  

Subscription and other revenue was $11.9 million, a 36 percent year-over-year increase. Pandora also saw a 112 percent increase in the number of ads delivered.

But the problem is that listeners, and listener hours, are growing faster than revenue is growing. Pandora also says it experienced a decrease in the average price per ad of approximately 27 percent.

Pandora also has invested in its sales force, growing operating expense in that area approximately 80 percent year-over-year.

So Apple poses a huge threat.

Pandora has still not figured out how to sell ads profitably, and the company has repeatedly posted net losses, despite being one of the five biggest mobile ad businesses mobile ad businesses in the United States.

So Pandora is selling more ads, but facing pricing pressures, investing in higher sales capability, at a time when user growth is outstripping the pace of ad sales.

Now, Pandora also will face competition from Apple, under circumstances where Apple can afford to merchandise its service. It’s always difficult to compete in your core business with well-heeled new entrants who can afford to give away what you sell.


Edited by Brooke Neuman

Contributing Editor

SHARE THIS ARTICLE
Related Articles

API Management Poised for Big Growth

By: Paula Bernier    3/22/2017

The API management market is forecast to be worth $2.665 billion by 2021, according to MarketsandMarkets. That's up from more than $606 million last y…

Read More

IBM Watson Aims to Improve Call Center, IVR CX

By: Paula Bernier    3/22/2017

At its IBM Interconnect event today, the tech giant is introducing the IBM Watson Voice Gateway. It can act as a cognitive self-service agent, directl…

Read More

The 3D Printer That Could Print Your Next House or Finish Trump's Wall in Two Months

By: Rob Enderle    3/21/2017

Not only could this 3D printer be used to rapidly rebuild a town devastated by a natural or manmade disaster, the resulting home could be better able …

Read More

How Twitter, Indiegogo and IBM Will Augment Executives and Politicians

By: Rob Enderle    3/20/2017

I think Twitter could become the showcase for what Ginni Rometty, IBM's CEO, was talking about when she said that IBM wasn't focused on replacing huma…

Read More

NVIDIA and Intel Race for Autonomous Vehicles

By: Doug Mohney    3/17/2017

While Intel was basking in the glow of a $15 billion deal for Israel-based Mobileye this week, NVIDIA announced autonomous vehicle partnerships with B…

Read More