Pandora.com’s free service is very limited. It does not allow users to replay or rewind tracks. It does not allow you to listen to a specific artist or song on demand. Pandora’s Human Genome Project is good at suggesting music that users like, but this feature is becoming commoditized. Spotify Radio suggests music. Grooveshark suggests music. Even Sirius Satellite Radio is working on this feature, too, according to my sources.
I think Spotify is in the beginning stages of killing Pandora. Log into Facebook and give it a try and tell me your honest opinion about the user experience. Spotify is A LOT better, in that you can play what you want, when you want. The support from Facebook gives Spotify a huge edge, because it is so easy to access. If you see artists that your friends like, you can just click and Spotify will open.
If Pandora’s decline isn’t showing up in the user metrics, I believe it will soon. And this business model will fail to work if users don’t continue on an upward trajectory. In the first nine months of Pandora’s fiscal 2011, selling advertising amounted to 87% of revenue. Pandora absolutely needs users to come back to the site, or else advertisers will find other places to post their ads.
I am shorting the stock ahead of earnings on 3/6/2012.