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.
I did a quick search on alexa.com and if you look at the “Time on Site” statistics, you see a steady decline from 11-12 minutes to know about 4-5 minutes for pandora.com.
Thanks for letting me know. That is a very important datapoint to track.
One other thing we should track is the ranking in the App Store and Android Market because that will give us insight on what mobile users prefer. Right now in the App Store, Pandora is 19 and Spotify is 59. As more people explore Spotify on FB on their desktop/laptop, I expect their ranking in the App Store to go up as people use it mobile.
Totally agree with the thesis from a fixed desktop/laptop standpoint (since Spotify is freemium here). But from the mobile perspective, with iPhones selling like hotcakes last quarter and converting tons of ex-BB users rolling off contract, I have to believe Pandora is still holding or gaining share. Spotify offers no free mobile option, so you’re stuck with Pandora or iheartradio if you’re not interested in paying a fee. Not to mention this was also the most downloaded app of all time on the iPad.
I wonder if there’s a way to track Pandora’s download/usage rankings on iTunes over time…
The important thing to remember with these business models that primarily depend on attracting advertising revenue (FB is another one) is that they depend on their ability to convince advertisers that their users are engaged. So there’s always the potential that Pandora is able to convince advertisers that certain metrics matter when they actually don’t. My hope and expectation is that advertisers aren’t dumb. And they won’t just look at download rankings on the App Store to gauge user engagement… people download apps all the time and don’t use them. Pandora obviously has some way of tracking mobile user engagement, and advertisers would be smart to ask for this information.
Having said that, I don’t think Pandora has as much user engagement as we might think at face value. On the go, people tend to listen to music they have stored on their SSD–synced from their computer.
Nice call