{"id":3594,"date":"2017-02-02T18:13:26","date_gmt":"2017-02-02T23:13:26","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-digit\/submission\/pandora-how-the-wrong-business-model-can-lead-to-the-wrong-customer\/"},"modified":"2017-02-02T18:37:24","modified_gmt":"2017-02-02T23:37:24","slug":"pandora-how-the-wrong-business-model-can-lead-management-to-focus-on-the-wrong-customer","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-digit\/submission\/pandora-how-the-wrong-business-model-can-lead-management-to-focus-on-the-wrong-customer\/","title":{"rendered":"Pandora: How the Wrong Business Model Can Lead Management to Focus on the Wrong Customer"},"content":{"rendered":"

Over the winter break, I had the pleasure to spend a few days with my twin brother. Like all healthy sibling relationships, we don\u2019t always see eye-to-eye on issues. We do, however, share similar food preferences, and so the best debates between us occur usually over a good meal \u2013 that way, if the argument becomes too heated, we can always talk about something we agree on, \u201cthe food sure is delicious, right?\u201d<\/p>\n

One such dinner debacle we had was on whether Pandora or Spotify was a better music streaming service. A die-hard, paying Spotify user, I thought Pandora was long on its way out. After all, over the past couple years, Pandora\u2019s monthly active users (MAUs) have declined. In December 2014, Pandora reported 81.5 million MAUs while in September 2016 the company announced having only 77.9 million<\/a> MAUs.<\/p>\n

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Conversely, Spotify\u2019s MAUs have risen to record levels.<\/p>\n

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However, my brother remained unconvinced. A long-time, free-tiered Pandora listener, he stated, \u201cPandora identifies the songs that I like to listen to, and best of all, I don\u2019t pay anything for it. In the U.S., I would say Pandora is more popular than Spotify.\u201d<\/p>\n

Curious, later that evening, I researched how many other individuals were like my brother and preferred Pandora over Spotify. I was surprised to find that the answer wasn\u2019t as clear-cut as I had initially thought.<\/p>\n

Last year, a study by Edison Research and Triton Digital revealed that nearly twice as many people in the U.S. used Pandora over Spotify to keep up-to-date with music.<\/p>\n

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Additionally, earlier this month, MusicWatch reported in its 15th<\/sup> Annual Music Survey that among the approximately 14 million Amazon Echo users in 2016, Pandora was the most-listened to streaming service.<\/p>\n

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SO, WHY IS PANDORA LOSING?<\/strong><\/p>\n

Fundamentally, Pandora is operating on a highly unsustainable business model that has yet to turn an annual profit. Of course, some may say, but Spotify also has yet to turn a profit<\/em>. The difference between the two companies, however, is that Pandora may never<\/em> turn a profit whereas, Spotify just might one day, assuming it can continue to scale.<\/p>\n

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To better understand why this is so, it\u2019s worth first going over several key aspects about Pandora\u2019s business model.<\/p>\n