Pandora radio

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1. Freemium (Case Study 5) - Takes Pandora Public 1
2. Today’s Agenda 1. Introduction 2. Business 2.1 Business Analysis 2.2 Freemium 3. Technology 4. Policy 5. Social 6. Conclusion 2
3. Introduction 3
4. How to Search Your Favorite Music 4
5. Who is Pandora? • Largest streaming music provider in the US • Account for 45% of all Internet radio listening hours • Established in 2000 and acquired by Sirius XM Satellite Radio in 2019. 5
6. Unrivaled Audience in Digital Music 6
7. Business 7
8. A Platform View 8 Record labels Artists Consumers
9. A Five-Force Analysis Michael Porter's Five Forces Model 9 Entrant Customer Supplier Substitute Rivalry
10. A Five-Force Analysis Bargaining power of suppliers • Most significant factor • Copyright Royalty Board • Strong bargaining power 10 (22% spike due to one decision)
11. A Five-Force Analysis Bargaining power of suppliers • Most significant factor • Copyright Royalty Board • Strong bargaining power 11 Our “Content Acquisition Cost”, 2006-2017 2015 $610 Million
12. A Five-Force Analysis Threat of new entrants • Barrier to entry not very high by nature. We build our moat with.. .. unique algorithm .. accumulated user data .. huge user network • Yet not attractive to new entrants No current player making profit 12 Entrant Customer Supplier Substitute Rivalry
13. A Five-Force Analysis Threat of substitutes Modest Possible substitutes: • Purchased music, e.g. through iTunes We provide unique values One user may use both • Other media, e.g. radio, television Time is on our side 13 Entrant Customer Supplier Substitute Rivalry
14. A Five-Force Analysis Bargaining power of customers Modest: • Service not standardized • Millions of customers A few service providers 14 Entrant Customer Supplier Substitute Rivalry
15. A Five-Force Analysis Competitive rivalry Strong • Powerful and rich rivals.. .. who can endure zero profit Google, Apple, Amazon etc. 15 Entrant Customer Supplier Substitute Rivalry
16. A Five-Force Analysis Conclusion Supplier remains the major threat Several rich rivals ⇒ Price war is not applicable We may survive only if we differentiate. 16
17. Platform Revisited Let’s return to our platform, And see how we create value. 17 Record labels Artists Consumers
18. Value we create For artists: We help them reach their fans, And introduce them to their fans-to-be. For record labels: We act as an effective propagator 18 Record labels Artists Consumers
19. Value we create For consumers: Songs/genres you do like ↓ Stations ↓ Songs/genres you MAY like ⇒ We help customers find music “Discovery” 19 Record labels Artists Consumers
20. Value we create We serve as a bridge, connecting artists, record companies, and audience， in our unique manner. 20 Record labels Artists Consumers Licensed Partners
21. Value we create We serve as a bridge, connecting artists, record companies, and audience， in our unique manner. 21 Record labels Artists Consumers Licensed Partners
22. Value we create We serve as a community, where.. each listener contributes, each listener benefits. 22 Record labels Artists Consumers
23. Our Strategy Very early, we realized the value of our network. 23 Record labels Artists Consumers
24. Our Strategy Very early, we realized the value of our network.. .. and decided to extend this network. 24 Record labels Artists Free Users Paying Users
25. Our Strategy Free users contribute by: • Providing user data and feedback • Listening to ADs • Interacting with other users/non-users • Possibly converting to paying users ◦ Due to user habit cultivation ◦ Due to new features 25 Record labels Artists Free Users Paying Users
26. Our Strategy We decided to adopt a freemium strategy, Based on the following facts: • Low marginal cost for new users • More users, more valuable platform (namely the network effect) 26 Record labels Artists Free Users Paying Users
27. “The easiest way to get one million people paying is to get one billion people using.” Phil Libin, the CEO of Evernote 27
28. Framework Strategy Market Product 28
29. Freemium Definition The main goal decrease the customer acquisition cost Avoid traditional overspending on paid marketing channels convoluted sales processes Build trust and highlight the value 29
30. Freemium Model - Customer Acquisition Strategy Acquisition Stage Adoption Stage Retention Stage Expansion Stage 30
31. Customer Acquisition Strategy 4 Steps: 1) Drive awareness and demand 2) Design initial prospect-product interaction so the prospect can try your product 3) Design a journey to deliver value to prospects 4) Convert prospects to paid customers 31
32. Freemium Conversion Rate Why we need conversion: Cheapest way to boost profits Better conversion rate can reduce cost Help to improve product Shorten the sales cycle Force a focus on the initial interaction 32
33. How to Optimize Your Freemium Conversion Rate 1. Set the right product limitations for your free account. 2. Include a full-feature free trial. 3. Focus on customer success. 4. Remind users to upgrade at every turn. 5. Take a more hands-on approach to inside sales. 33
34. Freemium Market Market Size Huge Market Market Maturity Pressure on costs Pricing Gain Adoption 34
35. Profit Model 35
36. Freemium vs. Free Trial 36
37. Product Properties Feature limitations: Offering extra features, enhanced functionality of available features, or ad hoc paid upgrades (e.g. rare items in a game) Usage quotas: Storage limits, monthly credits, data processing quotas Limited support: Tiered access to customer service and support resources 37
38. Pandora 38
39. Technology 39
40. Leader Among All Mobile Apps 40
41. #1 Single Brand in Mobile Time Spent Per User 41
42. Strength: Algorithm for Music Recommendation • As the interface with the Music Genome Project database • Relies on a Music Genome that consists of 400 attributes • Genome is based on an analysis by actual humans 42
43. How Pandora Radio Works • Can create a radio station which will only play songs with similar musical traits • Can see why Pandora is playing any song 43
44. Feedback Mechanism • Refine the station based on our likes and dislikes • Our feedback instantly changes the station's playlist 44
45. Genome Analysis based on Musical Attributes • beat - the regular pulse of music • voice - the production of sound from the vocal chords, often used in music; falls into six basic • tempo - the speed of the rhythm of a composition • harmony - the concordant (or consonant) combination of notes sounded simultaneously to produce chords • lyrics - the words of a song • melody - a succession of tones comprised of mode, rhythm, and pitches so arranged as to achieve musical shape • rhythm - the subdivision of a space of time into a defined, repeated pattern 45
46. Difficulties in Music Recommendation • Some artists have such a varied collection of styles • e.g. "I am the Walrus" vs "I Want to Hold Your Hand" • it's often wise to use a song instead of an artist as a seed 46
47. Policy 47
48. Policy 48
49. The Digital Millennium Copyright. Act.（DMCA） • Statutory License ⇒ Broad rights to use copyright material subject to the payment of a fixed royalty • Request removal contents that infringes copyright on the web • No publication of technical means to cancel copyright protection technology Policy 49
50. Social 50
51. Little Kids Rock with Pandora Little Kids Rock： An innovative non-profit program that provides free instruments and instruction to inner-city children in the U.S. Social 51
52. Security Incident Social • Detection of vulnerability in verification of SSL server certificate in iOS application “Pandora” (March 2017) • Pandora Security Vulnerability Puts Some User Passwords At Risk (September 2012) 52
53. Conclusion 53
54. Conclusion • We create value by ◦ connecting artists, record labels and customers, ◦ helping customers discovery music. • Freemium is our main strategy in business. • Provide a highly-personalized listening experience to users with proprietary “Music Genome Project”. • Digital rights laws influence our growth. 54