Pandora is an online automated music recommendation service offered only within United States. Using its proprietary algorithm, called the “Music Genome Project “, to suggest music to user and streams music over various medias such as web browser, smartphone and tablet [1]. The service can be looked at as a personalized radio station that plays music based on a developed profile of the listener’s taste. Without going into the technical aspect of the algorithm, the effectiveness of it lies in the both the accuracy of the algorithm and by the feedback provided by the user for each recommended music through a rating process.

Pandora generates revenue through both ads generated income and annual subscription fee. User can chose to go with a non-fee based account to access the service however ads will be displayed along with play time restriction [1] [3]. Or to go with an ads-free subscription based service. As of today, the majority of the service users are non-fee based account which means most of Pandora’s revenue came from ads supported services [2]. A large portion of the income generated is used in covering royalty payment paid to SoundExchange – accounts for 45 percent of all revenues [4].

Pandora has been a struggling company since its inception in year 2000 [2]. In fact, many express deep concerns in Pandora’s business model of its ability to be profitable. The company has yet to make a profit in the past 10 years [4] and the recent IPO did not reaffirm confidence in investors compare to other recent IPOs such as LinkedIn [5].

Dickson

[1] http://computer.howstuffworks.com/internet/basics/pandora.htm

[2] http://www.bnet.com/blog/advertising-business/pandora-8217s-business-model-looks-like-a-suicide-pact/8799

[3] http://econsultancy.com/us/blog/5535-pandora-s-lesson-your-first-business-model-doesn-t-have-to-be-your-last

[4] http://www.betanews.com/article/Realities-of-Pandoras-business-model-catch-up-to-IPO/1308171078

[5] http://finance.yahoo.com/blogs/daily-ticker/linkedin-soars-pandora-crashes-ipo-market-alive-well-151251495.html