Pandora Case Analysis Essay

AbstractPandora provides personalize lucre communicate station to its clients. Pandora provides this customized receiving set abandon of charge to its social functionrs. In confederacy with other c atomic number 18 casts, Pandora has achievementfully implemented the extramium commercial enterprise moulding in which 99% of its users receive a free wait on and 1% of the users concede for exchange premium helpers. This problem model is not appropriate for every face of billet but shadow be profitable for some types of businesses with a planned implementation process and a clear understanding of customer appreciates. Analyzing the success of Pandora provides information on the necessary hirements in order for business to earn a profit using the freemium business model.Pandora Case abstractPandora offers an Internet radio serve, which tailors the medicine played, establish on user preference. Pandora began as a free assist to its consumers, while they found a fla ir to earn a profit. Pandora utilized several polar business models before implementing the freemium model. The freemium business model provides free services to 99% of the customers and expects 1% of the customers to patch up a fee for premium services (Laudon & Traver, 2011). This business model rat be very hard-hitting and profitable for certain types of business when managed correctly.Analyzing Pandoras successful use of the model provides insight on which conditions need to be reach in order for the freemium business model to be effectual and profitable. The freemium business model is appropriate to use when the product or service is widely available and there argon low variable quantity quantity be in providing the product or service to each customer. It is also chief(prenominal) that the business takes into consideration the clock of implementation and understands their customers values. storey of PandoraThe foundation of Pandora began with the creation of the Mus ic Genome Project in 2000 and the service form all toldy launched in 2005 (Westegren, 2009). Pandoras founder Tim Westegren set out to create an on-line radiostation that categorizes music based on 400 contrastive attributes such as melody, rhythm, instrumentation and harmony (Westegren, 2009). In order to reach out this task, Westegren hired musical analysts who listened to music and created a database which links numberss together based on similarity of those attributes (Shelly, 2009). This database provides the foundation for users to log into Pandora and enter an artist or a song that they want to hear. The search is a seed and the database creates a station based on the features of the song entered on the search. The station contains artists and songs that are similar to the search, but does not actually play the exact song or artist entered (Shelly, 2009). Pandora is inter vigorous as users provide feedback to the database by well-favored a song thumbs up, thumbs down, or skip the song entirely (Shelly, 2009). The much the user listens to Pandora, the better the system understands their preferences (Shelly, 2009). In other words, by often interacting with the database, users receive a more customized radio station.Pandora Business ModelsPandora continues to explore different revenue building business models in order to maximize monetization. These models implicate calendar monthly subscription fees, advertising, undertake with on-line retailers and the freemium business model. When Pandora launched in 2005, their first business model was to provide 10 hours of free music and then require users to profits a monthly fee of $36. Pandora found that users listened to their 10 hours of free music, but were not will to lucre the monthly subscription fee (Laudon & Traver, 2011). When this subscription model failed to produce a profit, Pandora modified the model and provided 40 hours of free music for a month and after those hours were used, customers c ould either stomach $.99 per song, sign up for the premium service, or do neither of these and not hear whatsoever more music (Laudon & Traver, 2011). Even with this modification, Pandora struggled to earn a profit.Pandora continued to improve their business model by adding advertisements to the site and radio stations. At the time, Pandora had to the highest degree 100,000 users so many companies were willing to pay for advertisements on the site (Laudon & Traver, 2011). mend the advertisements helped Pandora financially, it was still not enough to make a profit. Pandora then startedcontracting with Amazon and other on-line retailers and included an option for users to purchase songs. Users can click the buy button, which redirects them to the retailers website. Pandora receives a fee for providing business to the retailer (Laudon & Traver, 2011). In addition, Pandora began contracting with Apple allowing users to listen to music on their iPhones (Laudon & Traver, 2011).The cu rrent model of Pandora combines advertising, contracts with retailers and the freemium business model. It is common for established businesses to earn a smaller percentage of its revenue from the premium model (Hung, 2010) therefore corporate trust multiple revenue models maximizes monetization. Pandora continues to earn revenue from businesses paying to advertise on the site and by dint of contracts with Amazon and Apple when users purchase music. Pandora implemented the freemium model in which 99% of users receive the service free and 1% of users pay for additional services. Approximately 1% of Pandora users pay $36 per year for premium services, which includes no advertisements and higher quality capacitance (Laudon & Traver, 2011). As Pandora is a popularly used site, that 1% amounts to approximately 500,000 customers paying $36 per year which equates to well-nigh 17 zillion dollars in revenue.Business RequirementsPandoras effective use of the freemium business model provides insight on which conditions need to be present in order for the freemium model to be successful including the type of business, timing of implementation, and understanding customer values. The freemium business model is not appropriate for all types of businesses. It is most effective when the business provides a product or service that is widely available, has a customer base of oer one million, and the variable cost of providing the free product or service essential be low or close to zero (Laudon, & Traver, 2011). Pandora insures both requirements of having a life-size customer base and low variable cost.Currently, Pandora has approximately 47 million users (Statista, 2012), which is a large audience and exceeds the preference of one million. The cost of Pandora providing the service to one person is close to the cost it takes to provide the service to 47 million batch. The variable costs per user are relatively low, as the main cost come fromsoftware to provide Internet rad io and the database to create radio stations. Once the software and database are created, they can be used multiple times without adding additional costs.Timing of ImplementationBusinesses who meet the criteria of having a large enough customer base and low variable costs also need to consider the timing of implementing the freemium model. Customers become accustomed to receiving a free service and expect that services to remain free. Requiring customers to pay for the service may result in the customer no continuing being elicit in the service. Research shows that waiting at least a year after offering the free service and a month after growth of the free usage slows is the most effective time to move to a fee service (Pauwels & Weiss, 2008). The wait geological period allows the site to gain popularity and customers to realize the free services value (Pauwels & Weiss, 2008).When Pandora first became available, customers were not willing to pay the subscription fees, as they ha d not thus far determined the value of the service. Users listened to their free music until it ran out, and then waited until the next month when the free service was available. As the website gained popularity and customers realized the value of having a personally tailored radio station, they became more willing to subscribe to premium services. Pandora successfully implemented the freemium model almost six years of offering the free service.Customer ValuesOne of Pandoras strengths is the perceived value of its service to customers. Research shows that the perceived value of free content versus fee content determines if users will choose to pay for the service (Pauwels & Weiss, 2008). Pandora strives to provide each someone user a radio station that only plays their favorite songs. more or less businesses fail to customize their products to each unmarried customer, so Pandora brings a modify service to the customer (Westegren, 2009).An added eudaemonia to the fee content i s no advertising. most other streaming radio stations and traditional radio stations play many commercials, which can result in listeners changing the station. Pandoras premium services provide commercial free, advertising free, personalized radio for only $36 per year.The benefit of the fee content encourages some users to pay the annual subscription.Pandora also allows users to connect with and recommend stations to their friends. This connection with friends through social media can be just as effective as receiving a review from a professional critic (Shelly, 2009). Most people have similar tastes in music as their friends and value their opinions. The personalized customization, no advertising and connection with friends increases customer value resulting in subscribers who are willing to pay for the service.ConclusionAnalyzing Pandoras successful implementation of the freemium business model provides insight on how other businesses can also benefit from this model. The freemiu m business model is not appropriate for all types of businesses. Two criteria that businesses must have are a large customer base, preferably in the millions, as well as low variable costs of providing a free service to customers (Laudon, & Traver, 2011). Businesses that meet these criteria must also take into consideration the timing of implementing the model and understand customer values. Pandora currently has well over a million active users and relatively low variable costs in providing the service.Reviewing Pandoras history shows that timing plays an important role. Customers were not willing to pay for the service until they understood the value of the service. Pandora is aware that customers value undivided customization and sharing their music with their friends. By offering a service that creates individual radio stations based on the users preferences and allowing them to ploughshare that music with their friends, has resulted in users who are willing to pay for premium services. Businesses interested in implementing the freemium business model can benefit from analyzing Pandoras success in the model.ReferencesHung, J. (2010). Economic essentials of online publishing with associated trends and patterns. Publishing Research Quarterly, 26(2), 79-95. doi10.1007/s12109-010-9158-3. Laudon, K. C., & Traver, C. G. (2011). E-commerce business, technology, society (8th ed.). Upper Saddle River,NJ Pearson Education, Inc. Pauwels, K., & Weiss, A. (2008). Moving from free to fee how online firms commercialise to change their business model successfully. Journal of Marketing, 72(3), 14-31. doi10.1509/jmkg.72.3.14 Shelley, A. (2009). Pandora. Notes, 66(1), 138-142.Statista. (2012). Pandoras active users from 2009 to 2012 (in millions). Retrieved fromhttp//www.statista.com/statistics/190989/active-users-of-music-streaming-service-pandora-since-2009/. Westegren, T. (2009). Tailor your product to 1 million customers. (cover story). Financial Executive, 25(8), 38 .