Streaming Music Market

Spotify vs Pandora

Introduction

The digital music industry can be divided in two different submarkets: the digital downloaded

market with companies like iTunes, Amazon and EBay which sell albums, song through their

websites and the streaming music industry. In the digital music market, streaming services only

generates 10% of the digital music; however the growth rate is higher than the downloaded

market. In 2011 the digital market grew 8% reaching a market valuation of $5.2 billion.

The streaming music market faces a strong competition with similar companies offering a similar

business model. They differ from each other in terms of licensed, design, music playlist, and

other features. Some of these companies like Spotify and Pandora, which are analyzed in this

paper, offer different alternatives to users. For example, Spotify outstand because of it has

social features, this attract people to see what tehir friends are listening and they can share

their playlists. The company also allows the users to listening music everywhere, create their

own playlist, discover music, and buy songs through the application. Record companies are

making partnerships with these companies to strengthen the music business and follow the

trend. The technology in this market has become a success factor to create differentiation in the

market and attract more customers. Music industry has changed and users are asking for new

and better features, music everywhere, free or at a cheap cost music and accessibility in

smartphones, computers, music devices and more. Spotify and Pandora are making the

streaming music market the new music revolution.

Spotify and Pandora overview

Spotify is an online music streaming service created in Sweden in 2008. It has grown at a fast

rate since it was launched. Today has about 15 million songs and more than 20 million users;

about 15% of the users are paying members. The system is a software that it´s accessible for

Mac OSX, windows, smartphones, and more. The users can browse by album, record, artist,

label, genre or playlist. The service provides a free trial and a paid version with some limitations

in the first case and the service provide the option to buy songs directly on its application.

Pandora is another streaming music service dominant in the US market. It was founded in 2000

in Oakland CA. It has a library composed by 800,000 tracks from 80,000 artists with more than

80 million users. The company offers radio for free and paid membership for people who want

to avoid advertising. Pandora also customized radio station based on matched songs or artist.

Users can discover new artist and download the music on iTunes if they want to buy it.

Similarities and differences in their innovation

1. Technology (Platforms)

Spotify is accessible in different ways: Desktop and mobile application, both have a user friendly

design which is pretty intuitive to use. The application streams over 3G without the need to go

online, these features give to Spotify the value it has, because user can listen music on the go.

Pandora has three platforms version: web, mobile application and desktop. The three versions

are user friendly and they come in a cool design, however Spotify beats Pandora, because it

works smoothly and easily.

2. Music Library

When we talk about the music library, Spotify is at least 15 times bigger than Pandora. Spotify

includes more than 15 million songs, also users can upload their list and share with the rest of

the users. Spotify offers the option to buy songs directly in the application, because it has an

alliance with record companies and some artists. Pandora only has 800,000 tracks and they offer

to buy songs through iTunes or Amazon.

3. Social features

Pandora doesn’t offer social features as Spotify does, Pandora only allow user to like songs and

post them on Facebook. Spotify permit to connect to Facebook, twitter and messenger. Users

can share their playlists with their friend, they can also like playlists and add them to their own

music library.

4. Music recommendation

One of the most interesting parts of streaming services is the option to recommend and

discover new music. Spotify for example suggest music that users might like, but it doesn’t mean

that match exactly your interest, however with the Facebook integration, Spotify help users to

see what your friends are listening and try new music.

Pandora has a better feature in terms of music discovery, because it doesn’t give you the chance

to listen what you exactly want, you can create station based on your music taste and Pandora

randomly select songs according to your first choice. The technology used is based on a

mathematic system that delivers music according to the attributes to the radio station selected.

5. User experience

Spotify stands apart from its competitors. The use experience is based on Mac application, it

provides flexibility, different functionalities and it´s well designed, user friendly. Another feature

is that you can switch from your iTunes library to streaming music fluidly, and share on social

networks what your listening.

Figure N:1: Spotify desktop interface

Pandora is a web based application; it does not provide a desktop application. The site is clean

and user friendly as well. Users can decide the station they want to play. The interface shows

information about artist, song and some alternatives.

Figure N°2: Pandora web interface

6. Business Model: Free version

Spotify gives the choice to listen music up to 20 hrs per months with no registration. You can

listen whatever you want. After that period of time, Spotify will allow you to listen only 10 hr per

month. The desktop application has some limitations for free users, for example it doesn’t allow

to have the offline mode and free users have to listen advertising once in a while.

Pandora has a free version which bombards free users with advertising all the time. They have

also some limitations, for example they can listen only 40 hours per month. However Pandora

offers a mobile version without limitations that Spotify doesn’t offer.

7. Business Model: Paid version

With the paid version Spotify offers unlimited listening time without advertising in between for

only $ 4,99. They also offer for $9.99 better quality sound, offline desktop mode, radio mode. In

addition, you can play all the music on you mobile phone.

Pandora charges $36 per year for unlimited listening and no advertising, but there is no other

feature you can get for that price.

Type of innovation

Pandora entered the market with a new technology and high customer demand for music

services, by the year 2000 Pandora represented a radical innovation, it was the first mover

in streaming music services. It is still the leader in the US market, however it has lost market

share with the new competitors.

Spotify was a late follower introduced in 2008. The newness of the technology was low;

however the need for streaming services is still high, so it represents a market

breakthrough. In addition, Spotify has differentiated features that Pandora still has not

reached yet.

Internal Analysis: SWOT analysis

Spotify PandoraStrengths: Large music library available, no

storage issues, easy to use and search for

music, sharing music capabilities, legal in the

market, free and paid version available.

Smartphone and desktop application.

Strengths: access from smartphones,

players, cars, computers. Playlist on

demand, personalized recommendation to

users, strong brand recognition, free for up

to 40 hours.

Weaknesses: limited offline use, not

available in every country. Not many paid

subscribers, users prefer free version.

Weaknesses: limited listening time for free

users, too much advertising in the free

version, high cost of artist royalties.

Opportunities: Partnerships with music

business in the US and IT companies. Fight

piracy through Spotify business model

Opportunities: future partnerships with car

companies to bring Pandora to vehicles,

decentralization of music industry.

Threats: Strong competitors such as iTunes,

Pandora. Low royalty payments,

competition with illegal services.

Threats: competitors such as Spotify and

Grooveshark are taking part of the market

share. Low royalty payments.

Technology S curve

The music market has a long story, from 1900 to 2000 music was recorded in different kind

of instruments such as vinyl’s, cassettes and compact disc, also radio stations had an

important task to play the music and spread it to the world. There was not a simple way to

store the music or keep a playlist of your favorite artists. This was the first technology S

curve of the music industry.

In the early 2000, the boom of internet and personals computer helped the music industry

to develop a new music market: the digital music. This was a radical innovation for

companies like iTunes which began selling music through the internet (second Technology S

curve of the music industry).

In the middle of the last decade, Internet, smartphones and personal computer helped the

music industry to offer a new listening music concept: streaming music services. They

became more popular, because people didn’t need to spend too much money to listen what

they want. New radio services like Pandora and Spotify became more popular, both services

belong to the third S curve technology of the music industry. This new concept is still

growing and gaining market share over physical and digital music, because it offers new

features such as: playlist, discover new music, music on the go everywhere in computers or

smartphones, also social capabilities where your friends can see what you are listening.

Figure N°3: S curve for streaming Music Services

Time of entry

As it was stated before, Pandora was the first mover in the streaming music industry. The

company entered to the US market in 2000, right after the internet boom. The company

already has 50 million users and it´s for free, however users can paid an annual subscription

to avoid advertising and enhance the sound quality. Spotify was a late follower, because it

entered to the market in 2008, the company has already 10 million subscriber s worldwide,

but in the US only 3 millions.

The customer needs was well understood in the case of Pandora. Basically, they provide free

internet radio, with the choice to get surprise with new music. Some people still prefer

listening radio, but the company knew the trend for music is on the go and everywhere.

Spotify hit the US market to be a competitors for Pandora and other streaming music

services. This company offers differentiation and new features, however the innovation is

not new, the company offers a bigger music library and it allows user to choice and discover

what they want to listen, this feature doesn’t match what Pandora offers.

Spotify services require some enabling technologies like computers, or Smartphone. This

technology is sufficient mature for the market. Pandora already offers web service and free

application for Smartphone, so that means it´s a right time for this technology.

Facebook is acting as a complementary good, so do Smartphone and computers which are

necessary to play the music. They are available and both companies require the same kind

of complements.

The threat of competitors at this point is high, there are legal and illegal streaming services

and they split the market share. Some competitors are: Rdio, iTunes match, Raphsody,

Grooveshark, MOG, Last FM, etc. The technology in this market is already mature; however

the features these companies provide to users is what makes the difference. Spotify has

take advantage on this point and it is growing at a fast rate, increasing its returns and

gaining market share in the US.

Spotify and Pandora are doing their best to attract new customers, Pandora already has

accelerated its new version which should be in the market in the next few weeks. Spotify is

gaining market share in the US, they are investing in increase the music library, in fact it is

bigger than Pandora’s music library. The company is also investing money to provide new

features for users, and enhance its mobile and desktop application. Finally, both companies

have a well know reputation to reduce the uncertainty of customers, suppliers, and

distributors.

Pandora won the US market with its streaming music services and It entered to the market

in a right moment. Spotify began in Europe eighth years later using a similar technology,

however it entered in the US market in a perfect moment to become Pandora’s competitor,

besides it provides new features, design and option that Pandora doesn’t offer.

Management change for Spotify and Pandora

Spotify as a new competitor in the US market have known how to attract new customers.

The company decided to use an Unfreezing model in the US market to face the big

competition and they modify some features and the application design to make it look more

users friendly and similar to iTunes Store.

On the other hand, Pandora has kept a similar design and features for a long time, but since

new competitors has appeared in the market the company decided to innovate and

enhance the design. The new version of Pandora should be available early in 2013.

Conclusion

Pandora and Spotify have revolutionized the music industry. They have provided music on

the go and everywhere. On one hand, Pandora as a first mover has reached a big market

shared in the US. It is also a simple application and it has provided web and smarthpone

application. It user friendly and allow users to discover music based on their taste. Pandora

serves a different purpose; it considers a radio web application. On the other hand, Spotify

entered the US market as a late follower, but it has provided social features, radio station

according users tastes, also it makes possible that users can create and share their own

playlists. The design is attractive and allows users to buy music on the same application; also

the integration with Facebook makes this application more attractive for young people.

In this battle Spotify win by far compared with its competitors, but it is still growing and

getting new customers. Pandora is still leader in term of subscribers; however the potential

of growing is low if it doesn’t innovate or improve its features.

References

1. Shearman, S. (2011). Spotify. Marketing, 17.

2. Luker, S. (2012). Spotify looks to build consumer presence. PR Week, 6

3. Pack, T. (2008). Pandora lets users create online radio stations. Information

Today, 25(5), 38-39.

4. SMITH, E. , & LETZING, J. (2012). At pandora, each sale drives up its losses.Wall Street

Journal - Eastern Edition,260(136), .

5. http://www.digitaltrends.com/music/spotify-vs-pandora-vs-grooveshark/

6. http://www.digitaltrends.com/mobile/spotify-radio-vs-pandora-iphone-app-

comparison/

7. http://www.nbcnews.com/technology/gadgetbox/best-streaming-music-services-

how-pick-one-120960