Pandora Radio: Fire Unprofitable Customers Harvard Case Solution & Analysis

Introduction

Pandora Radio is considered as the leader of the United States of America of internet radio industry by offering a modified experience for users and subscribers. They use essential potentials of music to primarily create situations and then familiarize playlists in the real-time built on the specific response of each user. As of the October 2012, Pandora Radio market share of total United States radio listening was increased around 6.55% from 4.27% the earlier year.

Objectives and Decisions

Tim Westergren founded the Pandora Radio. Recently founder Tim Westergren just has been informed by a famous VC that it’s time to get rid of the all those customers who are unprofitable. VC recommended this option to reduce the cost, but the founder Tim Westergren was in a dilemma that neither this option is feasible or even matches with its current business model. Since Pandora is one of the biggest online music streaming site and fast growing customers a data base operates under the advertising supported business model therefore it is not at all an easy decision to get rid of some customers. Pandora basically pays royalty for every song that has been streamed and there are even several other variable cost that are associated with the online streaming. The biggest mistake made by the Pandora Radio is that they haven’t yet put the restriction on the usage of the online streaming.  The real decision that needs to be taken here that can Pandora Radio sustain his business model with the same approach and by keeping those unprofitable customers or they must come up with some potential alternatives.

Environmental Analysis

Political

In the United States of America, internet or website companies play an important role in the efficiency and growth of the entire economy. It is now one of the important part of the American society or a system that is a representative of U.S in the world, the reason for the sustained growth of the music industry and related companies consistently nurturing in America’s economy and U.S government do not restrict the people and the companies for listening music online. It is a known fact that the U.S government favors local companies to the extent that foreign companies find it difficult to compete in U.S market. Nevertheless, foreign companies are dying to enter U.S due to its large population and higher demand of music and related stuff, as per capita income has increased and is rapidly growing. The U.S has 50 different states with a federal system. The government is run by the President, followed by the senate and House of Representatives (Buchanan, 1977).

Economical

Music companies have outperformed the sector in terms of the overall turnover growth. This was evident as aggregated demand increased in U.S and abroad for music companies or websites in America are noted for good quality and low on price. The demand for Music in America and even globally has been derived from the increase in the trend of internet users. The entire American music industry produced a massive figure of around 15 billion U.S. dollars in the year 2011.  U.S economy represents around 22.4% of nominal global GDP and around 16.6% of global GDP.

Socio-cultural

The American culture is an important aspect of the market. It is important to understand the culture in order to provide relevant products for the target market segments. American society is normally illustrated as a music lover and entertainment loving people. The local U.S people are now in favor of listening the online music, which is relatively less costly.

Technological

The technological infrastructure in U.S is exceptional. The music industry needs to be more highly developed specifically when it comes to technological infrastructure. American have an excellent technology infrastructure to support the aggressive global music industry. At this time the United States of America are leading in this regard by having a share of around 30%.

Industry and Business Model Analysis

Pandora at present has more than 80 million online users in the United States of America and adds approximately 600,000 new users every week. Most importantly, they also control the internet radio market division by having a gigantic market share of around 50% of all the internet radio being heeded. Pandora’s exclusive music heeding system permits users to choose a preferred musician, type or category of music and using particular computer procedures or algorithms to produce a custom-made radio station, which do not simply play the desired music the customer selects...................

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Pandora Radio is at a crossroads. Founder Tim Westergren just said known VC, get rid of their unprofitable customers to get their costs, but Westergren is not sure that such action is in accordance with the business model of the company. Pandora Radio is the largest online music stream site, and its rapidly growing user base loves free customizable music stream to support the advertising model. Pandora has to pay a royalty for every song streamed, and there are other variable costs that scale linearly hours consumed, but took no steps to limit the amount of heavy use and the most loyal users. Can Pandora make its model work when a significant percentage of users make it lose money? "Hide

by Willy Shih, Halle TECCO Source: Harvard Business School 13 pages. Publication Date: Mar 02, 2010. Prod. #: 610077-PDF-ENG

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