Dave Allen. Director, Interactive Strategy

Why does Pandora exist?

North Why does Pandora exist?

Some thoughts on the failure of disruptive thinking in online music technology companies

Content is not king and it is not rare. Value will be created around content versus content itself – Rishad Tobaccowala

My talk at SanFran MusicTech on Strategic Brand Partnerships that I referred to here went much better than expected. I say that, as I was initially concerned that my fellow panelists (weirdly, no females) were all from the music industry in some shape or fashion.

It turns out that my concerns were misguided. In the green room before the talk I was intrigued by some of the ideas that were being kicked around. At one point, Bruce Flohr of Red Light Management who manages the Dave Matthews Band, said something along these lines – If the content holders (the bands,) the technology companies and the brands don’t all execute together at the top of their game, then there is a real danger that the brands along with their dollars will step away from the table. What he was getting at was that behind execution (ie the campaign) he and his artists want to see results, metrics, data and value. Flohr gets it. The rest of the panelists – Jason Ross of The Bowery Presents, Steve Rennie of Ren Management and Jason Feinberg of Concord Music all were in agreement.

I know I have a reputation for being too cynical and outspoken about the recorded music industry, but who could blame me if we take a hard look at what’s been happening for about 15 years? What I was hearing in that green room was that some major music industry players had really caught up with what’s the Internet and mobile platforms can offer in the digital music space. They also accept the idea that strategy and research, not just tactics, are the backbone of a successful project or campaign.

Maybe now it’s time for developers and technology companies to play catch up?

I mentioned Luke Willams and his book Disrupt in part 1 of this post. In reading it I’d become attached to the idea of challenging the “idea” of the music industry and ended up asking the conference audience would it matter if recording companies completely disappeared? The idea behind a provocative statement like that is to try and get people who are thinking about the music technology space to think differently. Maybe then we could get beyond the issue that I hear the most – ‘labels charge a lot of money for licensing their content.’ If you are only worrying about how much labels charge for licensing their content you are probably overlooking other issues that may actually be smaller but could be issues that you should be far more concerned about, such as: Who will use our product? Why will they use it? Who are they? Does our product/service actually solve a real problem?

What would a world without record labels look like? Would it be better or worse? And here’s a challenge to thinkers, entrepreneurs, developers and music tech folks who want to deliver the next new, new thing; it’s a result of kicking some ideas around over lunch yesterday with my friend David Ewald – Why would you build a music app for the iPhone that competes with the Safari App? I’ll explain what I mean later in this post.

Which brings me to Why does Pandora exist?

Earlier in the day I had attended a roundtable that was hosted by David Porter of 8Tracks. David had just recently launched an 8Tracks iPhone App and was asking us for tips and suggestions about how to keep his App download numbers up. It was an interesting discussion to sit in yet I was disheartened to hear the litany of assumptions from developers. There were a lot of ideas for sure, but the elephant in the room was the fact that no one mentioned user research (David did mention that there “was pent up demand for an App from his users” but that had a few of us wondering why he had chosen to give the app away for free…) They also hardly mentioned musicians or music fans. It felt like being in a bubble.

So I asked the question – Why does Pandora exist? I want to set the record straight. I am not suggesting that Pandora shouldn’t exist as many people find the service satisfactory, I simply wanted to know from some of the experts in the room what problem has Pandora solved.

After much grumbling and many people professing that they couldn’t live without it, the best that anyone could come up with was “because radio sucks.” – by which they meant terrestrial radio stations on the FM dial, I presume. I’m not sure that’s a good enough reason to create a new version of “radio” online. In other words, was the problem solved? I would argue it wasn’t. The creation of Pandora was very, very expensive – it appears to have raised around $30 million or more in the last decade if I read this Wall St Journal report correctly – and apart from some useful interactive features it’s not really that far removed from the radio listening experience of terrestrial radio stations, especially as, just like terrestrial radio, it has an advertising revenue driven model as part of its business plan. It gives music fans control over what they would like to hear but is it a game-changing product?

What if all those millions of dollars had been used to support KCRW and KEXP and other stations like them? They provide a very good offline/online radio experience. The bigger question is this though – was the creation of Pandora or the future development of more streaming music Apps that rely on advertising for revenue, really the best idea that music technologists have?

Some more disruptive thoughts: What if someone built a music service that was more expensive to subscribe to than any other service, that gave the music lover an exceptional amount of value in many areas? Why not? In Disrupt, Williams points to the succes of Monocle magazine whose publishers avoided the magazine subscription “pricing cliché”:

..the pricing cliché in the magazine industry is a subscription-sale model, where publishers offer a significant discount for annual subscriptions. Typically, buying a subscription is 50 percent less than buying from a newsstand. Then, along comes a startup lifestyle magazine called Monocle, and instead of the traditional subscription-sale model, it created a subscription-premium model. The disruption? “Buying an annual subscription is 50 percent more than the cost of buying from a newsstand. [Edit] In it’s first year, the magazine’s circulation was already 150,000, and it’s currently sold in more than 50 countries.

It’s not about price, it’s all about the added value to the person buying the product or service.

So back to the idea of not building an iPhone or iPad App that competes with the Safari Apps in those devices? (Or the YouTube and Pandora Apps for that matter..) I ask why anyone would compete with the Safari App because a) it works extremely well, and b) there are many, many websites that provide good music services. Of course using the Safari App requires good reception via G3 or wi-fi but so do streaming music apps. If you, your tech company or startup is considering building an App that provides a music experience for the user there is much to consider. Going back to Williams’ book he suggest you might consider product clichés, interaction clichés and ala Monocle, pricing clichés.

Also there could be questions like these, with a hat tip to David Ewald:

Why are we doing this?
Who will use anything we make?
Why will they use it?
Who are the people that will use it?
Will it be better?
Should we be asking this?

And finally there’s the challenge around content itself. Someone in the audience at the conference mentioned studies that showed young people are watching more music than ever, where “watching” meant YouTube. Young people spend hours on YouTube exploring and digging for music. What if you created an App that helped young people find what they’re looking for on YouTube more easily? Also, more and more young people are creating content rather than consuming it. How will your App rise to that challenge? For e.g., Soundcloud is very popular most likely because it allows users to make and share something..

Some of my students at the University of Oregon where I teach digital strategy, are on a trip to New York this week and one of them, Gaston Figueroa, decided to quickly build this, a site that tracks their Twitter activity, one that works very smoothly in mobile too. Yes, it’s simple, but it was quick and other than the time spent building it (about 3 hours) it was free. I hired him to spend the summer working with us here at North. The idea is to design and build things quickly so we have lots of things to throw away as we try and get to the real deal; the product or service that provides a currently undefined value for our client’s customers.

The future lies in the hands and minds of young people who bring fresh ideas and new thinking to the table. It is not in developing yet another streaming music service, either web-based or App-based. Clearly we should be hiring young people and allowing them to be disruptive. Or at least, music technology companies and startups should go out and research those young people and ask them what they really want.

[Update] I found this music experience worth my time – A Daft Punk mashup visualized.

Tags: #BuildShit, Brian Zisk, Bruce Flohr, Dave Matthews Band, Digital, Jason Feinberg, Jason Ross, MP3, music, Pandora, Rishad Tobaccowala, San Fran MusicTech, Soundcloud, Steve Rennie, strategy, Streaming music

Comments

9 Responses to “Why does Pandora exist?”

anon
May 13th, 2011 @ 2:30 pm

Yes, you are right. Pandora solves no problem.

No internet music provider with brand-name artists in their catalog has a hard time attracting an audience. Pandora’s features for the sake of attracting an audience are meaningless.

The only problem for internet music providers is providing a competitive ROI to the investors while reaching a meaningful scale. Staying in business in other words.
Stephen Hill
May 15th, 2011 @ 8:11 am

Dave,

I can’t argue with your conclusion, but I’m still wondering about the premise. I’m the person who offered the reason “because radio sucked” in that session, but I said more. There are at least three or four good reasons why Pandora exists:

1/ Corporate music radio (Clear Channel, et al) sucked at the time Pandora launched. Some may say it still does, at least for the more discriminating segments of the audience.

2/ Corporate radio and the radio industry in general were slow to innovate online and reinvent their service for the new medium. The implication was that Pandora was able to innovate enough to partially fill the need.

3/ Pandora provided a (semi) interactive music “radio” service, thereby offering a new and more personalized music radio experience for its users.

4/ Pandora executed successfully and managed its growth well enough to keep its reputation clean, vs. other services that had early scaling problems.

Looking at your list of questions

Why are we doing this?
Who will use anything we make?
Why will they use it?
Who are the people that will use it?
Will it be better?
Should we be asking this?

even someone critical of Pandora’s service would have to allow that it answers most of these questions well enough, the proof being that it has attracted over 80 million users. Yet even with that number, compared to the worldwide audience for music radio Pandora is still a niche service.

The larger questions you raise about video music on YouTube, content discovery and creation are of course valid, but all of them represent highly interactive use cases around music. Whereas “radio” is largely designed for more passive use cases, i.e., apples and oranges.

:: SH
Dave Allen
May 15th, 2011 @ 9:43 am

Stephen,

It was great to see you in SF and I’m sorry we couldn’t have spent more time discussing this together. Before I go on I want to point out that the title of this post is a challenge aimed at technologists and entrepreneurs who may be thinking about delivering the next “new” thing in music applications online. I understand that people enjoy Pandora, but I would have hoped by now that we’d have seen something far better. Meanwhile, why does the USA await Spotify with bated breath?

What that means is that the questions that are posed above that you reference, are questions that those in development of the “new” thing should be asking themselves before they begin building something. (BTW, those are questions that I can carry across all development disciplines – iPad apps for instance..) Too often, products are delivered that are not ready for “prime time.” They don’t solve the problems they’re supposed to solve and in many cases those building them had to create a problem before solving it.

My overall point is that strategy based on deep research may help developers get to a game-changing product.

You make a great point that radio is a passive medium therefore I would argue that Pandora, and other similar services, only went halfway with their offerings as it is well known that many, many users want more interaction with the tools they use on the web, not less. If Pandora is being used passively in the background of homes and businesses I’d say it was a larger failure than I thought it was – almost the same as terrestrial radio with a bit more functionality!

I took this post’s ideas to my class to create an exercise for my students, the results of which I will post here very soon. One quick finding after 3 hours of discussion is that 99% of the students in my class use and prefer YouTube for “listening” to music and finding new artists. It appears that the ability to really interact trumps passive listening amongst the younger set.
Stephen Hill
May 16th, 2011 @ 8:42 pm

Dave,

I can’t argue with anything you say above and if I were trying to constructively corrupt young minds I would surely be doing it the same way.

I also understand the web as a fundamentally interactive medium, but when you have billions of users in the world you wind up having to support a large number of individual differences and the concomitant use cases. Indeed, the more activist users will *demand* them in no uncertain terms.

I said radio is “largely” designed for more passive use cases, but being a freelance Taoist I’m always aware that there are many shades of gray between the extremes. Thus I see Pandora as a “lightly interactive” app for the vast majority of its users, with interactivity defined as the time they spend customizing the service to their preferences, not TSL (a radio term for Time Spent Listening).

If your aim is develop a viable online service model and a revenue-positive business, then by this measure Pandora has (barely) succeeded. If your aim is to create game-changing, heretofore unrealized online service models that break totally new ground, then no, not so much.

A more cynical view might be that the “music radio” experience was so retarded in the scarcity spectrum, advertising-saturated environment of early 21st century broadcasting that even modest improvements in user satisfaction on a new platform were enough to achieve success.

Finally I would mention one Pandora attribute I forgot in my early post, which perhaps explains it all even better than the other points I cited:

No AUDIO ADS, JINGLES or GIMMICKS — just a clean web interface and minimally intrusive visual advertising. You gotta love that.

:: SH
Dave Allen
May 17th, 2011 @ 8:16 am

Hi Stephen,
Thanks again for your comments. I don’t want to dwell on the Pandora issue as we can probably agree that it is a service that provides a certain amount of value for a niche slice of music fans/listeners. The pressure to improve its service and its profits will of course come after its IPO.

My concern rests with the lack of innovation in this space. Even Google and Amazon have given us only a half-hearted “music in the cloud” bad UI “locker” systems. The end result of this lack of innovation, I believe, will be that music fans will grow tired of these models and drift away completely from supporting online music and musicians with their dollars.
Eve
May 17th, 2011 @ 10:48 am

Dave,

Very interesting points you bring up in your post, especially toward the end. Personally, when it comes to music streaming services, it is technically all the same thing, give or take a few minor differences. Though my generation is more inclined to create and innovate, I have noticed that many of us remain pessimistic in the face of these giant industries. It doesn’t sound far out that many of us will simply give up on consuming music.

Eve
Dave Allen
May 17th, 2011 @ 9:19 pm

Eve, thanks for the comment. And yes, there is nothing but copycat activity amongst the services and I agree that the consumer may just throw in the towel..
Brandon Casci
May 23rd, 2011 @ 3:06 pm

I’m a bit late to the party, but I was there for the community talk hosted by 8Tracks, and your Strategic Brands Partnership panels.

Re: 8Tracks

The choice to build an app over a mobilized website can depend on the user experience you want to deliver. Some things can only be done to your liking with a native app. As for providing a free app over a paid app, I think it all depends on the dynamic you currently have with your customers and the one you want to create with your new ones. I don’t remember diving into to those areas, and I don’t know David that well, but he is a bright guy and I trust David had his reasons.

Re: Imagining a world without record labels

For as much frustration and anger they’ve cause me, I have a lot of good memories too. I ran into the RoadRunner Records people in the mixer. I told them how RoadRunner helped me discover a lot of stuff over the years. This is harder to do now, but I remember being able to purchase music I had never heard before simply because it was published by a certain record label. I liked those days, and even though I’m way into my technology, I don’t feel that experience has been replicated well in digital world yet. I had a much easier time finding music I liked by sifting through a smaller collection, going by the advice of friends, college DJ’s, record labels and shop staff. I do buy music downloads, and I love the delivery, but no matter how large the library, say 10 million tracks, I struggle with discovery when I go in cold. I like what 8Tracks is doing, and working with online broadcasters, which is what I do, because it gets me closer to the older off-line experience I enjoyed so much.

Anyway, back to the point…a world with no record labels. Well, from a cynical point of view, companies like Pandora and Slacker could have gotten off the ground for $15M or less. A huge part of their budget goes to content acquisition paid on rates set by the recording industry. To be honest, I’m having trouble removing record labels totally from my mind. I think that’s because I see particular roles fulfilled by people in that world that are still needed. The ones that do it right help with management, promotion, marketing, revenue generation, make connections and so on. Just to set some expectations, I’m not a musician and I haven’t worked for a record label, so I really am imaging here. I imagine a time where artists retain all their copyrights, and the new “record labels” truly work for the musicians as part of a team they believe in. A sort of role reversal. Maybe they work on a percentage of revenue basis. If they invest cash in projects around the artist, it’s treated as an investment, much like a good angel investment situation where you all win or lose together, or maybe they get paid back through royalty based financing, that might be better.

Re: Pandora

Yes, $64M is a lot of money, too much money for starting an online radio service. Part of it was having a lot of people spend 20 hours analyzing a since piece of music. There are much cheaper ways to tag music, pick a starting point and play it back. Though a bigger part is how much money they had to spend on securing the rights, while their FM counterparts spend much less. I think it’s unclear that people want personalized streams of music. It’s something someone decided to introduce, and everyone else copied. If I recall correctly, I remember reading an interview with someone from Pandora and they were asked how many people personalize their stations. The answer was 25%. If your pitch is personalized radio, then more than 25% of your people should be personalizing radio. Does the the other 75% tolerate hearing music they don’t like and just patiently wait for the moment to pass? I’m not bashing Pandora, I just agree with you Dave, this is a bit of a WTF moment. Also I don’t think ad free listening is necessarily a selling point. People don’t mind some ads. In my opinion, Pandora is popular because they made online radio easy to use, and they spent a lot of money getting it into everyone face. Prior to Pandora, a great deal of online radio was a spectacle of media formats, media players and was generally hard for most people to figure out. Any computer literate person can use Pandora, and that’s important because when you tell someone about it, it just works. They don’t have to install one, two or three other things to take action on your recommendation. They also got into the mobile game at the right time which enabled them to compete for attention in the car.

Re: No one talking about musicians

Speaking for myself, but I would love to speak to music industry people. I’m not a music industry person or well connected in that area. My project, Loudcaster, is not a music startup, but it touches a lot of music. I’m sure having the right person in the mix would expand our vision.
Dave Allen
May 25th, 2011 @ 2:22 pm

Brandon, you make some great points here. I agree with you re Apps vs mobilized websites as one size does not fit all. As for a world without record labels, you mention the army of good people that work at labels and I agree with you there. Those people, if they remain passionate about what they do could create a new market for musicians, in essence challenging how labels have been doing things for many years.
Pandora – I have no more thoughts about Pandora! I will note here though that apparently Facebook has joined forces with Spotify in the countries that Spotify has licenses. I wonder how that will affect Pandora’s IPO..?

Why does Pandora exist?

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