Let me tell you a story about two individuals who are perfect for each other. They are both attractive, funny, and incredibly compatible. They look fondly at one another from across the room, and everyone can feel the connection. However, everyone also knows that things just will never quite workout for the perfect duo. They don’t live in the same town. When one is single, the other is in a relationship and vice versa. The potential is there, and there may come a day when one tells the others through tears, “I love you,” but that will be met with a response of, “I’m sorry…I’m sorry,” then both will runaway.
The story I’m talking about is of course that of Pandora and Spotify.
Pandora and Spotify are the two biggest stand alone music streaming companies in the world. I appreciate both of them, and I think they are each a tremendous product and service. Spotify is a global brand that has developed an app, which offers an easy to use interface that gives access to a massive music library for free with advertisements and certain limitations, or unlimited access to the massive library for $10/month. This service has around 100 million users, and somewhere between 30 and 40 million pay for it. Spotify goes head to head with Apple Music, and it is winning in terms of paying subscribers and market share due to a better product and a loyal, global customer base.
Pandora offers the best experience in internet radio with a free, ad-based radio service that uses a complex algorithm stemming from research done by the Music Genome Project. This service is second to none when it comes to designing a radio experience dedicated to an individual. It is like your best music friend sitting there personally handpicking jam after jam. There are of course ads and limited replays and skips, but Pandora Plus now offers a $5/month service with unlimited skips/replays and no ads. Both Pandora and Spotify even have a couple of the same cute flaws like not being able to make a profit from their exceptional product and having limited funds to work with record labels and battle against giants like Apple and Amazon.
Pandora is in need of a more global reach as it only has licensing to play music in the USA, New Zealand, and Australia. In addition, Pandora makes 80% of their revenue from ads, which they have developed a pretty good ad revenue model, but it is not enough to make a profit. They only have around 4 million paying subscribers for their top radio service. Next month Pandora plans to release their Pandora Premium, which is there version of Spotify, to the world hoping their ability to personalize the music experience will be enough of a competitive advantage to win over considerable market share. Consequently, Spotify needs to work on a better radio and recommendation service. They often miss the mark with personalized playlists like “Discover Weekly,” and now they have a “radio” service that takes single songs and makes radio like playlists from them.
If Pandora and Spotify were to merge together, there would be so many problems solved for each individual entity. Spotify would be able to address the global market for Pandora as Spotify is a European company licensed to play music in many countries around the world. Their brand would pull together as the top music service for streaming music and internet radio in terms of market share despite Apple’s powerful brand. In addition, the leadership of both of these companies, Tim Westergren and Daniel Elk, are the natural leaders for an elite music streaming service, which is why this merger makes more business sense than a corporate acquisition from someone like a Verizon or a major studio company. Pandora would give Spotify 12 years of incredible data, and the music genome project algorithm to completely enhance the Spotify personalization experience. Thinking about combining the personalization of Pandora with the silky smooth, neon green interface of Spotify brings one joyous tear to my eye.
Unfortunately, a merger like this will never work for a simple reason: these companies are each too equal in size that there would never be a cohesive merger that actually leads to the product described above. Each company wants to make it on its own and produce the ultimate product without the help of the other. I think Pandora is a great product, and I have no reason to believe their streaming service will not be top notch, but it is not going to steal a bunch of users from Spotify and Apple Music. In an industry where everyone merges together, and there are massive companies that can squash or buy out the little guy, Pandora and Spotify have a chance to make it out alive and in top, and I think together is the best way for that to happen. However, they will wait for a bigger offer or ride solo because these two just have too big of egos and the set up is too perfect to be true.