The Best Couple That Will Never Be: Spotify And Pandora

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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 bn-df456_stream_g_20140612162817world. 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.

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Daniel Elk

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.

 

9 comments

  1. DanKaplan · ·

    Here is a thought Cieran- wouldn’t it be interesting to see if they could put Pandora in cars? I am still amazed that we listen to local radio. In a world where it is so easy acquire/stream music- I still often find myself listening to an abundance of local commercials about car dealerships, restaurant promotions, etc. If Pandora discovered a way to equip cars with radio using their complex algorithm, I feel like they would have a great market niche that will allow them to withstand heavy competition from competitors like Spotify and Apple Music.

  2. I began using Spotify very early in its life cycle – probably about 2010. Ever since then, it has been the only music service I’ve used aside from checking SoundCloud sometimes for remixes that aren’t on Spotify. I admit that I’m a fanboy so take my comment with a grain of salt. I feel as though Pandora would have much more to gain from this merger than Spotify. Spotify already has its radio feature (though it could be slightly improved with Pandora’s algorithm) but Pandora would benefit from the immense expansion in their exposure around the globe which they desperately need. It seems like Spotify would just be trying to help Pandora succeed without receiving much in return. I agree with Dan that if Pandora could somehow sign agreements with some car manufacturers to solely use the Pandora music service in their cars, Pandora would be able to generate a lot of revenue without needing Spotify’s customer base to do it.

  3. joeking5445 · ·

    Great title and well written. I remember listening to Pandora in 2002 when I was in high school. Back then, they did not have much music on their channels, but I discovered artists that I still listen to today. I no longer listen to Pandora because I pay for Spotify. You are right that the discovery weekly can really be off, but they have their own channels for discovery and now they have Your Daily Mix. I feel like Spotify will win out in the end because they have the ability to mimic Pandora’s product (even though not as good) and still be able to search for specific music at the same time. Pandora only has the discovery product.

  4. Interesting post. While the merger between the two might not work now, it may not be the same in the future. I doubt there’s room for both of them, and I suspect that both are likely to be acquired by some of the larger tech companies now moving into this space (e.g. Amazon, Apple, Google).

  5. Love the narrative you used. I was one of the few weird people who made the switch from Spotify premium to Apple Music and actually stayed, mostly because I wanted to be able to download and sort audio files for my iPod classic (lol). So I never had to decide between the two products you discussed, which made this a refreshing read. You make a good point in saying they could complement each other and I agree with you based on what I’ve observed while abroad in France and spending time back home in Seoul. However, the most likely scenario is probably what prof Kane mentioned above– one of the tech giants acquiring whichever they prefer of the two products.

  6. Really interesting take on the different corporate personalities. Another thing to consider is whether anti-trust regulations would allow for a merger between the two. Given how much resistance the AT&T/Time Warner deal is facing, it is highly possible that regulators may object to another large media merger. However, I completely agree that they could be a tremendous strategic fit. Very informative post!

  7. Both companies have different competitive advantages. While I prefer to use Spotify for playlists, Pandora has a much more developed radio feature. I would even compare these two apps to SoundCloud since they offer remixes and original music from any individual. It would be interesting to see one app that combines content, radio, and remixes so that the users do not have to switch between apps to use one feature or the other. In my opinion, the competition will come down to content since that is what ultimately creates an incentive for user to switch to another platform. For example, I remember when Kanye’s album Life of Pablo was only available in Apple Music so hundreds of people decided to drop their subscription to Spotify.

  8. mikeward7 · ·

    Ciaran, love the blog big guy. I feel like everything thats discussed now in music streaming is about Spotify vs Apple Music, so it was nice to see you include the original music streaming that everyone used in Pandora. Would love to see Pandora make a huge come back and wiggle their way into that conversation because I used to absolutely crush Pandora in high school.

  9. lesleyzhou · ·

    Interesting perspective on the two emergent companies and their value propositions for consumers. Prior to this post, I had never even thought about the M&A of the two, mainly because I always saw them as offering completely different services. I was one of the many users who went from Apple Music to Spotify and once I got fed up with the limited ability to replay songs and the non-stop pop-up ads, I finally gave in and enrolled in Spotify Premium. I personally think Spotify is winning right now because customized playlists and availability of song selections really appeal to users whereas radio music seems to be dying out. Thus, I agree with Dan as well, that Pandora would really benefit in incorporating their services in cars (perhaps even jump in on the self-driving car trend).

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