How Can Pandora Make Money?

First things first: Pandora rocks. If you're reading this, I'm sure you know about it. It's not for the purists that think song order on a CD is part of the art form, but if your music preferences include radio and setting your multidisc to "random," it's the perfect path to variety and exposure to new music. [OK, for the uninitiated: tell Pandora a song or artist, they create a radio-like station that plays related music.] I'd be in the theme of this blog to simply encourage Pandora usage. But that's not the point. I like Pandora...and lament it could be crushed any day. It will likely be crushed by a big player with a similar approach, so as a user, I might not care. But Pandora did it first--a good idea simply and elegantly executed. They should live. To do that, they have to make money. So I've been wondering about how they might do that. This is an idea or two on that topic.

Pandora revenue will follow making money from what they know. So what do they know? They know what you've said you like. And they know how songs relate to each other. Hmm. To expand their value, they need to move from what you've said you like to what you really like. I'm not implying you're lying, just that you don't have time to tell them everything. So the first step is obvious: Pandora can look at your entire song collection. And since they know how songs relate to each other, they know more. A lot more. But that's too simple. Your collection is varied because your musical desires vary. So they need to look at your collection at a more granular level. That sounds like work. It sounds manual. Never mind, it exists already. It's your playlists. OK, so this was easy, analyze playlists to deliver multiple, highly targeted "stations." (What? Couldn't afford all the songs that would truly define your taste? No problem, add them to the station manually or give them a thumbs up when they play--just like Pandora today.) Done. They know what you really like. Now to step 2.

Integrate with a music provider. Are you shocked?! Of course not. You know they are busily trying to cut a deal as we speak. But on what terms? With what focus? Just like iTunes, it's all about user experience. When I'm online, I don't usually listen to my own music. I know it too well. I listen to Pandora. I want to keep whatever sense of wonder and newness I have about my music when I'm away from Pandora...which is to say, I'm offline. [Here's where you mileage probably varies--after all, this is a blog, so it comes with a point of view.] So what I really want is "Pandora-To-Go." When the gods shine down from Olympus and cover the planet with wireless broadband, this goal goes away. But we're not close yet.

How does the money work? Online, Pandora is free. Offline access already has a name, it's called "buying." So Pandora-To-Go is an interface for buying. Let's say I was willing to drop just $10 in a typical month for my P-T-G. No subscriptions, just a typical pattern. And let's say (this shouldn't be hard) those clever Pandorites cut a deal with the copyright owners (directly or via iTunes, Walmart, Zune Marketplace, etc.) to deliver non-specifically requested songs at $0.25. This pricing isn't required, but it's a good direction to differentiate from typical music buying. How the *#*&@ could they cut prices so much? Remember the Pandora model is that you can't select what song plays. Even if it is the seed for your entire station. It's free because it's radio-like. It's free because listeners must generally take what they get. It's free because copyright owners know it advertises new music that listeners didn't realize they wanted. P-T-G needs the same approach: it's offline, so it costs $$, but far less because it isn't infinite choice. If they want to get fancy, they could allow you to get a refund on 1 song for every 8 you buy.

There's a deal to be made.

This is a totally new way to fill that iPod. But Apple already owns the market. But you know what? For this service, I might trade my Nano for a Zune. Microsoft should snap up Pandora and provide Pandora-To-Go to provide at least some exclusive value to the Zune Marketplace. Because you know they won't be superior at playing that same game as Apple....