Does Pandora Media Inc (P) Have a Competitive Advantage?

Pandora has also recently launched the version 4.0 of their site.  Largely geared for mobile, it greatly improves on the sharing aspect.  Once set up, users are able to share the songs they listen to by embedding with their Facebook or Twitter profile.  They can also email them to others or even create a profile.

I feel that this is key to the company building out the network effect of the user experience.  Integrating into social media is the direction that Spotify has successfully gone.  However, these features in Pandora 4.0 are still relatively new.  It remains to be seen if this truly gives them a competitive advantage utilizing the Network Effect, though they’re on the right track.

Pandora scores one of three points for Customer Experience:  one for NPS Positive.

Cost Advantage

Sorry, but not here.  Pandora must pay royalties for every song that it streams.  Effectively, the royalties are a scale-killer:  there’s no cost advantage to Pandora for getting bigger.  The company displays “Are You Still There” prompts to users after extended periods of listening, to ensure the continued streaming isn’t wasting money.  This can be irksome for the user experience, especially when at parties.

Streaming costs do not decrease with higher volumes.  The nature of the per-song royalty costs are even reportedly keeping Apple at bay from their internet radio project.

Pandora scores zero points for Cost Advantage.

The Results

Pencils down!  Let’s see how Pandora stacks up in their Competitive Advantage:

Tallying up 4 points, there are clear signs of a Pandora Competitive Advantage.  The vision of the Music Genome Project, coupled with an enjoyable and somewhat habit-forming experience should keep users to continue to stream music over their website.  The company is still at the mercy of the cost of content royalties, but they also have an opportunity to be the ‘go-to’ music experience by embedding into social networks.

Bottom line?  There’s a lot to like in Pandora’s box.

Other Competitive Analysis Articles:

1). Tesla Motors (TSLA)

2). Tractor Supply (TSCO)

3). Facebook (FB)

The article Does Pandora Have a Competitive Advantage? originally appeared on Fool.com and is written by Simon Erickson.

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