Last week, I wrote a piece entitled “Apple Inc. (NASDAQ:AAPL)’s iRadio Will Crush Pandora (NYSE:P).” My premise was fairly simple: if (as severalreputable media outlets had independently reported) Apple Inc. (NASDAQ:AAPL) was about to unveil a streaming Internet radio service, Pandora Media Inc (NYSE:P) was facing serious — potentially existential — challenges.
I wasn’t the only one who thought this — shares of Pandora Media Inc (NYSE:P) plunged Monday on the news. (In fact, over the last two years, whenever rumors of an upcoming iRadio have been floated, shares of Pandora have sold off.)
Yet, Pandora Media Inc (NYSE:P) apologists remain. In particular, some argue that Pandora’s Music Genome Project (MGP) is so unique and revolutionary that it sets the company apart.
The Music Genome Project
The basis of Pandora Media Inc (NYSE:P) as a company is its Music Genome Project — the unique technology the company employs to serve up customized playlists (radio) to the listener.
Pandora Media Inc (NYSE:P) takes a song, breaks it down into different attributes (genes), and then uses these attributes to create a complex system of categorization.
On top of that, the company is constantly collecting data on its listeners’ preferences — thumbs up, thumbs down, song skips — to better refine its system.
In turn, it might be argued that this technology and data gives Pandora a competitive edge — one that its rivals cannot surpass.
What’s the MGP worth?
No other Internet music company has the MGP — it’s unique, and definitely has some value.
But what is that value? Does it justify Pandora’s $2.5 billion market cap despite non-existent earnings?
Although it might not be precisely the same, Pandora’s competitors offer similar radio functionality. Spotify, Google Inc (NASDAQ:GOOG) Music All Access, Rhapsody, Rdio — virtually all of the Internet music services have some “radio” component, and they aren’t that different.
For example, creating a Nine Inch Nails radio station on Google Music All Access generates a playlist of songs from other, similar groups such as The Smashing Pumpkins and A Perfect Circle.
What happens when one creates a Nine Inch Nails radio station on Pandora? Songs from The Smashing Pumpkins and A Perfect Circle.
Is the MGP really so special that it sets Pandora apart from its numerous competitors? I doubt it. Although some might argue that Pandora’s system of song curation is superior to other services, I would argue that the typical consumer really can’t tell the difference — that in the end, all they want to do is listen to some music.
The iTunes Genius
Further, the notion that Pandora has some monopoly on music preference algorithms is absurd. Apple Inc. (NASDAQ:AAPL) has been a dominant player in the digital music business since the rise of the iTunes store a decade ago.
To date, Apple has sold over 25 billion songs on iTunes — a fair amount of data from which to piece together music preferences. Of course, it’s already done this, in the form of the iTunes Genius.
If you believe Bloomberg’s report, than Apple Inc. (NASDAQ:AAPL)’s iRadio will serve as a way to bolster its iTunes business. It will be intimately integrated with iTunes, allowing users to purchase the songs they hear over Apple’s radio.
In order to effectively accomplish this task, Apple Inc. (NASDAQ:AAPL)’s radio must be pretty good at gauging a user’s music preferences. After all, why would the user purchase music they don’t care for?
