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Pandora Radio

Advertising
Before Pandora decided to introduce advertising, it initially offered a subscription-only service without commercials. However, the idea of paying did not sit well with most U.S. consumers and the company had to consider alternative business models to offer a free service. Then, in December 2005 Pandora sold its first advertisement.

Revenue
Within two years, starting from 2010 to 2012 pandora's registered users had increased from 45 million to 125 million. The company's revenue increased from $55 million to $274 million, in which a majority of it from advertising. In order to appeal to a large audience of consumers, Pandora offers ad-free access for $36 a year. Overall, Pandora controls 78 percent of Internet radio, and it has a 9.3 percent share of the U.S. public radio. Finally, in 2013 Radio ad revenue increased to $17.6 billion in the U.S.

Pitch to Advertisers
Pandora obtains its advertisers through a pitch which entails that the company reaches a narrow audience as compared to the radio."Pandora's pitch to advertisers is that its technology can cater to consumers with far greater precision than radio - it can pinpoint listeners by age and sex, ZIP code or even musical taste."

Methods of Advertising
There are a couple different methods of advertising on Pandora. First, there is the audio advertising which comes in spots of 15 to come seconds, and run once every 20 minutes. However, users only encounter ads if they are engaging with the site, in which they contribute a "thumbs up" or a "thumbs down" when changing a song or station.

Next, there are banner ads which are featured on the wallpaper of the site. As noted by the New York Times, banner ads are on Pandora in order "to promote engagement, audio segments can be accompanied by clickable display ads offering coupons or product information.

Advertising on Pandora works through a method of collecting data from the users online browsing activity. Once the data is collected, the company uses the data to show the user target ads. This process of advertising is also known as behavioral advertising. Pandora offers its users the option of submitting out of the targeted ads, by a "opt-out" configuration on its website. Opting-out will only prevent targeted ads so you may continue to see generic (non-targeted ads) from these companies after you opt-out. Eventually, Pandora offers either targeted advertisements or generic advertisements for its non-subscribed users.

However, Pandora's advertising does not offer local content such as the local news, weather, traffic, and talk.

Market Segments
Pandora has created two market segments for its listeners. One market segment is for Spanish listeners, and the second market segment is for English listeners. By creating multiple market segments, Pandora's advertising is customized to its users needs. In order to create the first two market segments, the company cross-referenced its registered user data with U.S. census. Then, the cross reference allows the company to identify zip codes with high populations of Hispanic and Spanish-speaking people, and finally it ran tests overlaying the two data sets to infer which listeners fit into those buckets.

Internet Radio Competitors
Starting in the early 2010s, new entrants entered in the personalized radio market, such as Grooveshark, iHeartRadio, Mog.com, Rhapsody, and Europe’s Spotify, all threatening to use the concept of true on-demand access to online music as a challenge to Pandora’s personalized radio.

Europe's most popular online streaming music service Spotify arrives in the U.S. in mid-2011. Spotify has a catalogue of over 15 million songs compared to Pandora’s library of around 800,000. As pointed out by editors Miranda Ferrara and Michele LaMeau, "Spotify allows users to upload their own songs to the online library. While Pandora allows listeners to connect to the social media site Facebook to see what their friends are listening to, Spotify users can quickly and easily share playlists with their friends through Facebook, Twitter, email, and SMS text messages".

The second competitor that is targeting Pandora’s personalized radio appeal is iHeartRadio. Editors Miranda Ferrara and Michele LaMeau note "iHearRadio is the largest radio operator in the United States with 237 million listeners and 800 stations in 150 markets, iHeartRadio, like Pandora, offers listeners the opportunity to like or dislike a song in order to receive recommendations on other tunes. It also offers custom tools that allow the listener to discover new artists or more songs based on existing choices".

As recognized by the Ad Age staff, "Pandora has about 76 million monthly users, and about a 70% share of the internet radio market in the U.S. But the war for streaming music listeners is likely to intensify now that Apple plans to acquire the Beats Music service as part of its larger deal for Beats."

Yet even with all of its competition, Pandora's Promoted Stations rely on its core Music Genome Project. Overall, the Music Genome Project of more than 450 attributes assigned to each song with a human-curated database of recorded music gives a big edge over competitors like Spotify and Beats Music.