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Case Study 2.6 Pandora

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Case Study 2.6—Pandora

Pandora radio originally operated as a freemium business model but soon switched to an ad-supported free business model. The difference between the two is what quadrupled their revenue. Pandora offers a unique customer value proposition. MailChimp succeeded with a freemium model but Ning did not because MailChimp was able to deal with issues because free products are ripe for abuse. When Pandora opened in 2005, they offered users 10 hours of free radio, then a year’s subscription for $36 per year. “In the first couple weeks we had 100,000 people come through and the vast majority listened to every last minute of their free ten hours,” said CTO Tom Conrad. “Then we asked them for their credit card and they would wander off into the wilderness.” (Gannes, 2010). They quickly switched to an ad-supported model. It was ad-supported in name only, however, because they had no ad server, no ad staff — not even a place on their page to put ads: But growth quadrupled overnight, and within three days, Apple called and asked to buy out ad inventory through December (Gannes, 2010). Pandora’s customer value proposition is an uncanny algorithmic ability to predict the music their customers want to listen to, and unlimited free musical content for those that don’t mind listening to advertisements ("Pandora and a," 2012). For freemium models, it was difficult to succeed for one main reason. A 354 percent increase in abuse-related issues like spamming, followed by a 245 percent increase in legal costs dealing people trying to game the system (Gannes, 2010). Luckily, MailChimp was able to develop automated ways to discover and deal with some of these issues (Gannes, 2010). Although the freemium business model was Pandora’s first choice in business models, they quickly became ad-supported due to decline in users. Pandora offers their unique customer value proposition because they have faith the economics of the digital era will equate to a profit margin for hooked users that desire a better bandwidth equipped data stream, no ads, and the unlimited ability to skip tracks ("Pandora and a," 2012). MailChimp succeeded over Ning because they could overcome a variety of issues. The most important consideration when using a freemium revenue model is how to adapt to issues like spamming and hacking.

References
Gannes, L. (2010). Case Studies in Freemium: Pandora, Dropbox, Evernote, Automattic and MailChimp. Retrieved from http://gigaom.com/2010/03/26/case-studies-in-freemium-pandora-dropbox-evernote-automattic-and-mailchimp/
Laudon, K., & Traver, C. (2011). E-Commerce: Business. Technology. Society. (7th Ed.). Upper Saddle River, NJ: Pearson Education, Inc..
Pandora and a history of it’s freemium business model. (2012). Retrieved from http://future4tech.me/2012/02/11/pandora-and-a-history-of-its-freemium-business-model/

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