Krystal Bante
Case Study Chapter 2 1. In the beginning, Pandora tried to get music subscribers by giving people 10 free hours, then asking them to pay $36 a month after that for the service. Of course no-one was willing to pay so much for a service that they could get for free by switching on an FM radio. After that model failed they tried several other options until they decided to use the “freemium” model they are using today. With a freemium service the basic service is available for everyone for free, but with strict limitations in bandwidth and ads between songs which results in a lower quality listening experience. The premium service is priced at just $36 a year, 1/12 of their previous asking price. Three dollars a month is much easier for a consumer to justify. The premium service offers higher bandwidth songs and no advertising. 2. What Pandora does for its customers is provide access to music through the “Music Genome Project.” This project was started by the founders of Pandora and offers a way to classify music so that similar music by different artists will group together into what they call a personalized radio station. The music is evaluated by professional musicians for genre, and then within each genre 200-500 different data points are set for each song by the music professional. A function is used to identify the distance between songs so that similar songs can be included in a customer's playlist. A user can apply additional weights to promote or demote certain bands so they will play more or less often on their radio station. This really is impressive technology that would be almost impossible to replicate by another company. 3. The case study claims that freemium works best when there is a very large audience for your service and you can offer paid upgrades to make it worthwhile for people to pay to get the additional added value. MailChimp works as a free service because anyone that sends the same email to multiple people is a prospective client. The light user might be someone sending out a church newsletter as an email every week, with a volume of just dozens of emails. A high end user could be a corporations using the service to send a hundred thousand emails to its customers and needing to track the conversion rate of the emails, or now many of the people clicked a link in the email, and how many actually purchased something because of the email. Ning didn't work as a freemium service because not everyone needs to start their own targeted social networking site. If you need something like that then you are willing to pay for the services up front in order to get the features you need to grow your site. 4. There were a few important factors here. Large potential audience- This is the most important thing. In order to grow as a business you need to attract many people, millions of people, to your service. These free users are the pool of people you will be converting to paying customers. Low variable cost to add additional free users- One of the amazing things about the Internet is that you can provide service to people at a cost approaching zero dollars. You can do this with automation and by pacing the computing power you are using to spread it across all the free users. If you have to buy a music license or a new computer for each user you add, then you are not going to stay in business for long. And value of service to customer grows over time- Once people are on your site and using your service, you want the value of what you are doing for them to increase over time, so that the longer someone is on your site, the more difficult it is to leave and the more likely they are to use your site for their primary portal to the Internet.