E-commerce and e-business

Introduction

Pandora offers online radio subscription services. Glaser and Westergren founded Pandora back in 2005. According to Kenneth and Traver (2012), Pandora has over 80 million registered users and continues to add about 600,000 subscribers a week. The firm accounts for over 50% of all online radio listening hours. When I read about Pandora offering a radio service, I first though about news but it wasn’t event the case. It’s all about music from a radio that doesn’t work like the one we always listen to that I will refer to as traditional radios for the purpose of this case study. With Pandora, the users select a genre of music they want to listen to and a computer program determines all of types of music related to along with other artists they might be interested to listen to their music. I will first compare describe Pandora’s original business model as well as its current business model, and then compare the two business models. I will also discuss if Pandora would have been successful if it had started out originally using another business model. I will therefore explain some of the concepts related to the case study such as free revenue and freemium revenue models. I will question the assumption that free revenue models have a predominant place in e-commerce.

Pandora’s business models

When Pandora was founded, the firm first business model was to offer its users 10 hours of free access as bait and then asking them to pay $36 a month for a year after they used up their free 10 hours. But that business models turned out to be ineffective because people were listening to their first hours for free and then wouldn’t pay for the annual service. The business model was therefore inefficient too and resulted in a near financial collapse.
In 2005, Pandora a new business model that offer the possibility to listen to a maximum of 40 hours of music with three options. The business model attracted many users and helped Pandora to pay for their infrastructure. Although ad-supported business model was risky it was efficient and effective because it attracted 35,000 new users. By the end of 2009 Pandora made $55 million in annual revenue from ads.
It goes without saying that Pandora is a successful example of freemium business revenue model (Kenneth and Traver, 2012). The freemium business model is the one in which the firm gives away some services for free to 99% of the customers, and relies on the 1% of the customers to pay for premium versions of the same service. The freemium business is mainly used by companies in industries such as newspapers and magazines as their path to survive.
Although the freemium business model doesn’t work for all types of online business, fortunately Pandora makes good use of it to remain profitable and competitive. According to Kenneth and Traver (2012), the freemium model makes sense when the product is easy to use and has very large potential audience. The difficult task is how to turn freemium users into pay users? Firms use several techniques and approaches to succeed. Pandora seems to be the king of that. I would definitely say that Pandora’s freemium business model is much better than their original business model I described.

Conclusion

The freemium business model has it place in e-commerce. Firms just need to have a better understanding of freemium model and match it with their products or services Nickels &all. (2002). Companies such as MailChimp ultimately succeed with a freemium model but others such Ning doesn’t because Ning wanted to customize the freemium model principles to fit services they offer. Ning fail to consider some of the assumptions of the model and jumped directly to its application. In any modeling process the key step is its assumption not the analysis and application.