Now, don't get me wrong -- I like Pandora. In fact, I am one of the few paid subscribers. The service is primarily free (i.e., ad driven), but two paid upgrade options exist: (1) $.99/month; and (2) $36/year for "Pandora One" (no ads and unlimited skipping of songs). I was one of the few who opened up my wallet and paid the whopping $36 for the entire year.
And, there's the rub. Yes, Pandora has great distribution. In April, the service crossed the 50 million registered user mark. But, registered users and "active" users are not the same thing -- they are very very different. And, registered users certainly does not mean active paying users. And, how many actually do pay? Not many, that's for sure. And, let's not forget, there are significant COGs involved -- music licensing fees and bandwidth for streaming, among others.
So, I don't "get it." I really don't. The service itself is good -- not great (I have many complaints about its repetitive playlists and I have not experienced its music recommendation engine to be significantly better than the competition's). BUT, most importantly, how does Pandora become a compelling, immensely profitable business that throws off loads of cash?
Undoubtedly, Pandora is gunning for an IPO -- selling its distribution and dream to the public markets. And, it does have a good story to tell.
But, a story is not the same as business reality. So, potential buyers beware. You may want to think twice before you open Pandora's box!
