Daily: Spotify steps up the challenge to Pandora

By Edward Harrison On Jun 19, 2012

Daily commentary

The latest Spotify move is significant in terms of its mounting challenge to Pandora in the US. Pandora is a public company that was one of the first to come to market in the Web 2.0 IPO bubble last January. It was valued at $3 billion despite still being a loss-making enterprise. The company still has a market cap of $1.88 billion.

I like Pandora as a service and have used it for a number of years. It’s ability to play music that I like and that represents a coherent genre and mood is amazing. Pandora’s strength is in serendipity: mixing music that one truly enjoys together into a playlist that the user doesn’t need to contol. It makes for wonderful surprises and music discovery (that can lead to sales and revenue for Pandora). It’s format is the true future of internet radio.

The problems Pandora has are two-fold. First, as a stock it is overvalued, having been rushed to market. This is understandable given the competitive environment Pandora operates in as the company needed capital to beef up its offering. But the reality is that Pandora is more reminiscent of the tech IPOs of the late 1990s bubble era than the likes of Facebook or LinkedIn.

Pandora’s second problem is that its business model is incomplete. As much as I have enjoyed Pandora, I have been frustrated by its inability to play the specific music I want when I request it. My experience has been that you can enter an artist or song as the start point for a Radio Station. But that specific song will not be played. So, in the day of cloud computing and mobile devices when you have music at your fingertips with other services like iTunes, Pandora needs to give users more control if they want it. Pandora needs to mix its serendipity model with a more user-controlled service offering like you get with Spotify.

I have switched a lot of listening to Spotify, where I can download songs onto my mobile and play them at will. This is going to be a real problem for Pandora and I anticipate that it will not be able to justify its market cap any time soon.

Spotify Mobile Web-Radio Service Will Challenge Pandora – Bloomberg

Spotify takes aim at Pandora with mobile radio feature | Technology | guardian.co.uk

Link commentary

Euro bailouts: The first link below says that Germany has decided to allow the bailout funds to purchase sovereign debt, meaning that it gives Europe another buyer of periphery debt to support sovereign bond prices. While that could help reduce yields, it limits Europe to monetising the debt via purchases rather than reducing yields through the implicit backing of a central bank with unlimited purchasing power. This won’t get it done and shows yet again that Europe is not up to the task.

Patents: the suit by Kodak over Apple’s patent obstructionism makes clear how much Apple is using patents as a force of evil to thwart competition instead of to foster innovation. Apple has turned into a patent troll. My macro take on this is that Apple is concerned about losing market share and is using a rearguard attempt to block patents to stop Android in its tracks. It won’t work. I continue to think Apple’s earnings growth is going to decelerate, particularly if we get a recession.

That’s it. Here are the links.

Germany surrenders over eurozone bailout fund | Business | The Guardian

Kodak sues Apple, claiming interference in patent sales | Reuters

Job openings hit five-month low in April | Reuters

5 Reasons Greece and the Rest of the Eurozone Are On the Road to Hell | Economy | AlterNet

Mr Barroso, Europe’s crisis has nothing to do with America – Telegraph Blogs

JP Morgan report on pension bomb—Charles Gasparino – NYPOST.com

Walgreens: a short history | Business | guardian.co.uk

BBC News – Spanish borrowing costs jump at debt auction

BBC News – Fitch downgrades India’s outlook to ‘negative’

Long-term youth unemployment grows eight-fold since 2000 – Telegraph

Do not put your faith in the false deities of economists – FT.com