Chat with us, powered by LiveChat Develop, present, and analyze several realistic strategic options for the firm. Recommendation: Based on your analysis of the alternatives, provide the recommended strategy for the fi - Writingforyou

Develop, present, and analyze several realistic strategic options for the firm.  Recommendation: Based on your analysis of the alternatives, provide the recommended strategy for the fi


  1. Alternatives: Develop, present, and analyze several realistic strategic options for the firm. 
  2. Recommendation: Based on your analysis of the alternatives, provide the recommended strategy for the firm.
  3. Justification: Provide a logical justification for the recommended strategy or strategies.


Pandora Internet Radio (2014): Just Press Play


Pandora Internet Radio (2014): Just Press Play


Pandora was built around the idea of providing listeners with only the music that they love. To do so, Pandora fundamentally changed how people listened to music by allowing station customization and the ability to listen to music over the internet. As technology changed, Pandora evolved from a website based radio provider and developed a mobile application where the company could offer its services to customers whenever and wherever they wanted to listen to music. While monetizing the mobile product proved to be difficult and Pandora had not yet attained profitability, it looked like things had started to turn around for Mr. McAndrews and Pandora. By year-end 2013, Pandora’s advertising revenue per listener hour showed signs of increasing. As the company continued to evolve, the industry continued to develop, and competition continued to grow, Pandora had to adapt and change or risk being left behind.

Pandora Internet Radio was founded in 2000 when founder Tim Westergren developed an initiative called the Music Genome Project. This project, which mirrored the major breakthroughs of the human genome project, sought to analyze and categorize music based on 450 musical characteristics. As the project grew, he realized that the extensive music database could be used to effectively target, categorize, and recommend music to listeners. He developed one of the smartest music recommendation programs available at the time. Within four years of the start of the project, Pandora Internet Radio was ready for its debut. With the leadership of Chief Executive Officer Joe Kennedy, who joined the company in July 2004, Pandora experienced rapid growth in users, streaming hours, and advertising clients during its early years.[endnoteRef:1] However, the road to success was rarely easy for Pandora, as the small startup attempted to uproot the traditional radio industry. Pandora had to fight rising royalty costs, combat profitability issues, and attempt to change the status quo in the music industry. [1: ]

Decision Date: 2014 FY Sales: $427 million

FY Net Loss: 38 million


Domestic versus International Law Mobile Computing

Strategy Formulation Competitive Advantage

Strategy Implementation Free vs. Paid Subscription Models

Core Competencies Product Pricing

Intellectual Property Marketing Strategy

Business Model Development Competitive Strategy



1. To discuss Pandora’s Intellectual Property issues.

2. To discuss Pandora’s competitive business level strategy.

3. To discuss how to react when Apple, Inc. enters your market.

4. To discuss the challenges facing the music industry.

5. To discuss the differences in Apps for Desktop vs. Mobile Computing.


1. This is an excellent case for instructor-led discussion.

2. This is an excellent case for an exam or written case analysis.

3. This is an excellent case for a team presentation.

4. This is an excellent case for an individual or team strategic Audit.


1. How is an app development for mobile computing different than for desktop computers?

2. Should Pandora Media be free (with ads) for everyone?

3. Should Pandora Media charge for its services monthly or annually?

4. What is the right price for a paid subscription?

5. How should Pandora react to the introduction of Apple Music?

6. Why can’t Pandora operate outside the USA?



I. Current Situation

A. Performance

1. History

a) Tim Westergren founded the Music Genome Project which turned into Pandora Internet Radio (2000).

b) Joe Kennedy joined Pandora as CEO (2004)

c) Pandora filed for an IPO (2011)

d) Brian McAndrews replaced Joe Kennedy as CEO (2013)

e) Tim Westergren resigned from post as Chief Strategy Officer (2014).

2. Economic Performance

a) Fifty-four percent increase in total revenue from 2012 to 2013.

b) Content acquisition costs and sales and marketing expenses combined accounted for 81 percent of Pandora’s total revenue in 2013.

c) Net loss of $27.017 million attributable to common stockholders in 2013.

d) No profitability since IPO in 2011.

B. Strategic Posture

1. Mission

a) Our mission is to enrich people’s lives by enabling them to enjoy music they know and discover music they’ll love, anytime, anywhere. People connect with music on a fundamentally personal and deeply emotional level. Whether it’s a song someone first heard ten years ago or one they’ve just discovered, if they connect with that music on our service, a strong bond is forged at that moment with Pandora. Just as we value music, we also hold a deep respect for those who create it. We celebrate and hold dear the individuals who have chosen to make music, from megastars to talented new and emerging artists.

2. Objectives

a) Increase the size of the Pandora music library.

b) Improve music recommendations to listeners.

c) Widen the availability of Pandora services.

d) Make the Pandora service an experience that is seamless and easy to use for its customers.

e) Increase its user base.

f) Increase revenue

g) To be a profitable company.

h) Gain market share in the music streaming industry.

i) Minimize acquisition costs

j) Retain current listeners and minimize attrition of customers to competitors.

3. Strategies

a) To widen the availability of its service.

(1) Increase of usable platforms and devices to make Pandora available everywhere there is internet connectivity.

b) To transform listener hours into revenue.

(1) Attract advertisers to Pandora’s comprehensive suite of audio, display, and video advertising products at a competitive rate.

c) To grow market share.

(1) Increase the volume of listeners and listener hours among all platforms.

d) Achieve financial stability.

(1) Negotiate lower content acquisition costs.

e) To diversify revenue and operations.

f) By growing their user base internationally and expanding into new markets.

g) To increase advertising revenue by offering a better value proposition to advertisers than traditional radio and other streaming rivals.

h) Improve music recommendation.

(1) Continue to develop recommendation software and algorithms that selects accurate music for listeners.

4. Policies

a) Focus on innovation and new technology.

b) An emphasis on an easy and convenient user experience.

c) Simplicity of use and constant availability.

5. Pandora currently has limited international presence due to cost restraints, however, their mission, objectives, strategies, and policies reflect a growing interest and vision to find a viable way to expand internationally and enter new foreign markets.

II. Corporate Governance

A. Board of Directors

1. Eight board members, most of which are outsiders (six outsiders, two insiders)

2. Experience spans the realms of internet, digital/sound, telecommunications, media, and venture capital.

3. No experience from within the music industry (Fox Interactive Media).

a) Brian McAndrew—Chairman of the Board starting 2014, CEO

b) Tim Westergren—Founder and still remains on board of directors

c) Peter Cherrin—Since 2011

d) Peter Gotcher—Joined 2005

(1) Investor with Redpoint Ventures

e) Robert Kavner—Joined 2003

(1) Technology management background

f) Elizabeth Nelson—Joined 2013

(1) Finance background

g) David Sze—Joined 2009

(1) Senior partner at Greylock partners

h) James Feuille—Joined 2005

(1) Tech background

B. Top Management

1. Ten executives making up the top management positions.

a) Pasts involved in various roles within organizations in media, IT systems, corporate web services—expertise in strategy, product management, IT structure, technology engineering, and other fields.

b) Combine with board of directors to constitute 4% inside ownership of the company’s stock[footnoteRef:1]. [1: Pandora Media Inc., Major Holders. Yahoo Finance. ““““ Web. 05 October 2014.]

(1) Tim Westergren—Founder and CSO until 2014

(2) Brian McAndrew—CEO, President starting in 2013

(3) Mike Herring—CFO starting 2013

(4) Delida Costin—General Council

(5) Simon Fleming-Wood—CMO starting in 2011

(6) Tom Conrad—Interim Head of Product, CTO 2004-2014

(7) John Trimple—Chief Revenue Officer starting 2009

(8) Sara Clemens—Chief Strategy Officer

(9) Chris Martin—CTO starting in 2014

(10) Kristen Robinson—CHRO starting in 2014

III. External Environment (See Exhibit 1 for EFAS)

A. Societal Environment

1. Economy[footnoteRef:2] Disposable income grew at a 4 percent annualized rate from 2013 to 2014 (O). Automobile sales plateau in 2014 (T). Increasingly global marketplace (T). [2: ““Economic Outlook, Indicators, Forecasts – Your Business-Kiplinger.”“ N.p., n.d. Web. 03 Oct. 2014.]

2. Technology

a) Shift from computer to mobile computing (O/T).

(1) Technology changes impact revenue streams (T).

b) Industry-related technology advancing at rapid pace (O/T).

(1) Competitors have access to same and advanced technologies (T).

(2) Investments in technology R&D allow for technological advances (O).

c) Compatibility with listening devices (O/T).

(1) Potential to outperform competitors through technology compatibility (O).

(2) Competitors have ability to create compatible technology (T).

3. Political–Legal

a) Music is heavily licensed (T).

b) International copyright law is complex and decentralized (T).

c) Domestic privacy and patent infringement laws are constantly changing (T).

d) International Property Rights protect a company’s intellectual property (O).

4. Sociocultural

a) Growing interest in mobile technology (O/T).

b) Americans spend a lot of time traveling in cars (O).

c) Trend towards wanting access to music/information everywhere and at any time (O).

d) Increased interest in international travel/globalization (T).

B. Task Environment

1. Threat of New Entrants: LOW

a) High capital costs to acquire content rights.

b) Low profitability

(1) International presence is cost prohibitive.

(2) Consumers expect a low-cost model.

(a) Complex and undeveloped international copyright laws.

(b) More difficult to protect trademarks and patents internationally.

c) Profitability requires economies of scale.

(1) Ability to negotiate with music rights owners.

d) Complex domestic legal landscape for music industry.

(1) Patent disputes and protection of intellectual property.

(2) Strict compliance with privacy laws and protection of user information.

(3) Comply with strict domestic copyright laws.

e) Strong brand names currently in the industry.

(1) Apple and Spotify have worldwide recognition

f) Expanding scope into new platforms beyond the internet is difficult.

g) Market is already saturated with competitors.

h) High Costs associated with attracting advertisers.

2. Bargaining Power of Buyers: HIGH

a) Substitute products are available.

(1) Market filled with comparable services at similar price.

b) Low switching costs.

(1) Consumers are not locked into contracts

c) Buyers are price sensitive and would switch if the service price increased.

d) Low product differentiation between brands.

(1) All music streaming services offer similar attributes.

3. Threat of Substitute Products: MODERATE

a) Satellite radio

(1) Largest base of radio consumers 25.8 million.

(2) Available on multiple devices.

(3) Differentiation of diversity of channels.

b) Alternative internet radio options.

(1) Well established brands that continue to grow.

(a) Differentiation in increased customization of product for consumers.

(b) Already established in international markets.

(2) Traditional radio

(a) Decreasing market share but still a prevalent option for music listening.

(3) Pandora currently has 70 percent market share of internet radio.

(a) Built a base of loyal consumers

4. Bargaining Power of Suppliers: HIGH

a) High costs to acquire content.

(1) Suppliers of music content stabilizing their decreased profits by passing on higher costs to their buyers.

b) Music rights owners have negotiating power because music streaming companies are dependent on gaining rights to their product.

(1) Disproportionate bargaining power and cost increases (12 percent in 2013) limit profitability.

c) Suppliers of advertising have increasing options to invest marketing dollars.

(1) Other competitors for advertising dollars, such as social media sites, online news, and traditional radio, increase the power of suppliers for distribution paid advertisements.

5. Rivalry among competing firms MODERATE

a) Currently have 70 percent market share of internet radio but large competing firms are gaining penetration

(1) Spotify has a strong international presence and differentiation in customization attributes.

(2) Spotify has a strong international presence and differentiation in customization attributes.

(3) Satellite radio with 25.8 million subscribers offers more diversity of channels.

(4) Traditional radio not a major threat to Pandora.

b) Industry growth is high

(1) With the increase of usable platforms and new devices, new consumers will continue to become available for competitors.

c) Competition for strategic partnerships

(1) Rival firms will compete to partner with companies that allow them to integrate into new platforms and gain access to new users.

(a) Automobile integration and partnerships with car companies.

(b) Household electronic device companies.

d) Competition over advertising dollars

(1) Suppliers of advertising outnumber competing firms and therefore increases competitiveness of firms.

e) Competitors offer similar music products

(1) Puts pressure on companies to deliver either low cost or differentiation model.

(2) Pressure to invest in R&D and create new music recommendation software.

f) Switching costs for consumers is low

6. Power of other Stakeholders: MODERATE

a) Government agencies protect users against privacy issues.

(1) Class action lawsuits for negligent protection of user information.

b) FCC

(1) Regulates communication by radio.

c) IRFA (Internet Radio Fairness Act).

(1) Brings fairness to the music royalty process for internet radio.

d) Governments that create copyright in foreign countries.

(1) Music streaming companies looking to expand abroad are dependent on governments creating regulated copyright laws and patent protection.

7. Suppliers are the factor in the immediate environment that are currently affecting Pandora.

a) Suppliers have the bargaining power with content costs that are currently hindering Pandora’s profits.

b) International governments in the future could become a factor in the environment if Pandora chooses to expand abroad because they will be faced with new regulation and copyright laws.

IV. Internal Environment

A. Corporate Structure

1. Centralized Management

a) Subsidiary in Australia

b) Functional structure (S/W)

(1) Geographical organization not applicable with focus on domestic market.

2. Structure understood mainly due to small size and lack of international expansion. (implied by case) (S/W)

3. Structure allows for innovation and market leadership. (S)

4. Similar corporations have successfully implemented geographic management structures (W)

B. Corporate Culture

1. Values (S):

a) Enriching users lives

b) Connect with users on personal and emotional levels.

c) Technology Innovation

(1) SaaS/Big Data Analytics

d) Growth over profitability

2. Current issues (W):

a) Legal

b) Cost control

c) Adapting to competition

d) Lack of internationalization

3. Avoidance of international markets (S/W)

a) Does not have to take into account national differences.

C. Corporate Resources

1. Marketing

a) Two products that are supported by the same platforms (computer and mobile) and marketing approaches but drive two different revenue sources.

(1) Free music streaming service; using advertisements to drive revenue

(2) Subscription streaming service; no advertisement interruptions—subscription revenue base

(a) Subscriptions to ad-free Pandora One streaming service for $4/month or $36/year

(i) In line with competitors; much cheaper than other options

(3) Both are streaming products; lack the ability to select single, specific songs to play—competitor, Spotify, provides this capability, and Pandora product change may be needed

(4) Free and subscription streaming services are available

b) Main focus is on the US market

(1) Small presence in Australia, but complexity of music licensing has hindered international expansion.

(2) Quickly took hold of the US market; reached 70 percent market for internet radio market (S).

(3) Establish 8.6 percent market share for the entire radio marketer.

c) Focus on low-cost promotions (S)

(1) Word-of-mouth marketing of the product by users provided strong, early revenue, and market share growth (S).

(2) Strategic partnerships to extend the product’s user base and listener hours (S).

(a) Integration with car manufacturers’ production and after-market stereo deck products.

(i) Extension of mobile user listener hours and user base for new car purchasers.

(b) Integration with home entertainment systems.

(i) Increasing listener hours for the computer and mobile platforms and user base for home entertainment system purchasers.

2. Finance

a) Have not made a profit since the IPO in 2011 (W)

(1) Operated at a loss of $27 million for eleven months ended 12/31/13; worse than the $24.5 million loss from the same time period in 2012.

b) Need to curb content acquisition costs and marketing expenses that threaten future profitability.

(1) Total revenues increased 54 percent from 2012 to 2013 (S)

(a) Advertising revenues up 43 percent to $489.3 million

(b) Subscription revenues up 140 percent to $110.9 million

(2) Expenses have also been on the rise; erasing margins (W)

(a) Content acquisition costs up 36% to $314.9 million

(b) Marketing and sales cost up 80% to $169.8 million

c) No long-term borrowing has been used for financing since 2011 (S).

(1) Total Liabilities/Total Assets (Debt-to- Assets) was only .2452 or 24.52% in 2013; leaving room for debt financing and leverage in future growth opportunities.

d) Proper metrics in place to monitor the profitability of services, influencing pricing, and distribution of advertising.

(1) Revenue and costs relative to listener hours.

Important Ratios

Liquidity Ratios




Current Ratio



Pandora has remained very liquid in the short-term, increasing its coverage of short-term liabilities over 2012. (S) A sizeable increase in the cash position has driven this change and could be a concern if too much cash and equivalents sit idle in the organization’s books.

Cash Ratio



Cash and cash equivalents rose to $245.76 million in 2013. (S) A large cash position can provide the necessary resource for investment opportunities. The organization should be careful not to stockpile it for too long.

Profitability Ratios

Gross Profit Margin



Gross margin expanded in 2013, due to the 53% total revenue growth outpacing the 36% growth in content acquisition costs. Revenue growth is a strength (S).

Net Profit Margin



Although gross margins expanded in 2013, the 80% increase in sales and marketing costs drove Pandora to a loss. The case cites struggles with content acquisition costs in the past and going forward; hopefully, cost management with marketing and sales will be easier to exercise in the future. This growth needs to wane (W).

Leverage Ratios

Debt-to-Assets (Total Liabilities/Total Assets)



No long-term debt has been taken on since the end of 2011. Strong liquidity in the short-term and a lack of long-term leverage leave the door open to borrowing for potential future investment (S).

Debt-to-Equity (Total Liabilities/Shareholder Equity)