Description
Joe Kennedy is chief executive officer and president of Pandora, the Internet radio company that more than 65 million people use to create personalized radio stations that they can listen to from their computers,phones, TVs, and cars. Just type the name of one of your favorite songs or artists into Pandora, and it will instantly generate a station with music pulled from its collection of more than 800,000 songs. Enter Rihanna and connect to similar artists like Loer Velocity and The Cab. Is Ludacris more your speed? Discover 112 or Sensational.
How does Pandora customize stations to each individual listener? It all has to do with the Music Genome Project (MGP); Pandora describes it as the most comprehensive analysis of music ever undertaken. Over the past decade, MGP’s team of musician-analysts has classified each song based on up to 400 distinct musical characteristics. It takes an analyst 20 to 30 minutes to analyze a song and record the details that define it, such as melody, harmony, instrumentation, rhythm, vocals, and lyrics. Artists receive royalties from Pandora every time one of their songs is played on a station.
Joe Kennedy joined Pandora in 2004 following a five-year stint at E-LOAN, where he was president and chief operating officer. From 1995 to 1999, he was the vice president of sales, service, and marketing for Saturn Corporation, which he grew to more than $4 billion in revenue and established as the top brand for customer satisfaction in the auto industry. Joe joined the initial start-up team at Saturn, four months after it was founded, as a marketing manager and held positions of increasing marketing responsibility over the course of his 11-year tenure there.
Joe has an MBA from Harvard Business School and a BS degree in electrical engineering and computer science from Princeton University, where he dabbled in music theory and learned to compose his own Gregorian chants. According to his bio on the Pandora site, he is Pandora’s resident pop music junkie. Joe has also been playing the piano for more than 30 years, spending a majority of that time attempting to master Gershwin’s “Rhapsody in Blue.”
The company was founded in January 2000 by Tim Westergren, a pianist who played in rock and jazz bands for 10 years before he became a film composer. As he analyzed music to decide what film directors would like, he got the
idea of creating a technology that would reflect people’s tastes and deliver music that fit those tastes. Tim raised $1.5 million and started Savage Beast Technologies, which sold music recommendations services to companies like Best
Buy. But the company struggled as the dot-com boom of the late 1990s burst. Tim and his employees worked on an unpaid basis for several years before they got more financial backing in 2004 (after Tim made 347 unsuccessful pitches to investors!). Tim paid his employees, switched the company’s name to Pandora, and changed its focus to consumers instead of businesses. To lead this strategic shift, the newly christened Pandorahired Joe Kennedy, who had solid experience building consumer products. The company knew it was on to something when it first released Pandora in a beta version for family and friends.
Within a week, 5,000 people had used the service to discover new music.
That was encouraging, but a 5,000- user base isn’t nearly enough to entice advertisers to buy space on the site. Pandora needed to make money by attracting enough people to capture the interest of potential advertising clients; these companies in turn would pay to place ads that would reach Pandora’s users. The challenge was to avoid the fate of many other Internet start-ups that offered cool features but never grew to the scale where they could turn a profit.
Joe needed to build a solid customer base so the could develop a firm business model for Pandora. He knew that if he could just make music lovers aware of the value Pandora offered, he would be able to turn the fledgling service into a marketing success. Joe considered his Options 1 • 2 • 3 Launch an advertising campaign on radio stations, in music magazines, and at record stores. Advertising is a great way to create awareness of a new product or service, but it takes a lot of money to cut through the clutter of competing messages. To afford advertising, Pandora would have had to convince financial backers that a substantial up-front investment would pay off as droves of users flocked to the site once they heard or read about it. Build a buzz about Pandora through word of mouth. Put Tim Westergren, the company’s founder, in front of groups of music lovers to tell the unique story of Pandora and how the MGP makes it work. Cultivate a dedicated fan base by reaching out to social networks on Twitter and Facebook and then rely on these converts to spread the word to their friends. A buzz-building strategy is very inexpensive, and, if done well, it can create a large group of devoted followers almost overnight. On the other hand, a start-up has to compete with the thousands of others that are trying to recruit fans, and it might be difficult to reach a mass audience as opposed to hard-core music lovers without any catchy advertising.
Sell the service to a large chain of record stores, a music magazine, or even a record label. Pandora could return to its roots as a music recommendation service for businesses. If a large company (like Virgin Records) could offer the service exclusively to its customers, almost instantly Pandora would have access to many thousands of music buyers. In the same way that USA Today is able to claim a huge circulation (and thus attract a lot of advertising dollars) because it is distributed free to hotel guests across the country, Pandora would inherit an impressive distribution network. However, this choice would entail giving up control of the unique MGP and its sophisticated database that the company had worked so hard to build. Hard-core music fans might accuse Pandora of “selling out,” and they might question how objective its recom- mendations were.
Now, put yourself in Joe’s shoes. Which option would you consider, and why?
Things to remember Pandora doesn’t charge people to use its service. It makes its money by attracting advertisers who want to reach users. In order for the company to entice companies to advertise, it has to offer them access to large
numbers of consumers who are likely to tune in to the ads they will encounter on the site. Part of Pandora’s unique
product offering is the ability to customize music for each individual user. Everyone who registers can create
their own “stations” that play songs with similar characteristics. This enables users to learn about artists they might not otherwise stumble on, so potentially Pandora can create new audiences for independent musicians and for music labels. Word of mouth is the least expensive way to attract large numbers of Web surfers to Pandora’s site. However, it’s difficult to build buzz in an environment where many other products and services compete for the consumer’s scarce attention. See what option Joe chose on page 50 You Choose Which Option would you choose, and why?