For Prof. Eliud Peterson only
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is_3003_chapter_10b.pptxIS 3003
Chapter 10B
1
Pandora Case study
Is the Internet’s most successful subscription radio service – now getting competition from iHeart, and ongoing competition from Spotify; adds more than 1M per week; owns 70% of Internet listening hours
Listeners may listen only to music they like; listeners choose the genre they want; each person puts together their own “station”, using a computer algorithm; Like Taylor Swift? You can put together a complete playlist that plays nothing but
Everybody loves Pandora, but can money be made from this paradigm? A subscription fee model failed to work; next it tried advertising coupled with a free listening period after which a fee is charged; this worked and Pandora took off
2
2006 - Pandora adds a “buy” button; these clicks referred listeners to Amazon, or iTunes for later sales; Pandora received an affiliate fee;
2008 – Pandora adds an iPhone app, so users may sign up from their smartphones; this attracted 35K new users per day
2009 – a free ad-supported model that attracted 20M new users
In late 2009, Pandora launched a premium service that by mid-2010 created 600K new users; at the end of 2009, Pandora reported $55M in revenue; the next year the revenue was up to $137M; in 2012 the revenue was now $274M
3
The issue for Pandora is whether any business model or combination of models is ever going to be viable, because of several issues such as royalties, computer/server infrastructure, marketing, etc.
61% of its revenue is allocated to royalties; the Pandora royalty arrangement is constantly in flux, because the more their customers listen the higher the royalties
Pandora has 7% of the entire radio audience, but only 2% of these have subscriptions; 90% of its revenue comes from advertising; making things worse, iTunes has announced its own radio channel and undercut the Pandora fee of $36 down to $25; finally, Pandora has to renegotiate its royalty agreements this year
4
What can be done?
Clearly Pandora has to remain competitive pricewise in order to remain competitive in the subscription services area; only 2% of its users fit this category, so dropping its price from $36 to $25 or even less is not the issue
What the issue is, is the royalties charged by music reps; Sony is a “middleman” that supposedly gets paid about 90% of the $0.99 for each song for marketing, legal control, executive salaries, etc. Some artists nowadays funnel their music directly into iTunes, and keep the 90 cents (approx.)
5
From Pandora’s perspective, its choices involve:
1. Looking at ways to cut operational costs, such as staff, facilities, etc.
2. Outsourcing its I.T. activities which are probably substantial
3. Negotiating a better deal with music reps
4. Coming up with new ideas for repurposing their “radio platform” for other targeted areas
5. Looking at partnering with other companies, such as Amazon, eBay, etc.
6
Social networking and the wisdom of crowds
Social networking services is one of the fastest growing areas of ecommerce; 124M use social network sites; these sites link like-minded people with business, personal, and shopping interests; at social shopping sites, like Pinterest, Kaboodle, Stylehive, and others, one can swap shopping ideas, information, critiques, and so on
Creating sites that attracts a large crowd, offer unique opportunities for marketing, advertising, sales, business strategies, business development (partnerships) and on and on
The idea behind the notion of “wisdom of the crowd” is that large groups can make better decisions than any single person, or a small committee
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Companies, especially websites, can leverage the collective input of many by such mechanisms as “crowdsourcing”; this is a process of soliciting advice from that group; in 2006, Netflix announced a contest to pay $1M to anyone who comes up with a method for improving Netflix’s prediction algorithm for what customers would like to see as indicated by their actual choices; using the winning suggestion, Netflix attracted 30 M subscribers to its streaming service; the winning idea was to provide a recommender system to customers that suggests what new movies to order, based on their personal past preferences, and what other customers with similar interests have ordered; this is the Amazon A.I. approach
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In 2012 BMW launched a crowdsourcing project to find out what customers would like to see in an urban vehicle in 2025
Kickstarter is an ecommerce crowd funding site where people invest in startups companies
Caterpillar is another example of crowdsourcing where it enlists customer input in designing new and better machinery
Pepsico used Super Bowl viewers to build an online video
9
Prediction markets
The wisdom of crowds can also be used to make predictions; websites have been set up to capture ideas as to what might lie ahead
Prediction markets – are P2P (peer-to-peer) betting markets where participants make bets on specific outcomes; for instance:
1. the quarterly sales of a new product
2. designs for new products
3. political elections
10
The world’s largest of the commercial prediction markets is Betfair; here one may bet on or against specific outcomes, such as football games, horse races, Dow Jones moves, etc.
The Iowa Electronic Markets (IEM) is an academic site focused on elections; you may place bets on the outcomes of local up to national elections
The largest prediction market site in the U.S. is Intrade where people may buy or sell shares in predictions
11
Ecommerce marketing: social, mobile, local
Ecommerce has changed entire industries, and enabled new business models, but no industry has been affected more that marketing and marketing communications
The Internet has enabled new ways of identifying and communicating with potential new customers; the methods are many and varied, such as search engine marketing, data mining, recommender systems, and targeted email
There is a market for almost any product or service; “long tail marketing” means to put a long line, or tail, on the search process (meaning dig deeply enough), and you bring in even a small but interested market group
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The Internet also provides new ways instantaneous and spontaneous, to gather information about customers, adjust product offerings, and increase customer value
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Online marketing and advertising formats
| Marketing format | 2013 revenue | Description |
| Search engine | $19.5B | Text ads |
| Display ads | $8.7B | Banner ads |
| Video | $4.1B | Film strips; fastest growing of all |
| Classified | $2.7B | Jobs, real estate, and services |
| Rich media | $2B | Animations, games, puzzles |
| Lead generation | $1.9B | Sales and marketing leads |
| Sponsorships | $1.9B | Contest, coupons |
| $0.22B | Targeted messages |
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Behavioral targeting – means to track the clickstreams (history of clicking) of individuals on thousands of websites to understand interests and intentions, so targeted ads may be placed in their paths
This methodology is also invasive of individual privacy; if customers lose interest or confidence in their web experiences, they tend not to purchase
Behavioral targeting occurs on 2 levels:
1. individual websites
2. Advertising networks (across many websites)
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“Legal” keylogging
Google DoubleClick, Yahoo RightMedia, and AOL Ad Network; these nets “help” advertisers to target ads at likely shoppers; the mechanism requires that lots of information about people in general be collected and analyzed so it may be sold to those who would pay for it
The claim is that this information is used to target and fine tune campaigns against potential customers; example – GM uses information to show women ads that stress safety and utility, whereas, they show men ads that stress power and ruggedness
16
Social ecommerce and social network marketing
This combination is aided by the social graph
Social graph – mapping of all online social relationships; this graphing scheme is similar to the social network tracking used to describe offline relationships
The methodology is discussed on p. 351
17
The Double Click Infection
18
Your
CPU
Network
Member
firms
Double-Click
Without
Permission
Sell It
