Pandora is one of the top music streaming apps and sites on the internet today. People sign up for an account and then choose artists to design their own custom radio station. It attracts people by offering radio streams for free while introducing people to new artists that they may like. To make money on the free services, Pandora sells advertising space.
To avoid the advertising and to gain access to other features, like having more skips of unwanted songs, Pandora also offers a variation of the subscription business model.
What Are the Advantages of the Subscription Business Model?
There are three basic ways that the subscription business model can be structured.
1. Offer customers a one-time fee for ongoing services.
2. Offer recurring fees to access premium services.
3. Offer discounts on long-term subscriptions and higher costs on short-term subscriptions.
The Pandora business model takes a monthly subscription to the premium services that are provided through Pandora One. For $4.99 per month, listeners have no advertisements and more skips, as well as fewer timeouts so that there aren’t pauses in the music stream.
Pandora also offers consumers the chance to save a little money on their subscription if they’re willing to pay for an entire year of services in advance. The annual subscription price is $54.89, which means one month out of the year is free.
This helps businesses immensely when the subscription business model is used to create advance sales. Pandora gets to receive a whole year’s worth of revenues upfront when someone purchases a subscription to Pandora One at the $54.89 price. Customers feel like they’re getting a good value because they get an entire month for free. Pandora profits gets access to instant money. It becomes a win/win situation because profits are upfront instead of earned.
How Can the Subscription Business Model Be Changed?
Businesses can either attempt to extend the upfront profits they receive or they can focus on short-term results instead. IX Webhosting looked to extend their upfront profits by offering a 3 year contract for hosting services for a discounted price. On the other end of the spectrum, Dish Network has introduced Sling TV that offers a limited cable television stream over the internet for $20 per month with no contracts.
The type of subscription that is chosen for each business model depends on what the customer’s needs are going to be. People who have the money to lock-in the upfront rate for 3 years would be tempted to take advantage of a low-priced hosting plan. Some customers don’t like to be locked into a contract at all and only want to pay as they go.
PlayStation Network has combined these two thoughts into their Plus subscriptions for gamers. They offered tiered pricing that can be purchased per month, per quarter, or per year. Each has its own pricing structure and although the yearly plan is about $50, and the quarterly plan is about $64, some customers would rather pay $18 every 3 months than $50 right now.
Magazines have used the subscription business model successfully for a number of years as well. By offering a lower subscription price than the rack price at a store, customers can get the reading materials that they like for a fraction of the cost of buying it somewhere else. Magazines still get profits from the subscription and the advertising that they can sell. Customers save money immediately and get something in the mail at designated times.
How Can the Subscription Business Model Be Successful
Any goods or services can be successfully sold through this business model as long as they offer something that people want. That’s usually why this business model fails. Instead of testing a market first, a business will implement this model assuming that people are going to want what is being offered. When a proof of concept isn’t emphasized, then assumptions are going to be made.
That’s not part of the Pandora business model.
Pandora has proven that internet-based music services are wanted. The success of Pandora has launched numerous other music subscription services as well and the result has been a lowering of pirated music and illegal streams. Artists don’t make much money from the songs that stream on Pandora, but that’s the one only real downfall of the Pandora business model.
Listen to the songs you love. Design a radio station based on the artists you love. That’s the core of the Pandora business model and it works.