Can Pandora Survive iTunes Radio?
With this week’s release of iOS 7, Apple’s new iTunes Radio service is now available to millions of owners of compatible iPhones, iPads and the 5th generation iPod Touch. (For a full list of iOS 7-compatible devices, see our post on How To Upgrade to iOS 7.) While the service has generally been well-received, most commentators think that it will have little short term impact on other music streaming services. Certainly, the stock price of the market leader, Pandora, is showing no ill effects from the threat of increased competition!
The problem from Apple’s perspective is that they are very late to the game. Pandora has been around since 2005 and there has been a mobile version of its software since 2008. And several more music streaming services have sprung up along the way, including Slacker, Spotify, Rdio and Rhapsody to name just a few. And iTunes Radio isn’t even the first music streaming service incorporated into a mobile operating system, having been beaten to the punch by Microsoft and Windows Phone devices manufactured by Nokia.
While iTunes single-handedly revolutionized the music industry, Apple has not always been successful at adding on incremental offerings to its all-conquering music player and download service. Ping, Apple’s attempt at a music-sharing social network, was quietly killed off last year after struggling for most of its short three-year lifespan.
Ping failed because most people were already sharing music through Facebook, MySpace and other social networks. However, iTunes Radio is different. Sharing is a minor part of the music streaming experience and Apple is going after a market that is mature enough to have attracted several hundred million customers on a worldwide basis but young enough to be splintered across many different platforms, particularly when the international scene is taken into account.
Pandora fans will point to the more than 72 million people that actively use the service each month, but compare this to the 575 million active iTunes accounts. Apple only has to persuade one-tenth of that installed base to use iTunes Radio and it will already be snapping at the heels of the market leader. Plus, iTunes Radio has a significantly bigger music selection than Pandora, a simpler and more user-friendly interface, and an army of programmers to perfect the display of customized and featured stations. It also has Siri to assist with hands-free selections.
What Apple also has is very deep pockets. Rather than representing a core business, iTunes Radio can act as a loss leader for its music sales profit center, which is a nice contributor to Apple’s bottom line but is hardly going to make or break the company. Contrast this with Pandora’s financial health, which looks good for now but will rise and fall with the level of active subscribers and how much mobile advertising it can attract.
For now, the consumer is clearly the winner, with yet another free music streaming service available online and on an array of highly popular mobile devices. As the overall smartphone market has shown, healthy competition between two or three well-crafted products pushes everyone to greater feats of innovation. May the best music streaming service win!