Tim Westergren, chief strategist and founder of Pandora.com is faced with challenges for the future of his company. Although by December 2007, the company grew to 8 million and online hours grew to 50% year on year the company was still not yet cash-flow positive. However, Pandora is truly becoming a success as it continues to grow, attracts new customers, developed the Music Gnome Project and reaches new levels in the internet radio industry. Westergren is now struggling to keep the dreams of his business in sight while balancing the interest of his various venture capitalists (VC). He is left with a few alternatives but is open to more. The first alternative he contemplated is pulling back on the growth levers like search engine marketing and general marketing expenses, cut back on expanding employment and raise minimal amount of new investment (possibly through acquisition). The second was taking a complete opposite approach, top out the search engine marketing, hire aggressively and take advantage of the first- mover advantage. This second alternative would count on raising a very large round of finance and set its sights much higher.
Pandora faces challenges like a threat on the licensing costs, high royalties, a large number of employee salaries, marketing and advertising expenses and competition from others in the industry (i.e. AM/FM radio, satellite radio, CD sales, digital music like iTunes, etc.). So how is Westergren supposed to allow Pandora to grow and what is the right decision to watch in prosper rather than fail?
Pandora continues down the line of success as it increases their user base. However, its greatest financial challenge, increasing royalties still creates the largest threat to Pandora. What options can the company take to help balance those high royalties? The first option, which actually created some buzz in government were the 1.3 million letters the U.S. Congress received from Pandora users about the increasing royalties. This is not enough to help the company increase revenues to offset the high royalties. Pandora needs to develop a dominant market share to keep the capital rising. Other options Westergren considered were increased spending on marketing, pushing development of a mobile platform and powering viral growth.
Now Westergren is faced with the question- will the investment firms stick with him as Pandora enters a cash-consuming rapid growth period? He needs to ensure his potential new bankers feel the same way as he does about the company growing even with the high expenses and investments that need to be made.
Westergren has a lot on his plate but taking it step by step will ensure he moves the company forward and allows Pandora to continue to succeed. Battling Congress to lower royalties will be much more of a financial burden than actually paying the high prices. His main concern should be increasing revenues to cover the royalties and bring in more to allow the company a positive cash flow. Although, increasing advertising and marketing will bring in more users and more clients to advertise on Pandora it may not bring enough revenue in. Especially, seeing as the increase in advertisement for the company will probably balance out any revenue they bring in from clients that advertise on Pandora. Hiring more staff will only increase expenses and cutting back on staff will only jeopardize the company. Westergren has found an alternative that could certainly change the future of Pandora. Pushing development of a mobile platform will cost the company during research and development but seeing as this is what customers are looking for and want, it will give Pandora that competitive advantage and attract users to stay with them while attracting new users.
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