Pandora radio is at a crossroads. Founder Tim Westergren has just been told by a well known VC to get rid of its unprofitable customers to its costs down, but Westergren is not certain that such measures are consistent with its business model of the company. Pandora radio is the largest Internet music streaming website and its rapidly growing customer base loves the free customizable music stream under an advertising supported model. Pandora must royalties for every song streamed to pay, and has oth … Read more »

Pandora radio is at a crossroads. Founder Tim Westergren has just been told by a well known VC to get rid of its unprofitable customers to its costs down, but Westergren is not certain that such measures are consistent with its business model of the company. Pandora radio is the largest Internet music streaming website and its rapidly growing customer base loves the free customizable music stream under an advertising supported model. Pandora must royalties for every song streamed to pay, and has other variable costs that scale linearly with hours consumed, but it has not taken any steps to limit the amount of usage among its heaviest and most loyal users. Can Pandora make their model work when a significant percentage of users cause to lose money?
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from
Willy Shih,
Hall Tecco
Source: Harvard Business School
13 pages.
Release Date: 02 March 2010. Prod #: 610077-PDF-ENG
Pandora Radio: fire unprofitable customers? HBR case solution