The Freemium Model And A Desktop App Get The Thumbs Up With Pandora One

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pandoraoneYou’d be hard pressed to find someone who tries the online streaming radio service Pandora that doesn’t like it. In fact, some users like it so much that they actually ask for ways to pay the company, to make sure it stays alive (something that has been a question mark given the oppressive Internet radio licensing costs). And while there has been a limited subscription version for some time, Pandora has never proactively promoted it. But starting tomorrow it’s taking the freemium model seriously, with the launch of Pandora One.

The most obvious feature of Pandora One is the removal of ads from the site (this was the only feature of the previous subscription version) — that means not only the ads on the page but the in-stream audio ads as well. And there are five other keys to Pandora One that you get with your $36-a-year subscription price: The biggest one is access to a very solid Pandora desktop app. The others include high quality streaming, a personalized look, a mini player and extended player timeouts.

All of those should be fairly straightforward, but just to hit on some of the key points:

  • picture-118With its new desktop app, you no longer have to keep Pandora open in a web browser to enjoy it. And you can still do all the same voting/bookmarking/skipping that you do on the site from within the app. You also have access to all of your stations and can create new ones. The app is built on Adobe’s AIR platform, so it will work on either a Mac or a PC. Note: Pandora did try to release an AIR app once before, but it was basically just the Pandora web version ported to AIR — complete with ads. We didn’t like it too much, and neither did Pandora, which killed it. This new one is a lot like the iPhone app, which is to say, awesome.
  • Pandora One will enable streaming of music over the web at 192Kbps — that’s by far the best quality you’ll find when it comes to streaming music on the web, Pandora CTO Tom Conrad tells me. For some perspective, that’s higher quality sound than iTunes used to sell its music at, until recently when it upgraded all its tracks to the iTunes Plus format. And if the 192Kbps stream is proving too much for your Internet connection, you can always take it back to regular quality.
  • With no more ads, Pandora’s background would look pretty barren. That’s where the personalized look features come into play. Basically, you can select from a handful of different nicely designed backgrounds ranging from feminine to masculine.
  • Extended player timeouts means that you can leave music streaming on your computer for up to five hours now without worrying about Pandora cutting off your stream. With the free version, Pandora would stop music after an hour of inactivity — they did this because it obviously costs them money to stream the music and sometimes people leave their computers with the site still open. But this longer time out is great if you actually plan to leave the site open while you’re doing something else.

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The ad model is of course what keeps Pandora alive. And it’s actually doing very well. Pandora is coming off of its biggest ad sales quarter in the history of the company, Conrad tells me. Ad sales were up 80% over the year ago period and the company is tracking to make $40 million in revenue for the year — which would double last year’s total. More importantly, it means that 2010 could be the first profitable year for Pandora, according to Conrad.

Of course, that doesn’t matter if the lingering online streaming radio royalty issue isn’t resolved, but that could be coming shortly as well. “We’re optimistic about the prospects of a resolution in relatively short order,” Conrad tells me.

So things are looking up and up for Pandora, but at the same time, the company, which has always focused on being a sustainable business (unlike some of the other music startups out there), feels the time is right to branch out a bit. It’s affiliate sales model (which lets users of Pandora buy music through iTunes or Amazon), is already proving to be a nice little secondary model — one that is growing thanks to the iPhone. But it’s the freemium model that could really be a more significant source of money.

The reason is that while the company knows that it will always be just a very small percentage of its user base that will pay for the service, that small percentage is actually a lot of people given Pandora current usage numbers. Right now, Pandora is seeing 10 million monthly users on its website, and it has 5 million members using the iPhone app and another million now using the BlackBerry app (it’s the leading music app on both platforms). If just 3 to 5 percent of its audience signs up for Pandora One, that’s not an unsubstantial amount of money for the company.

Other services in the space have played around with this model as well. Notably, Last.fm has a monthly subscription option — but it also requires that all users not in the U.S., UK or Germany pay a fee to use their service. Of course, Pandora is currently only available to users in the U.S., so it doesn’t have to worry about some of the tricky advertising situations around the world.

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In terms of how Pandora One will affect the company’s popular iPhone app, premium subscribers will also have ads turned off in the app as well. Unfortunately, the 192Kps streaming quality is limited to the web version and the desktop app only right now, though Conrad says it’ll look into possibly giving premium users on the iPhone the ability to stream high quality over WiFi. Likewise with the BlackBerry app — and Pandora will have an app ready to go for the launch of the Palm Pre on June 6, Conrad says.

It’s worth noting the that desktop app is a feature that was added at the last second when Pandora’s lawyers informed them they had to disable another planned feature from Pandora One: The ability to see the next artist set to play if you skip a track. Internet radio’s often odd rules prohibit you knowing what song is going to play next, but what’s amusing here is that Pandora was only going to show the next artist — not the actual song — but apparently that’s a no-no as well. So instead we get something much cooler: The desktop app.

Conrad and his team were planning to launch the desktop app in a few weeks anyway, but hunkered down the past week to get it done in time for this launch. I’m playing with it right now — it will definitely rival iTunes as the source of music constantly playing on my computer. And unlike quite a few other AIR apps, Conrad assures me that it has none of the memory leak and CPU-usage problems.

Sadly, you will have to sign up for Pandora One to use the app. And while the company isn’t expecting too much, that may just be the leading perk that gets people to sign up.

For roughly 95-97% of Pandora users out there, this news about Pandora One may not ultimately mean too much. You’re likely to continue to use the service exactly as you have been — for free — and Pandora’s fine with that given how well ad sales are going. But for the other 3-5%, Pandora One will undoubtedly be a must-buy as $3 a month is nothing to wipe out ads, get higher quality and a nice desktop app, if nothing else. And yes, if you happened to be one of the people that actually had the subscription version of Pandora before, you will be upgraded to Pandora One with your membership.

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