EPPM2123 SISTEM MAKLUMAT PERNIAGAAN

SEMESTER 3 SESI 2015/2016

SET 3

AHLI KUMPULAN
NURUL AQILAH BINTI SALLEH

A147994

NOR FAIZAH BINTI ISMAIL

A148301

SITI NORFATIHAH BINTI SIDIK

A148066

SITI NORHAZIRAH BINTI MUSTFAR

A147917

NAZZATUN NAZERAH BINTI MOHD SOM

A149725

NO A SMIRA BINTI IBRAHIM

A147691

PENSYARAH
DR IBRAHIM BIN MOHAMED

1. Analyze Pandora using the value chain and competitive forces models. What
competitive forces does the company have to deal with? What is its customer
value proposition?
Pandora highlights specific activities in their business by using the business
value chain model where competitive strategies can best be applied and where
information systems are likely to have a strategic impact. There are many primary
activities such as personalized music which Pandora provides search on basic of song
title, artist name or genre so that it will quickly scan the entire music database and
play music of searched criteria for the customer and user experience like Pandora is
easy to use and user can skip a song in anytime everywhere. Next, the secondary
activities in the Pandora such as it is no commercials because it provides two kinds of
subscription, the one with the monthly subscription amount has less than competitions
and the one which is free with commercials, it still has less ads than FM/Am radio.
Then extension music selection Pandora has a wider selection of songs than AM/FM
radio with provides access from any music supported device including mobile and
web.
According to Porter competitive force model five competitive forces that
shape fate of firm are traditional competitors, new market entrants, substitute products
and services, customers and suppliers. In case of Pandora, there have many traditional
competitors like iTunes and Amazon. To compete with them, Pandora has swamped
the market with its service in different forms on every platform and offers competitive
pricing for advertisers and customer. In this regard Pandora has established itself and
has the advantage over are current rivals. Next, Pandora is a now start up can enter
into online music industry without many barriers content to its customers because
their customers can select a particular genre of music they like and they listen to only
that particular kind of closely related music at Pandora. Suppliers in Pandoras case,
those who sell the rights to music companies like Sony and others, Pandora must pay
for its customers playlists as a result it is disadvantages to have pay all the suppliers
royalties.and difficulties so the threat of new entrants is quite substantial. Then
Pandora has to deal with the threat of substitution in the music industries includes the
traditional land based radio, satellite radios and any internet music providers. Pandora
provide the best.
The value proposition is a business or marketing statement that reviews the
reason for a consumer to buy a product or use a service. It convinces a potential

consumer that a particular service or product will add more value than their similar
services. In Pandoras case the value of service to customer grows over time. Once
people are on the site and using Pandoras service, they do not want to leave. Pandora
does for its customers are provide access to music through the Music Genome
Project. This project was started by the founders of Pandora and offers a way to
classify music so that similar music by different artists will group together into what
they call a personalized radio station.
The music is evaluated by professional musicians for genre, and then within
each genre 200-500 different data points are set for each song by the music
professional. A function is used to identify the distance between songs so that similar
songs can be included in a customer's playlist. A user can apply additional weights to
promote or demote certain bands so they will play more or less often on their radio
station. This really is impressive technology that would be almost impossible to
replicate by another company.

2. Explain how Pandoras freemium business model works. How does the
company generate revenue?

In the beginning Pandora tried to get music subscribers by giving people 10

free hours, then asking them to pay $36 a month after that for the service. As the
result, 100,000 people listened to their 10 hours music for free and then refused to pay
for the annual services. Of course no-one was willing to pay so much for a service that
they could get for free by switching on an FM radio.
After that model failed they tried several other options until they decided to
use the freemium model they are using today. The freemium revenue model works
best when there is a very large audience for free service providing revenue in terms of
advertisement fees and one can offer paid upgrades to make it worthwhile for
consumers to pay to get the additional added value. With a freemium service the basic
service is available for everyone for free, but with strict limitations in bandwidth and
ads between songs which results in a lower quality listening experience. It has found
most success with Pandora One, a premium service that provides higher quality
streaming music, a desktop app, fewer usage limits, and most importantly, no
advertising. Freemium revenue models offer customers a superior service in return for
paying subscription fees, whereas free revenue models are typically based on
advertising support. The premium service is priced at just $36 a year, 1/12 of their
previous asking price. Three dollars a month is much more easily for a consumer to
justify. The premium service offers higher bandwidth songs and no advertising.

Nearly 90 percent of Pandoras total revenue comes from advertising. Pandora

generates revenue mostly by advertising. Money comes in mostly from ads, but it's
almost all given right back in royalties and licensing. Pandora has two ways to make
money: advertising and subscriptions, with advertising making up 90% of revenue. In
the third quarter of 2014, Pandora took in $180 million, of which $144, or 80%, came
from advertising. Mobile has become increasingly important to Pandora's bottom line,
with mobile advertising growing 58% year over year to $104 million this past
quarter. The other $36 million of Pandora's revenue comes from subscriptions and
"other." Pandora has 3 million paying subscribers for its Pandora One service, for
which users pay $3.99 a month. Since Pandora has been growing its top line 50%
annually, it could see revenue hit $649 million for the full year, which is its fiscal
2014. Analysts expect Pandora's revenue to grow 40% to $909 million, giving
Pandora's shares a multiple of 5x revenue.
As of November, listener hours for Pandora were 1.49 billion, an increase of
18% from 1.27 billion during the same period last year. And Pandora's share of total
U.S. radio listening was 8.44%, an increase from 7.17% at the same time last year. So
obviously there is a lot of incentive for advertisers to put their money onto Pandora
stations.

3. Can Pandora succeed with its freemium model? Why or why not? What
people, organization, and technology factors affects its success with this business
model?
Yes. Pandora can succeed because freemium is an efficient way of a amassing
a large group of potential customers and companies. It incurs very low marginal cost,
approaching zero for each free user of its service, when a business can be supported
by percentage of customer that willing to pay. There are also other revenues like
advertising fees that can make up for shortfalls in subscriber revenues.