Thursday, June 8, 2017

Pandora Tanks | Lefsetz Letter

And Sirius is looking to steal it.

How did this happen?

Myopia, and an unwillingness to acknowledge that the internet landscape had changed.

It was a fountain of innovation. Every month there was a new site, a new app, we were all excited, it was akin to the British Invasion, internet innovation ruled the world…

And then it stopped.

When the big money comes in, when consolidation happens, you’ve got to find a seat at the table or you’re left out.

In retrospect, the two most significant signposts were Facebook’s acquisition of WhatsApp and Instagram. Let’s start with the latter. It was challenging Facebook’s dominance. But rather than sit by, work harder on its core product and hope for the best, Facebook purchased Instagram and took it out of the game. It tried to buy Snapchat too, but when Evan Spiegel could not read the rules of the new game, having his own Stanford-induced myopia, Zuckerberg just copied the site’s most addictive elements and injected them into his huge use base and if you think Snapchat is forever, you’re not using it. Kinda like Periscope squashed Meerkat. You can love your little engine that could, the progenitor, but it cannot defy the laws of business. And now is outpacing Periscope! That’s the essence of the internet, you get ahead of change, or you’re ejected from the system.

As for WhatsApp… Zuckerberg knew the game better than the prognosticators, who kept saying he overpaid. But Zuck could see the future. Could anybody involved with Pandora see what’s coming down the road?

Absolutely not.

Pandora was the big kahuna in internet radio. When that was a thing, when that was a fad. It rallied its troops for lower rates. It advertised its excellence, which sophisticated users saw sucked, and if you don’t get the hard core attached to your product, if they’re not evangelizing, you’re screwed. Pandora’s core is the passive audience, and they’re not only passive listeners, they’re not big talkers, Pandora hit a wall and now listenership is going in the wrong direction, it just hit its lowest number in two years, at 76.7 million, meaning there’s a business there for someone to buy, or is there?

But we’re not through excoriating Pandora’s management.

There’s a first mover advantage. And if you’re not the first mover, you must be exponentially better. The iPod was exponentially better than previous MP3 players. Facebook was exponentially better than MySpace. Hell, GOOGLE was exponentially better than previous search engines. But Pandora’s pick and choose subscription site? Late to the market and not a great leap forward from Spotify. Which is why all the hubbub about iHeart’s product was just noise. Why Tidal can’t succeed. As for Apple Music, it capitalized on the company’s brand name, and has made headway, but it still hasn’t overtaken Spotify. Which decided to double-down and lose money to get to the goal line. All those inane music business stories about Spotify’s losses, the company going out of business, were just that, stupid. Because Amazon has taught us if you want to dominate, you’ve got to spend, spend, spend.

But the final chapter has not been written. Because Amazon still has not decided to play for real in music. Then again, it never played for real in downloads. A late product which was hard to get on your iPod. Amazon doesn’t care that much about music, but if it ever does…

It could buy Spotify.

You see Spotify is not forever not as a standalone product. It’s a data machine, and data now drives the internet. Who wants it and at what price? We’re gonna find out. Because Spotify’s margins are meager, the same thing that haunted Pandora and other music sites, this is the music business’s myopia, unless your partners are strong, you’re doomed. The best thing for the industry is a strong Spotify, as for Apple, it’s got incredibly deep pockets. And Google is the gang that can’t shoot straight, Zuckerberg shoots to kill, Google is half-hearted in too many endeavors.

But Apple has an advantage, it’s selling more than music, it’s got a whole services division.

The history of the internet is consolidation, hell, the history of COMPUTING is consolidation. How many computer manufacturers are there? How many mobile operating systems, never mind the ever-shrinking number of manufacturers. Microsoft killed all the competing word processors. And Pandora is doomed as a standalone company.

It matches Sirius pretty well, in that they’re both in the radio business.

But Malone likes to buy low and control. That’s how he ended up with Sirius to begin with. When you’re desperate, he’ll rescue you, but it’s only a matter of time before he and Maffei are behind the wheel.

As for Sirius, it dominates because its progenitors could see the future, that it was all about automobile manufacturer relationships. As for the future of Sirius, that’s what they’re trying to figure out now.

But at least they’re trying.

“Pandora Extends Deadline for KKR Deal to Explore Its Options”


No comments: