Don’t get me wrong, I have been in love with pandora since its inception. This might just be my gripe.

Pandora has always had the song skipping limit in the past, which was fine if you understand the whole royalty pay-per-song arrangement the company had with the record companies. However, you could always get around by go to another station or another quick mix. Lately, the song skipping limit has become time restricted so it doesn’t matter if you switch station or create new quick mix. Another piece of news, pandora is also starting subscription for the “heavy users” who listen to more than 40 hours a month. The rate is not bad itself, 99 cents for the rest of month overage or upgrade to pandora one for $36, the premium non-ad pandora.

Once again, the reason for the overage charge and subscription is understandable. In the end, no one likes the big record company anyways, right? What it begs the question that pandora is not monetizing as well as they could. These are just some of the initial signs to come.

Here are some reasons why pandora’s business model is not working.

1. It is at the mercy of the big record company. Unlike another popular free media provider Hulu which is formed/backed by major telecom corporations, pandora started out as a private venture, which limited its corporate backing and bargain power
2. Its advertisement is not effective. Unlike hulu, which can advertise with 15 or 30 second video spot, pandora lacks the visual elements. People often ignore the ads and just continue to work, therefore making video ads ineffective. Furthermore, pandora is as equally popular on mobile devices, which lacks advertising potentials.
3. Its lack of offering for upgrade to Pandora one subscription service. Pandora one offers ads free, a desktop application and 192 kb streaming quality. That’s good and all, once again, most computers have web browsers,  desktop app offers nothing new. Most people can’t notice difference between 192kb streaming quality from 128kb (or whatever quality it’s streaming on) unless you have high quality audio devices.

Here are some suggestion I have, of course what do I know?

1. More effective advertisement, more radio style advertisement. Pandora has a huge listener base, if it can just figure out how to isolate and broadcast radio styled local ads for listeners in different geographic area, they can definitely generate more revenue. That way it can leverage its huge listener base better.
2. Revenue sharing, sell songs. It can track users favorite songs, package them into “digital albums” and sell them to the listeners. That way the listeners can build a good song collection and come back to pandora and discover more. In the process Pandora can charge a percentage of the revenue of the sale.
3. Add more features to the subscription service. For example, maybe they can offer songs that free users can’t listen such as remixes, live concert performances, etc.

In the end, it must strike the balance between maintaining its image of the free music provider, not alienate its free listener base. At the same time, it have generate enough revenue and profit to stay afloat.