UNIVERSITY OF THE PUNJAB
HAILEY COLLEGE OF COMMERCE
SUBMITTED BY: SHAFIA KOMAL (BC‐18‐100)
SUBMITTED TO: MA’AM MUFASSARA NAZ
CASE STUDY
ANSWERS & QUESTIONS
Q. Compare Pandora’s original business model to its current
business model? What is the difference between free and
freemium revenue model?
Ans. Pandora’s first business model i.e. free revenue model was
to give away 10 hours of free to its users as a trial and then to
pay $36 per month a year. But the users after enjoying 10 hours
of trial refused to pay $36 per month a year.
Pandora’s current business model is of freemium model.It was
launched in 2009. A business model in which 99% features are
given for free and the company relies on only 1% of the
customers who give money to the premium version of the same
service, in which the company launched Pandora One, a
premium service that offered no advertising, higher quality,
streaming music, a desktop app and fewer usage limits. The
service cost $36 a year. The price was the same as that of the
first business model but because of the added features it was
more desirable and 600,000 subscribers actually subscribed to
its premium service which helped Pandora’s revenue to double.
A Free Trial is a customer acquisition model that gives users
total and free access to a product’s features for a short (limited)
period of time. Free Trials have a time‐limit with two potential
outcomes: either you pay or you are done.
On the other hand, Freemium is a model that provides
prospects with a free of charge partial access to a software
product, with no time limit set whatsoever. In other words,
Freemium is indefinitely free to use, but with limited benefits
available.
Q. What is the customer value proposition that Pandora offers?
Ans. The customer value proposition that Pandora offers is
when the customer subscribes pays for the services include: no
ad, fewer limits, a desktop app, and higher quality of the
service.
Q. Why did Mail Chimp ultimately succeed with a freemium
model and Ning did not?
Ans. Mail Chimp’s strategies succeed because the free version
that they provide includes just the right amount of things and
encourage the customers to pay for the extra service and
subscribe to them. Ning failed because it was not able to
convert eyeballs into paying customers. In addition, the cost of
adding additional users was not zero, or close to it. The more
free users Ning acquired, the more it cost the company. Mail
Chimp could scale more easily without adding a lot of capacity
and infrastructure given the simplicity of its service when
compared to social networking.
Q. What’s the most important consideration when considering
a freemium revenue model?
Ans. The most important consideration is that the marginal cost
of servicing an additional free user must be close to zero. It also
makes sense for a company where the value to its potential
customers depends on a large network, like Facebook. Other
considerations to take into account include that other revenue
streams such advertising will be needed to cover costs and a
solid customer value proposition is required to attract initial
users (even when the service is offered for free) and ultimately,
subscribers willing to pay a subscription fee.
Identifying the eight models in the case
Value proposition:
Pandora provides its subscribers with premium service in which the subscribers
can have higher quality service, no ad, fewer limits, and desktop app.
Revenue model:
Pandora had an add supported business model according to which they were
firstly following the advertising model but later on after introducing premium
option they changed it to subscription model.
Market opportunity:
Pandora aimed at the active music listeners who would pay money to listen to
their favorite music and play lists.
Competitive environment:
Pandora’s competitors were online station which were making music available for
free, without many advertisements and online subscriptions who were getting
some advertisements support.
Competitive advantage:
Pandora’s competitive advantage was that it followed freemium revenue model
which was successful for them.
Market strategy:
Mail Chimp could scale much more easily without adding a lot of capacity and
infrastructure given the simplicity of its service when compared to social
networking. Mail Chimp’s strategies succeed because the free version that they
provide includes just the right amount of things and encourage the customers to
pay for the extra service and subscribe to them.
Organizational development:
Pandora will close its three regional organizations thereby eliminating an
organizational layer between global headquarters and the local markets. The
more than 100 markets where Pandora operates will be grouped into 10 clusters,
each headed by a General Manager based in the largest market in the cluster. The
General Managers will report to a newly established Chief Commercial Officer
(CCO) position.
Management team:
Pandora had an amazing managers as they were successfully able to add the
premium option in 2009. Due to its great management team Pandora’s business
model become successful.
