Pandora: Music and Advertising Happily Married

If you haven’t yet heard of Pandora, you will. It’s got Facebook-like word-of-mouth momentum behind it, but unlike some of the other hot Internet platforms (e.g., Twitter), Pandora couldn’t be easier to use or understand. Pandora is free, personalized Internet radio. It allows users to create their own radio stations based on songs and artists they like while helping them discover new music. The whole system is ad-supported, so to understand the opportunities, I spoke to Cheryl Lucanegro, VP of advertising sales.

Hollis Thomases: What’s the background on Pandora? Was it always ad-supported?

Cheryl Lucanegro: Our premise is to help people find music they love. Music is very viral; we’ve found that every user passes on music or tells friends about that music eight times. When people listen to music, they’re generally in a good mood. Pandora’s personalized listening experience combined with the positive nature of music is what makes it so valuable to advertisers.

Pandora did not start as an ad-supported model. Originally called Savage Beast, it was the white-label kiosk solution to help people find music at stores like Tower Music and Best Buy and the backend of AOL’s and Barnes & Noble’s online music experience. At its core, it’s a music analyzer, a taxonomy — the Music Genome Project — based on over 400 different song characteristics.

Three years ago, Pandora realized that broadband might make a subscription-based Internet product possible. By the end of that year, Apple came to them wanting to be an advertiser, and ad-supported online radio was born.

HT: What are some of Pandora’s growth stats?

CL: We now have over 16 million registered users, which grows daily; 1 million people per day come to the site and spend two to three hours per session. During their session, users interact seven to eight times per hour; each interaction generates a new advertising opportunity. We now have 65 million stations created, but that goes up by 10,000 a day. Currently, users aged 18 to 24 are our sweet spot, but we have all ages and genres of music.

HT: How are advertisers coming to you?

CL: Mostly, we go to them. We go to the biggest national brands and have done quite well with categories like automotive, electronics, business techs/computers, fashion, beverage, apparel, entertainment, CPG [consumer packaged goods], and retail. Agencies have started coming to us, but we’re mostly driving that process as well.

HT: What’s different or the same about your advertising opportunities?

CL: Our advertisers get exclusivity with this highly engaged user experience. The only time the ads change is upon a user’s interactivity with the site, like fast-forwarding or voting on a song. On the main page, advertisers can take up almost 50 percent of the canvas, which allows them to tell a good story. Most of our ads are custom solutions. We can create stunning skins, but there are currently more than 40 different ad products. Ads still can be served and tracked, and we can accommodate standard IAB [Interactive Advertising Bureau] units.

HT: What targeting capabilities do you have?

CL: We can give advertisers precision targeting because of our registration process (age, gender, geography) and what we learn about the user (music preferences, mood as based on music being listened to, browser, time of day, day of week). We try hard to serve relevant advertising.

HT: How are your ads working for advertisers?

CL: Because of our precision targeting, we have higher than average ad performance (CTR is about 0.3 percent). Users love Pandora — and even our ads. We know because we get e-mail love letters! Advertisers must be happy, too; 78 percent repeat with us.

HT: Are your ad revenues growing along with Pandora’s apparent explosive growth?

CL: In a year where the economy is suffering, we are growing 20 percent per quarter and will very likely reach our goal of $24 million to $25 million in ad sales this year.

HT: What’s new in the works ad-wise?

CL: In mid-July we launched our iPhone application, which to date has generated over 1 million downloads. Later this month, we will be launching our iPhone ad platform that will be as innovative as the Web. Best Buy has bought out all the ad inventory for this launch and Beck’s (beer) will come on board in October. We’re also expanding beyond the PC, for example to in-home electronic devices and appliances.

We’ll be doing very fun things around the holidays, like custom ad opportunities with holiday music. The holidays are one of the biggest times for music.

HT: Thanks, Cheryl. Sounds to me like Pandora will be jingling some advertisers’ bells for a while!

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