Monday, January 26, 2009

A New Ad Strategy From Pandora

As a Pandora loyalist, I was excited to hear the company announce a new strategy to make money from advertising.

Over the past few months, I’ve cringed at the company’s failed attempts to monetize its enormous user base (21 million registered users and 2 million users/day) with banner ads and rich media. Why would a site selling ‘sound’ ever think that visual display ads were its best path to advertising revenue?? But I digress.

The new advertising model which leverages Pandora’s aural content by interjecting 15-second commercials every hour or two will likely prove a more effective means to deliver an advertiser’s message to a mass audience. However, the company will likely face challenges in quantifying the value of these impressions for its established advertisers because 1. Customers listening to Pandora are not likely to ‘click through’ and 2. The site won’t be able to drive enough traffic/new users to an established brand in order for the brand to see the direct effect of the campaign.

In the press releases announcing this audio ad launch, Pandora lists core advertisers as McDonald’s, Bose and American Idol. These mass market brands are going to be the toughest to prove an ROI to. However, new brands looking to generate mass awareness, may be an easier target as newer brands will feel (and thus track) the effects of a small traffic increase more so than a well established brand. So even if consumers aren’t clicking through directly from Pandora, an increase in search traffic following the ad could provide a measure of the ad’s effectiveness.


Jeremy Kagan said...

While Pandora is different from terrestrial radio in many ways, wouldn't a 15 second ad in a stream of music just be valued like a radio advertisement - reach and frequency, etc.? Clear Channel has a rate card for stations of all genre types and audience sizes... If not, does that mean that the values ultimately assigned to 'radio' ads online could impact the revenues of radio companies?

BewareOfDoug said...

I agree that there is a baseline value for these ads which are comparable to terrestrial radio. I'm sure that's how Pandora tries to sell them. However, like all internet based marketing channels, there is the safe, tried and true means of valuing things (ie - finding an offline comparable) and then there is the new and innovative ways to maximize the value. Internet radio differs from terrestrial in that there are calls to action that are ideally suited to the web. A radio ad might ask listeners to "call in" but on Pandora an advertiser can ask people to "click-in" to some type of promotion. The branding effect would be the baseline value but the ability to get direct response and interaction could be upside for the advertiser and eventually drive new types of higher-value ads.