People evaluating Apple Inc. (NASDAQ:AAPL)‘s new iTunes Radio service often talk about algorithms. Despite the term’s relative meaninglessness to most outside of the tech world, many believe that either Apple Inc. (NASDAQ:AAPL), Pandora Media Inc (NYSE:P), or Google Inc (NASDAQ:GOOG)‘s superior algorithms — the formulas that guess which songs you like — will help one company or the other win the day.
Of course, algorithms are important. A service that does a particularly poor job recommending music is unlikely to garner listeners. But algorithms are only important up to a point. As long as the service is good enough, people will listen.
Open the box
Pandora Media Inc (NYSE:P) is the indisputable king of music streaming services — at least for the moment. With over 150,000,000 users, it crushes the competition. Even Spotify, which has a slightly different model, can’t boast more than 25 million. Those users generate feedback that helps improve the service’s algo—oops, I mean, recommendations.
The company went public just about two years ago, and after shares jumped to an all-time high a month after the IPO, they’ve seen a long “V” of decline and then growth to come a lot closer to returning to that opening high. Apple’s WWDC 2013 did send the company’s shares down a bit, meaning they could be undervalued in the short-term.
So how will Pandora Media Inc (NYSE:P) fare in the medium- and long-term now that it’s facing competition from two of the world’s biggest tech companies? My guess is that we’ll see the decline of Pandora Media Inc (NYSE:P) over the next few years unless the company can innovate in a big way.
Pandora Media Inc (NYSE:P)’s dominance was mostly based on a lack of competition. It was an early entrant, provided both web- and mobile-based services, and gave listeners solid recommendations. With Google’s dominance on the web across multiple platforms, I believe they’ll begin to work their music offerings into more places. And of course, Apple Inc. (NASDAQ:AAPL)’s iTunes makes their iTunes Radio inherently integrated with every fresh MacBook that comes off the assembly line.
Google Inc (NASDAQ:GOOG)’s Play Music All Access has an awful name — that’s indisputable. But what does the new service bring to the table?
First of all, it’s paid. At $10 a month, it’s significantly cheaper than Pandora and Apple Inc. (NASDAQ:AAPL)’s offerings. Like Apple, All Access offers integration with your own music library, which the company already hosts for free as a part of Google Music. That’s a boon for anyone already invested in the company’s music offerings, and is likely to make the service that much more appealing.
However, not having a free streaming service is a significant obstacle to attracting new users. It’s the way Pandora Media Inc (NYSE:P), Spotify, and most other players build their audience. There is a free 30-day trial that will likely draw listeners, but without the ability to stream for free long-term, I suspect many will drop it.