Current Weather
The Spy FM

Growing Pains For Pandora And Groupon

Filed by KOSU News in Business.
June 15, 2011

Pandora, the online radio company that went public today, is losing money. Yet investors are rushing in to buy Pandora stock, which is now valued at over $3 billion.

Groupon is in a similar boat. The company is also losing money, but could be valued at $20 billion when it goes public later this year.

It’s relatively common for young companies to pursue growth at the expense of profit. Amazon chose to lose money for years, and now is solidly profitable.

But Pandora and Groupon may face particular challenges in turning a profit. For different reasons, both companies may struggle to scale.

Some businesses scale beautifully. Think of a software company. Once you create a piece of software, the cost of selling it to a thousand customers isn’t much different than the cost of selling it to a million customers. So once your software is written, the more customers you have, the more money you make.

For Pandora, on the other hand, more listeners means higher costs. Every time someone listens to a song on Pandora, the company has to pay royalties for the song. More users means more royalty payments.

Of course, more listeners should also mean more advertising revenues. But rising ad revenue is contingent on the company being able to sell ads. And that may be a challenge. As the WSJ’s Heard on the Street notes:

only about 1% of listener hours are devoted to ads, compared to traditional radio’s roughly 20%. Those ads often repeat, implying advertisers aren’t jumping on board fast enough.

For Groupon, signing up new subscribers may be growing both less lucrative and more expensive.

Revenue per subscriber has has fallen as the company has grown, the NYT has pointed out.

At the same time, the company is spending lots of money to lure those new subscribers.

In its IPO filing, Groupon broke out a few single-city case studies. Based on those numbers, Yipit took a close look at the numbers for Groupon’s Boston business.

They found that, as the number of Groupon’s Boston subscribers is rising,

Revenue per Groupon customer is declining

Cost to acquire those customers are increasing

Sales costs are increasing as it needs to run smaller deals with more merchants to personalize the experience

[Copyright 2011 National Public Radio]

Leave a Reply

9AM to 10AM The Takeaway

The Takeaway

A fresh alternative in morning news, "The Takeaway" provides a breadth and depth of world, national and regional news coverage that is unprecedented in public media.

Listen Live Now!

10AM to 11PM On Point

On Point

On Point unites distinct and provocative voices with passionate discussion as it confronts the stories that are at the center of what is important in the world today. Leaving no perspective unchallenged, On Point digs past the surface and into the core of a subject, exposing each of its real world implications.

View the program guide!

11AM to 12PM The Story

The Story

The Story with Dick Gordon brings the news home through first-person accounts. The live weekday program is passionate, personal, immediate and relevant to listeners, focusing on the news where it changes our lives, causes us to stop and rethink, inspires us.

View the program guide!

Upcoming Events in your area (Submit your event today!)

Streaming audio and podcasts

Stream KOSU on your smartphone

Phone Streaming

SmartPhone listening options on this page are intended for many iPhones, Blackberries, etc. with low-cost software applications available to listen to our full-time web streams, both News on KOSU-1 and Classical on KOSU-2.

Learn more about our complete range of streaming services

We're perfecting the patient experience - Stillwater Medical Center