Apple Is No Pandora Killer

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Pandora (NYSE: P  ) needs a better sustain pedal. Shares of the music discovery service opened 16% lower -- and went on to trade more than 20% lower -- after a Wall Street Journal article detailed Apple's (Nasdaq: AAPL  ) plan to roll out a competing service.

As "people familiar with the matter" told the financial daily, Apple's talking to its major label partners for licensing rights to offer a custom-radio service where virtual stations are populated based on user song or artist suggestions.

Yes, this sounds just like Pandora. And the new service that Spotify recently added. And the iHeartRadio upgrade that kicked in last fall. And what Sirius XM Radio (Nasdaq: AAPL  ) plans to introduce later this year to enhance the value of its Web-based subscriptions.

Why should Pandora be afraid of Apple?

Buffering ...
This isn't an easy business. Pandora darts in and out of profitability, and that's with an established base of 54.9 million users -- and growing -- who stream more than 1.1 billion hours of music and comedy a month.

However, Apple isn't likely to be approaching this as a profit center. Apple just wants to wrestle away the market share that Google's (Nasdaq: GOOG  ) Android is gobbling up in smartphones. The iPhone is where profit margins come to party, but open-source Android is becoming the global standard in mobile operating systems. Trend tracker Gartner reports that Android's share of the global smartphone market has grown from 43.4% to 64.1% over the past year.

If Apple can make its music service irresistible, it may win over Android fans, and then -- wait. What's that? The Journal's hearing that Apple won't be offering this copycat service on Android devices? It'll be only for iOS devices as well as Macs and PCs?

Oh, brother.

Ping me when you figure it out
Do you think iTunes would've gained traction a decade ago if it was limited to Apple users? It probably wouldn't have been much of a market-shaping force if it didn't roll out to Microsoft (Nasdaq: MSFT  ) users because Windows was the PC platform of choice. Why ignore Android?

The PC is dead. The sale of digital music is also at a tipping point. Apple may have done the right thing by sticking to outright sales as Napster, Rhapsody, and Microsoft's Zune Pass meandered, but Pandora and Spotify have genuinely changed the way that mobile users consume digital music.

There's nothing wrong with being fashionably late, but Apple is no longer the digital-music tastemaker it used to be. Anyone here still using Ping?

Apple figured it could take on the social-networking craze by layering sharing and broadcasting elements to its iTunes Music Store. Ping was born two summers ago, but it pretty much died then, too. Ping is a rare Apple whiff on this side of the millennium.

It's more likely that Appledora -- that's what I'll call Apple's Pandora clone until it becomes official -- will be more like Ping than the App Store. Sure, Apple can jam it into an upcoming iOS update so it's populated in all iPhones, iPads, and iPods, but that doesn't mean it will be any better than Pandora. It certainly won't be any more popular.

In the end, since the product isn't likely to be any better than the established free alternatives that are available across all devices, isn't Apple just wasting its time? Apple's history for user interfaces that "just work" is a great thing, but you don't hear too many people complaining about Pandora or Spotify as something that needs fixing.

Apple is a great company with great products, but there's no reason Pandora should have shed nearly a fifth of its value on vaporware that's flawed from the start.

Streaming out loud
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The Motley Fool owns shares of Apple and Microsoft. Motley Fool newsletter services have recommended buying shares of Microsoft, Google, and Apple, creating a bull call spread position in Apple, and creating a synthetic covered call position in Microsoft. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

Longtime Fool contributor Rick Munarriz calls them as he sees them. He owns no shares in any of the stocks in this story and is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Motley Fool has a disclosure policy.


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  • Report this Comment On September 08, 2012, at 4:32 PM, BillWindows wrote:

    The PC is dead? I beg to differ.

    There are 3.5 billion Internet users, and I'd be willing to bet that every one of them uses a PC regularly. The Mac installed base is 60 million, which amounts to a rounding error. So, 3.5 billion PC users.

    There are only 264 million active devices for iPhone + Android total, according to Flurry Analytics, who ought to know. 99.9% of the time, smartphones are not shared among families, so that's 264 million users. Amongst all the hype, people forget that many many iPhone and Android sales are sold as upgrades to existing customers (and that as the installed base grows so do the number who upgrade on the next cycle).

    By these numbers, the PC's user base is 13x larger than that of iOS and Android combined. The fact is, there are billions of people worldwide who have used nothing but Windows. That is why Microsoft will dominate smartphones and tablet computing with Windows 8. Of course you Silicon Valley guys all run Macs and use Gmail/Google Docs, so you're clueless.

    In the real world, the installed base of iOS and Android amounts to a rounding error compared to that of Windows. 3.5 billion people use PCs, while 264 million people use iOS/Android devices. Even if those 264 million people sold their PCs, that's still 3.2 billion Internet users who don't use smartphones or tablets, and are quite content to trust Microsoft for their whole lifetime.

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