What Pandora Media Can Learn From Yelp

Yelp is making sales easy for its team. Pandora isn't.

May 12, 2014 at 1:00PM

Pandora Media (NYSE:P) seems to have a one-track mind: increase advertising and subscription revenue at all costs. This mindset led the company to increase sales and marketing expenses by 63% last quarter in an effort to boost revenue. To a certain degree, the strategy is successful, but the company is spending more on each new hire than it generates in marginal sales.

In contrast, another company that spends heavily on its ad sales team, Yelp (NYSE:YELP), has had much better success with the strategy. So why is Yelp succeeding where Pandora is failing?

Revenue per employee
Although operating efficiency isn't a particular concern at either Pandora or Yelp, revenue growth is. Growing revenue faster than the employee headcount is a good indication that these companies are on their way to profitability. If each new employee costs more than it generates in revenue, it's hard to turn a profit.

In 2013, Yelp improved its revenue per employee by 15.81%. In contrast, Pandora saw its revenue per employee decline 1.35%.

P Revenue Per Employee (Annual) Chart

P Revenue Per Employee (Annual) data by YCharts

YELP Revenue Per Employee (Annual) Chart

YELP Revenue Per Employee (Annual) data by YCharts

Focus: a gift and a curse
Pandora has become overly focused on extracting additional ad revenue from businesses and attracting new advertisers. Most recently, the company announced promoted stations. The product allows brands to create a custom station that shows up in the "Stations You Might Like" section.

Although it's unclear how much revenue Pandora will be able to generate from promoted stations, the product sounds extremely expensive for Pandora to create. The company has put together a team to help brands create these promoted stations that includes salespeople, artist partnerships staffers, and curators from the company's Music Genome Project. Comparatively, selling targeted ads is a lot less expensive.

While Promoted Stations will certainly command a premium, it's unclear if there's much demand for a more curated experience -- especially one inundated with branding and advertising. Beats Music, the streaming service that promotes itself on its curated playlists, is off to a slow start in its first four months.

How Yelp attracts business
Yelp seems to understand the value of its users. For Yelp, users are more than just people that look and click on advertisements. They contribute one of Yelp's most valuable assets: data.

These come in the form of reviews, but also check-ins, attribute questions, reservations, payments, and just about any interaction a customer has with a business. Yelp packages it all up and gives it to businesses, which are then able to extract a lot of value from it.

Speaking on the company's first-quarter conference call, CEO Jeremy Stoppleman has this to offer:

Our consumer product team is most focused on ... releasing features that take advantage of this insight that we, uniquely, are gathering at a rate that basically no one else is capable of. And so I think that is part of the moat around Yelp, is our ability to leverage all of this data that we've been gathering.

Yelp has just barely scratched the surface of using its data to extract revenue from businesses, but it's working on solutions. In this way, its sales team's job gets easier with each new use for Yelp's data.

Pandora needs to unlock the value of its data
Pandora has a ton of data coming in every day. Unfortunately, listener preferences aren't particularly interesting to most of the businesses that advertise on Pandora's platform. Pandora uses the data to make educated guesses to target advertising, but without hard data, its targeting will never be as good as a company like Yelp's.

Pandora also uses its data to constantly improve its music recommendation service, which it is very useful for, but it stops there.

Why doesn't Pandora provide its data to the companies that want it? This would drastically improve the operating efficiency of the company, as it unlocks the true value of its data instead of keeping it for itself.

There are plenty of businesses that would be interested in learning more about 76 million people's listening preferences and habits. Almost any company with ties to the music industry is a potential customer for Pandora.

What Pandora can learn from Yelp
Yelp is intent on getting its user data into the hands of businesses that can use it the most in order to extract value from it. Pandora, on the other hand, seems disinterested in helping the music labels that it's heavily reliant on.

There's a way for Pandora and record labels to play nice with one another, just as labels do with terrestrial radio. For whatever reason, Pandora has chosen to make things hard for itself and its sales team.

Are you ready to profit from this $14.4 trillion revolution?
Let's face it, every investor wants to get in on revolutionary ideas before they hit it big. Like buying PC-maker Dell in the late 1980s, before the consumer computing boom. Or purchasing stock in e-commerce pioneer Amazon.com in the late 1990s, when it was nothing more than an upstart online bookstore. The problem is, most investors don't understand the key to investing in hyper-growth markets. The real trick is to find a small-cap "pure-play" and then watch as it grows in EXPLOSIVE lockstep with its industry. Our expert team of equity analysts has identified one stock that's poised to produce rocket-ship returns with the next $14.4 TRILLION industry. Click here to get the full story in this eye-opening report.

Adam Levy has no position in any stocks mentioned. The Motley Fool recommends Pandora Media and Yelp. The Motley Fool owns shares of Pandora Media. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.

 


Compare Brokers