3 Reasons Why Pandora Could Become the Next Myspace.com

The reasons for Myspace's demise are evident and, unfortunately, Pandora might be following a similar path.

Aug 20, 2014 at 10:30AM

Myspace.com was one of the first large social media platforms, but a combination of self-imposed and natural problems took its valuation from a peak of $12 billion in 2007 to just $35 million when sold by Rupert Murdoch in 2011. Given this epic downfall, there's a lot that large social-focused new-age technology companies can learn from Myspace... especially Pandora Media (NYSE:P), a company that might be following the same path.

1. First and foremost: Competition

Myspace Facebook

Source: buzzom.com

The majority of people would say that Facebook (NASDAQ:FB) killed Myspace, as its demise conveniently followed the rise of Facebook. However, Myspace fell at a time when other large social networking companies like Twitter (NYSE:TWTR) also started to explode with user growth, and attract Myspace's core younger user demographic.

Essentially, Myspace was the first, and oldest of the social media platforms, and lost its cool effect. With that said, Pandora's music genome project created the first interactive user-friendly music streaming service that worked well as applications during a time of smartphone explosion within the marketplace.

Itunes Radio

Source: macrumors.com

Back when Apple was still new in the iPhone era, Pandora was one of the only applications that allowed users to access free music streams that were based on their likes. However, today there are a slew of such services from giants like Amazon.com and Apple, along with increased competition from the likes of Spotify.

With that said, Apple might be to Pandora what Facebook was to Myspace. Already, in just a year following the launch of Apple's own music streaming service, iTunes Radio, it has more than 40 million listeners. In addition, Apple recently acquired Beats, which has a very popular streaming service of its own, proving that Apple is in the music game to win.

Pandora is still the leader in this industry with 76.4 million active listeners, although it's worth noting that the company had 77 million back in May. Therefore, Pandora's active listener growth is stalling right now.

2. Failure to evolve
According to famed Napster founder and former Facebook President Sean Parker, "They (Myspace) didn't evolve." Specifically, Myspace was often criticized for its lack of effective filtering, which created an upsurge in pornography -- not good for children, of course. Also, Myspace tried to succeed with theme-paged profiles that played music and gave users the freedom to reposition their profile icons.

Unfortunately, this made Myspace confusing, and many thought that it hurt the user experience. As a result, Facebook's clean and elegant profiles and news feeds solved these common problems that users had with Myspace. In regards to Pandora, there are, and have been, countless opportunities for the company to evolve and leverage its market-leading presence to stay ahead of the game.


Source: flickr.com.

For example, Pandora has generated billions of likes and unlikes from user preferences on music, which could have been very lucrative data to advertisers. Yet, Pandora has made no real progress at leveraging this data. Facebook is a good example of a company that uses likes and search preferences to help advertisers target consumers.

Another example of failing to evolve is not using the Pandora platform to offer more services. For one, Apple's iTunes Radio has more than 40 NPR radio stations, and original content from the likes of ESPN. Pandora has a platform where it could offer such services to its customers, as well, but does not.

Finally, when a user likes and wishes to purchase a song, Pandora routes them to iTunes. Essentially, Pandora is giving its biggest rival more business by not having a song purchasing platform of its own. Ironically, Myspace allows users to sign on using Facebook, which kind of fits into the same mold as what Pandora is doing with purchasing music.

3. A lack of stability
Perhaps the most significant similarity between Myspace and Pandora is that both companies saw major turnover with key visionaries who were responsible for their initial success. Following News Corp's acquisition of Myspace, CEO Chris DeWolfe stepped down as CEO and, shortly thereafter, co-founder Tom Anderson joined DeWolfe. While the co-founders are the most noted departures, there were countless others who were instrumental in Myspace's success.

With Pandora, the company has seen just as many management shakeups as Myspace, but three in particular during the last three years are most noteworthy. In 2012, Chief Financial Officer Steven Cakebread left to pursue "industry changing opportunities" -- he was instrumental in helping Pandora go public. In 2013, CEO Joe Kennedy stepped down after nearly a decade with the company. Then, earlier this year, perhaps the most meaningful, Chief Technical Officer Tom Conrad, who was crucial in creating the music genome project and the algorithm that has led to Pandora's success, stepped down.

Foolish Thoughts
Like Myspace, Pandora lost three leaders who were essential in creating the company's success, and Pandora has since failed to innovate as new competition arose quickly. For investors, it's hard to be bullish, as Apple's iTunes Radio grows in popularity, and new platforms are expected to launch in the near future. In other words, investing in Pandora may not be wise, as a path toward experiencing the same fate as Myspace could occur.

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Brian Nichols owns shares of Apple. The Motley Fool recommends Apple, Facebook, Pandora Media, and Twitter. The Motley Fool owns shares of Apple, Facebook, and 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.

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