engagement, margins, volume

Turntable.fm users pay more attention to the page than Pandora users, because TTFM is much more interactive. Ads displayed in the page will come to their attention. That’s not true for Pandora users, which runs on autopilot.

Pandora relies on audio ads. The rates for these are low, on the order of $2-$3. Display advertising commands higher rates, on the order of $8. So Turntable can earn more per user than Pandora.

Does this make Turntable a better business than Pandora? Not necessarily. The more attention something requires, the fewer users it gets. Pandora’s lack of interactivity will gain it more users.

Turntable will have higher profit margins, but Pandora will have more volume. If Pandora’s volume is big enough it will have better return on investment.

However the base rates that both Pandora and Turntable pay are quite high. Pandora’s low-margin/high-volume strategy may be too close to the bone. It may not be able to pay the bills for each user. Right now that’s certainly true – Pandora loses money.

TTFM is seeking licensing deals so that it can offer on-demand features. These deals would raise its royalty bills. It may earn more per user, but it will also spend more per user.

I wish Turntable wouldn’t do that. Why not just run a healthy business? Why go to the moon then kill yourself reaching for the stars?