If Pandora Can't Monetize Mobile, Can Anyone?

Massive Mobile Usage Comes With Big Costs

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Every major digital-media company -- Facebook, Apple, Google and Microsoft, just to name a few -- insists that it is also a mobile-media company.

But one has a better claim to that title than probably any other: Pandora, where more than 80% of listeners use the service on their mobile devices. It is by far the most heavily indexed major U.S. media property on mobile devices, according to a recent study from data analysis firm ComScore.

That doesn't mean Pandora is thriving, however, and its challenges illustrate the difficulties facing all media companies hoping to create sustainable revenue streams from mobile-ad revenue.

Co-founder Tim Westergren has resorted to lobbying Congress to lower digital-music royalties, making them more economic for Pandora and similar services. The company's chief revenue officer, John Trimble, has meanwhile been busily touting Pandora's massive mobile presence to potential new advertisers.

Ad Age spoke with Mr. Trimble at the Consumer Electronics Show in Las Vegas to discuss how the company plans to make its mobile scale really pay. Our conversation has been lightly edited.

Advertising Age: You have a unique insight into the structural problems facing online music companies. Can Pandora remain viable unless the relationships with record companies improve?

John Trimble: I think we've always felt that this has been a viable business. At points in time, we've hit that inflection point of being profitable, so it's doable. We've taken a really focused approach: Building our audience is paramount to building the business. As we catch up on the revenue side, we'll hit that inflection point again.

As far as the digital-music industry, our focus is just parity. You have an awful lot of companies that view digital music as a viable business opportunity and now are together in bringing that conversation to Washington.

Ad Age: Does it cost the company more than it makes to acquire a new user?

Mr. Trimble: At this point, from the revenue standpoint, we're still trying to catch up to user growth. Our user growth has been so accelerated that we're trying to build our business to get over that profitability line.

Ad Age: Are you exploring new revenue streams or existing ones?

Mr. Trimble: First and foremost, mobile is a huge opportunity for us.

Ad Age: And you are more well-indexed on mobile than any media company.

Mr. Trimble: Mobile still is a new revenue stream. Last year, on the display side, there were half a billion dollars spent against it domestically, and we accounted for 20% of that spend. Now, mobile is about 55% of our overall revenue. We've leaned really hard against monetizing mobile because we see it as the future. It's where our audience is.

When you think about mobile, the killer ad for us is the audio ad. There's no one doing audio ads at the scale that we do. A lot of the challenges that brands and CMOs are having is how do you communicate your message with a display ad with data-driven effectiveness. All of a sudden, we have this audio ad that drives amazing connection and call to actions back to the display and even video. That gives the ability to talk to both the digital advertisers as well as broadcast radio advertisers.

Ad Age: It seems you and the Mobile Marketing Association are aligned in wanting to set some industry-wide standards and practices for mobile advertising.

Mr. Trimble: Yes. The more process and agreement we have from both the publishers and the buying community, the faster we can create research that will allow brands to start to shift their ad dollars based on consumption.

The budgets allocated to mobile don't really coincide with the amount of consumption, users and ability to influence. If you're a CMO, you're going to need more data, more research, standardization.

Ad Age: So if you standardize things, do you think the marketing dollars will follow?

Mr. Trimble: I think it helps the process. A lot of what's driven is standardization, process and data. How do we quantify the value of mobile based on this massive paradigm shift of the user base and consumption base?

Ad Age: Is it viable to be "mobile first"?

Mr. Trimble: For us, it's the mobility aspect. We're now on 1,000 different devices. Anywhere consumers are, they have the ability to listen to Pandora. So when we talk to a brand, how does that translate to from a desktop to a smartphone to an iPad when you're on the train to when you're in your car with an auxiliary jack? How do we hit the consumer at each of those continuums?

Ad Age: Are you exploring solutions like Spotify, where you can take songs offline?

Mr. Trimble: No. Our business model has been really clear and succinct: It's free, it's easy and it's everywhere. And that's what's gotten us to this scale. It's 67 million people a month using Pandora an average of 20 hours per month. That's a huge opportunity. It's not a music play. This is about audience.

The fact that we have them at 20 hours a month and at so many places in their daily lives, that's what makes brands perk up.

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