What Pandora Should Do With Its IPO Millions

So, Tim Westergren’s Pandora (NYSE: P) has raised $235 million from its Nasdaq floatation. What should it spend the proceeds on? Here are my top three options…

1. Go On-demand

Pandora may have 29 million active users for its “new kind of radio”, but they’re really using an 11-year-old proposition – personalised radio. The rise of competitors in the adjacent space of truly on-demand – like Mog.com, Rdio, Spotify and Rhapsody, which Pandora’s IPO prospectus cite as competitive threats – makes clear that Pandora listeners, in comparison, have far less control over what they hear.

Google’s failure to launch a proper such on-demand music service and Apple’s ongoing weddedness to the a la carte model, despite launching a hard drive in the sky, means there remains an opening for Pandora to compete with the other, smaller companies in the space, to own what observers call the “celestial jukebox”. It’s still a small sector, but Pandora has a strong enough brand name to successfully add true on-demand to its personalised radio.

Label licenses for on-demand playback are costlier than for streaming radio. But Pandora’s windfall gives it an opportunity to stump up the advances labels would require for giving users total choice.

2. Go global

Pandora pulled the plug on the world in 2008, exiting international markets like the UK whilst blaming royalty societies for “rates which are far too high to allow ad supported radio to operate”, leaving it operating only in the States.

But, just as Netflix (NSDQ: NFLX) and Hulu are aiming to do, Pandora, like any successful business, must seek out global scale.

Since Pandora retrenched, some overseas royalty societies have acceded to online services’ pleas to cut online streaming rates. This, plus Pandora’s new windfall, means it is easier and more necessary than ever to push at the international door again.

But, in its recent IPO prospectus, Pandora was still complaining that rates outside the States are “prohibitively expensive”. It fears “our lack of experience in marketing, and encouraging viral marketing growth without incurring significant marketing expenses”.

3. Improve the technology

Pandora’s product looks every inch as old as its company – neither as slick as its app-based rivals like Spotify nor its more modern, web-based peers like Mog.com and Rdio. It’s badly in need of a makeover.

The company, in its IPO prospectus, acknowledged “we must constantly adapt our technology”, particularly in-car streaming – a nascent area but one that, when technology is ready, will be huge, and which Pandora has a great shot at dominating.

“It is difficult to keep pace with the continual release of new devices and technological advances in digital media delivery and predict the problems we may encounter in developing versions of our applications for these new devices and delivery channels, and it may become increasingly challenging to do so in the future,” the prospectus said. But now is the time to do exactly this.