Pandora's E-Commerce Success: A Case Study of the Freemium Model

This assignment provides a comprehensive analysis of Pandora's business model, contrasting its original approach with its current freemium strategy. It delves into the differences between 'free' and 'freemium' revenue models, highlighting how Pandora initially struggled with a limited free service before transitioning to a more successful model offering extended free access with options for premium upgrades. The case study examines Pandora's customer value proposition, emphasizing the appeal of ad-free, high-quality streaming through Pandora One. Furthermore, it contrasts MailChimp's success with the freemium model against Ning's struggles, attributing the difference to conversion rates and cost management. The assignment concludes by outlining the key considerations for implementing a freemium revenue model, such as ease of use and a large potential audience. This document is available on Desklib, a platform offering a wide range of study tools and solved assignments for students.

Running head: E-COMMERCE BUSINESS
E-Commerce Business
[Name of the Student]
[Name of the University]
[Author note]

1E-COMMERCE BUSINESS
1. Compare Pandora’s original business model with its current business model. What’s
the difference between “free” and “freemium” revenue models?
The original business model of Pandora consisted of providing a 10-hour access to
free service and then the customers were asked to pay a subscription fee of $36 dollar which
most of the customers refused to pay after listening t 10 hours of free music. This led to a
financial collapse in the year of 2015 which initially led to the creation of new business
model. The new business model was associated with providing 40 hours of free music which
was followed by providing the customers with three options (Hamari, Hanner & Koivisto,
2017). The options included the following:
a. Pay 99cent for rest of the month
b. Signup for becoming a premium member which would he helping in getting unlimited
usage
c. Do nothing.
The business model of pandora is based upon providing of some products or services
absolutely free of cost by depending upon certain percentage of customers who would be
paying for the premium versions (Chica & Rand, 2017). The free Revenue model which is
the future of the radical price has been associated with pointing out the fact that the marginal
cost of the digital products which are typically close to zero and is associated with providing
free products helping in reaching out to lot of customers.
2. What is the customer value proposition that Pandora offers?
Pandora was associated with paying a lot of attention to its premium services after
attracting a sufficient larger user base and for that they launched the Pandora One. Pandora
One is one of the high-end versions of the service which was not associated with offering any
kind of advertisement along with providing high-quality streaming music, desktop
application and lastly few usage limits (Huang, 2016). The premium service costed only $36

2E-COMMERCE BUSINESS
per year. Previously the ad-supported business model of the organization was associated with
attracting a lot of customers along with support from numerous advertisers. The adding of the
buy button for each of the songs that were being played helped the organization in structing
of deals with numerous online retail sites.
3. Why did MailChimp ultimately succeed with a freemium model but Ning did not?
The freemium service has been associated with helping the music business continue to
breath. The companies like the MailChimp has been associated with showing how the
freemium can help in turning the fortune of the company as well as the list of subscribers.
The major reason of success is that the organization allows anyone in sending of e-mails to
the customers along with helping in managing the list of subscribers and keep a track of the
performance of the e-mail marketing campaigns.
However, the usage of the freemium by Ning did not helped it in succeeding as the
organization was having a very common problem that is the conversion of the eyeballs into
paying the customers, it was seen that 13% of the customers were paying for some of the
premium services and the revenue was not seen to be enough (Voigt & Hinz, 2016). The
more the number of free users that Ning acquired the more it costed for the company.
4. What’s the most important consideration when considering a freemium revenue
model?
The important considerations that needs to considered while using the freemium
revenue model is that the product must be easy to use and is having the large potential
audience preferably in millions (Laudon & Traver, 2016). Besides this the usage of the
freemium strategy can also become a very successful marketing tool as the free structures
helps in attracting a huge customer base along with being more attractive for most consumers
than the 30-days free trials which requires a cancellation process.

3E-COMMERCE BUSINESS
Bibliography:
Chica, M., & Rand, W. (2017). Building agent-based decision support systems for word-of-
mouth programs: a freemium application. Journal of Marketing Research, 54(5), 752-
767.
Hamari, J., Hanner, N., & Koivisto, J. (2017). Service quality explains why people use
freemium services but not if they go premium: An empirical study in free-to-play
games. International Journal of Information Management, 37(1), 1449-1459.
Huang, H. C. (2016). Freemium business model: construct development and measurement
validation. Internet Research, 26(3), 604-625.
Laudon, K. C., & Traver, C. G. (2016). E-commerce: business, technology, society.
Voigt, S., & Hinz, O. (2016). Making digital freemium business models a success: predicting
customers’ lifetime value via initial purchase information. Business & Information
Systems Engineering, 58(2), 107-118.