April 11, 2011

Pandora Radio: From Rags to Riches to Federal Investigation?

Posted in Ethics, Public Relations Crisis, Uncategorized at 10:33 pm by Public Relations Class

By Brittany Schweiker

Pandora Radio has always done a great job forming and presenting their image to the public. Taking co-founder Tim Westergren’s

Tim Westergren, Founder of Pandora

“Music Genome Project” and turning it into the most popular consumer based internet radio, the company has created their brand as being cool, innovative, grassroots and most importantly, user focused.

Their back story is a good one too. Created in 2000, the project has been a rags to riches type tale. Along the way Pandora watched as other music services such as Napster and imeem all met their slow and painful demise, but still they persevered. Westergren maxed out twelve credit cards, had no means to pay employees for two years, and failed on 383 pitches to gain any investor interest in the organization. That was until his 384th pitch in early 2004 to Larry Marcus, a musician and venture capitalist, who decided to endow $9 million into the project. It was all they needed. Listenership quickly rose, and in 2005 they sold their first ad.

As the site’s popularity grew so did their headaches. In 2007, the federal royalty board significantly increased the rate paid by online radio stations to musicians. After two years of lobbying and uncertainty in the company’s future, Pandora and the royalty board reached an agreement on a still high, but lower rate. Pandora could no longer provide a “free” service, but they were able to alter their structure with little effect on their user base. Presently, users are permitted 40 hours of music per month at no cost. After hitting that 40 hour mark, registrants are given the option to pay .99 cents to go unlimited for the remainder of the month – a pretty good deal if you ask me.

It wasn’t until 2008 that business began to surge. Realizing that the internet was moving beyond a computer screen, Pandora was one of the first companies to use developing technologies to integrate their business into their consumers every day, or should we say every hour, life. First was the release of their mobile app, which allowed consumers to stream music to their mobile devices. Almost immediately, user registration doubled, averaging some 35,000 new users a day.

Pandora iPhone App

They didn’t stop there. A few months later Pandora announced they were teaming with automotive companies like Ford, Mercedes Benz, Toyota and Hyundai to offer drivers the ability to sync their mobile Pandora app to their car radio by use of their smart phones. Since the announcement, other electronic companies like Samsung and Vizio are also working to integrate Pandora into their blu-ray DVD players, TVs, and music stereos.

Ford Sync: Pandora

But Pandora has more than just a cool brand, a great back story and product integration, they have user loyalty. There are plenty of other music services that offer things Pandora does not: specific song selection, 1 million + song catalogs or completely free services, yet Pandora continues to be overwhelmingly the most popular choice. Which is why plenty were shocked when just last week the Wall Street Journal broke news of a federal investigation into whether or not Pandora, along with other app publishers, were collecting and distributing private user data without proper consent.

Software analysis firm, Veracode, publicly confirmed that both Pandora’s Android and iOs app logs and transmits a user’s GPS coordinates, age, gender, unique mobile code and birth date to several advertising firms. While each independent piece of information does not seem significant, when grouped all together it is definitely viable to determine the kind of person that specific user is – scary. Pandora claims that the subpoena was delivered “on an industry-wide basis to the publishers of numerous other smartphone applications.” Makes sense I suppose, but other apps like Twitter and FourSquare tend to make it pretty obvious that they are tracking user data like location, birthdate, and interests to enhance the user experience. But who would of ever thought that a company like Pandora would sneakily be distributing such specific personal data without user consent?

The investigation centers around the Computer Fraud and Abuse Act, a law created to prosecute hackers. If found guilty, the consequences and legal matters could potentially shut down a company indefinitely. How can Pandora, an organization only just beginning to reach a comfortable financial position, reflect, or if proven guilty, rebound from these allegations? Will Pandora’s good image and public trust be affected by the investigation? Should we as app users be concerned with this matter, or is it a price we pay for a free service?

[images via New York Times/Pandora]

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9 Comments »

  1. alicialegg said,

    Brittany, thank you for the enlightening and terrifying post! When I was getting my taxes done last week, an older gentleman was refusing to file online. In a voice that could be heard throughout the office, he said, “I don’t trust computers. All you all in this younger generation will see in time. It’s gonna bite ya, you watch”. I admit I thought he was a little out there. After reading your post, I thought of him again. When companies betray our trust, it makes us all so very apprehensive. Companies that are operating online with personal information may take this opportunity to run an ad campaign stating that they will preserve the privacy of its users. It is something I will certainly be looking for in the future.

  2. bethyf25 said,

    In going along with what Alicia said, I think this could also be used as a warning sign or prodrom for other companies to reveiw their privacy policies and technology that is already in place, update what needs to be updated and then send a communication out to its users letting them know how serious privacy is to the company and what is being done to ensure it isn’t comprimised. Being proactive, in stead of reactive like Pandora, is always a good thing, and will create a stronger and more trusting relationship with customers.

  3. I think is a really disturbing thing that many internet companies are doing. You start to wonder how much you are really giving away to advertisers when you do stuff online ranging from shopping or chatting on Facebook, to just surfing the web. You start to wonder when you see ads come up from places that you like on Facebook. Also when you shop on sites like iTunes or Amazon they are always giving your recommendations you wonder how they figure those out, and if they’re sharing that data with advertisers. You start to wonder how much these advertisers have really collected from you. What Pandora did is pretty scary and it makes really not want to use their service. I don’t personally have much experience with Pandora, but this makes me think twice about using it. Many online companies have faced privacy issues recently most notably facebook. It they want to keep loyal users it will be up to the companies to inform consumers about what information they are sharing, and make it readable in a form other than having to scroll down through a 100-page equivalent legal document that only a person with a Doctorate Degree from Harvard in law could understand. If these companies are not careful there may be a backlash and decrease in users on some very popular online services. People take their privacy very serious and they will not tolerate it being sold away to the highest bidder! It will be up to Pandora and others to be proactive when these issues come up instead of just passing off consumers complaints as not important. It’s also a lesson of buyer beware rather online or off!

  4. Steve Felano said,

    I’m inclined to take a different view from those outlined in the other responses here. I’m honestly not surprised that Pandora collects my user information, and I don’t have a problem with it so long as the information is used for marketing purposes only.

    In situations like these I refer back to one of the central lessons I learned in high school economics: there’s no such thing as a free lunch. Every service – even the ones that don’t require a monetary payment like Pandora – have a cost, although it may not be readily apparent from the outset.

    We read in Brittany’s post about the significant level of manpower and capital that went in to launching Pandora in the first place. The people at Pandora are going to have to recoup these start-up costs and then some to make a profit, as this is the only way to keep the service running over the long-term.

    If they’re not charging you a monetary patronage fee to achieve this end, you can rest assured they’re charging you a non-monetary one: your user information. They will sell this information to advertisers who will pay them the money you did not when you began using their service. As Brian mentioned in his response, you likely agreed to this arrangement in the user agreement you submitted to before accessing the service. Remember, nothing is truly free!

    Now to answer Brittany’s questions. For the first two, I’ll begin by saying it’s clear the majority of us seem to have a problem with a service like Pandora collecting our user information and selling it to advertisers. We have an emotional reaction that tells us this type of practice is wrong. This occurs even though we likely signed off on a user agreement that outlined this arrangement. It also occurs alongside an acknowledgment by most of us that, in a free market society, it’s unrealistic to expect truly free access to a service of any kind.

    For these reasons, it’s entirely possible that Pandora’s user information practices could lead to significant legal and/or public relations problems for the service that will damage public trust. In response, Pandora will likely settle its legal obligations as quickly and quietly as possible, apologize for gathering and selling user information, and make it publicly known that it will discontinue the practice. From there, Pandora will find some other way of bringing in revenue to make up for the money that has stopped coming in from the sale of user information to advertisers. The institution of an up-front monetary user fee is likely an option they’ll consider, and perhaps move forward with.

    On to the final question: should we as app users be concerned with this matter, or is it a price we pay for a free service?

    No, we as app users should not be concerned with this matter, so long as our user information is being used for marketing purposes ONLY. Since we are not compensating Pandora for its service monetarily, we are instead doing so through the forfeiture of our user information and the annoyance that comes from dealing with advertisers that have paid for this information. So yes, this is the price we pay for a so-called “free” service. Always remember, there’s no such thing as a free lunch.

    -Steve

  5. christinekenyi said,

    This is a great post! I think where Pandora dug themselves a hole was by not being completely open about what they were doing. Plenty of companies make it clear to their users that they are indeed sharing specific information to advertisers and usually use the reasoning that this is a strategy to cater adverts to the user. If Pandora had used this approach, I doubt this would have ever been an issue of much debate especially in light of the intense user-loyalty Brittany mentioned. However it is this same loyalty that I think will see Pandora through this whole situation. I doubt that they will see a significant decrease in use because their product has proven to be in great demand.As a semi-frequent Pandora user myself, I doubt I’ll be detered. The legal ramifications will probably be their main area of concern, but as Steve suggested I think they will probably make an apology, outline new strategies to reassure users and move on. All this could really have been avoided if they had just been transparent!

  6. Steve made a great point about there being no such thing as a free lunch. The ad supported model has long been a stalwart of media. From the days of broadcast radio networks starting in the 20’s and 30’s to broadcast TV in 50’s to the today’s internet streaming of TV programs on the internet. People have seemed pretty willing to deal with advertisements in return for free products or services. Where Pandora needs to be careful is making it clear that they do tell this fact to consumers and I’m not sure about this, but what if they let consumers learn more about how their information is shared and ensure that is not going to places that will spam people’s computers with ads for fly by night diet products or acai berry discoveries

  7. Dan Fogarty said,

    It is a shame for this to happen to Pandora at a time when they are beginning to become a staple in the music world. It is again a circumstance where as Christine said they dug a whole about not being truth.

    The best way to prevent a crisis is to know what could eventually become one. This is one that should have been averted by someone realizing that if they are going to do this they better make it public before an outside agency does for them.

    With how well they are doing this seems like a scheme to make money that could ultimately hurt if not cripple a thriving company.

    This again should have been averted if the right action was taken from a crisis communication plan due to seeing the prodromes.

  8. Derek Gibbons said,

    When it comes to websites like these, I always lie when I have to sign up about my age and location, but for people that actually put that stuff, I can see why they may be angy. For those that buy it and they actually have their name and address, I think that Pandora has every right to distribute their information for marketing purposes. I also like what Steve said in his argument, there is no such thing as a free lunch. I honestly think a lot of other companies do this as well and I don’t think Pandora will take a huge hit if found guilty.

    I think it is pretty obvious that when Pandora asks for your birthdate and location in the country, not adress, but just a general idea, it is for marketing purposes. What else would they be doing it for? a fun fact? This does not surprise me at all, but I guess it is a shock to many.

    I think the best thing Pandora can do it be open and honest and if they really need to, put a disclaimer at the bottom saying that your information may be used for marketing purposes. Or have an option button saying if the info given can be used or not for those marketing purposes.

  9. Bakari Lake-Sample said,

    Can’t say I am surprised that Pandora collects peoples information. Once your info is out there is really no guarantee that it stays private. Shopping or filling out important forms online leaves a trail of your info all over the internet. A lot these companies collect this information for advertising purposes or to provide a better service. It also all depends on what these companies like Pandora, terms and condition and privacy policy say, not many people read them.

    If they are collecting “private” information without peoples knowledge then they may have a small problem to say the least. Me personally I’ve never used Pandora.


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