Pandora internet radio is an excellent advertising-based online service. You just sign up and start adding bands or albums that you like into your customized radio station, and the Music Genome Project figures out other groups and songs that you’ll probably be interested in. The best part is it actually does that well – and I’ve found quite a few new musicians and tracks that I enjoy listening to based on these recommendations.
So – free music, its online, its fast, it responds to the users’ demands instantly and intuitively – what could go wrong?
Pandora Radio brings in a ton of internet traffic, and the few advertisements it displays bring in a ton of revenue. You’d imagine that the CEOs are sipping margaritas on some sunny beach, basking in the sun and their success.
Of course, you’d be wrong with that assumption because it does not calculate the immense greed of the Recording Industry Association of America (RIAA). Since content licensing fees for any internet site playing music was increased recently, sites like Pandora and Yahoo Radio are quickly finding their profits turn into a loss.
See, the RIAA isn’t content with free publicity. Its not good enough that music enthusiasts like myself can find out about new bands – they insist on being paid per song played, and per user who listens.
Unfortunately, the episode reminds us all that more traffic isn’t always a good thing for website. For starters, all websites have to consider the physical limitations of their hosting infrastructure – hitting these limits can lead to big overage charges, or total downtime for the website. Generally, I would want 50,000 people to visit my sites every day. But if you asked me if I’d rather have 10,000 or 50,000 tomorrow, I would have to pick 10,000 because anything more than that would put my servers at risk and end up with 0 people actually seeing the site.
Also, its important that any growth in traffic corresponds with a steady increase in revenue, or at least does not lead to costs that scale better than returns. If a website starts out with a highly targetered niche base and delivers spot-on advertisements with high conversion rates, “more traffic” could just have a dilutive effect on the relative value of the traffic.