Brian Colbert is the vp of mobile advertising sales at Pandora. He spoke to us recently about the massive growth in mobile ad revenue the company is seeing—$100 million last year—and how Pandora is handling it.
JE: Your claim that Pandora books more mobile ad revenue than iAd, and that you’re second to Google, fascinates me. How big is Google’s mobile ad revenue?
BC: $750 million. A good chunk of the 750 is search, obviously. That’s from 2011, last year. So from our standpoint — we are second to them in mobile ad revenue. Our goals are very, very lofty. Mobile is basically half our revenue at this point and will continue to be that way and hopefully will grow even more to be even closer to 70 per cent, which will mirror our consumption patters. But it’s clear we are making a big bet on mobile. For us as a company, it is clearly our lifeblood. For some publishers, it’s kind of a nice luxury and kind of a side thing. But for us it’s obviously crucial to our future.
JE: And the flip-over from desktop to mobile was extremely recent, right?
BC: Yeah. Again, from a two year period we went from being 38 per cent mobile in, I think, January of 2010 to 70 per cent mobile as of this month.
JE: That’s an extremely fast change of pace. Did that take you by surprise or did you know it would happen?
BC: It has taken us by surprise a little bit. Obviously, like everybody else we know smartphones are proliferating and going through the roof, but I think we have seen that shift much faster than even we as a company first anticipated. Which is a challenge. It’s a challenge for us because the mobile ad marketplace is not quite there yet where we need it to be. So we’re kind of at the forefront to push the marketplace forward faster because it’s so important to us.
JE: Could this actually threaten your revenues because mobile ads are so much cheaper and the visual experience you are delivering is not as big or luxurious as on desktop?
BC: We don’t see it that way. I think we see it — look in terms of performance, our mobile ads perform very, very well. Just as good if not better as our desktop ads. Pricing-wise, we’ve really seen the price really stabilise. There’s not that much of a discrepancy from what we are seeing on the desktop to the mobile side. So in terms of a threat to business, we actually think we are positioned very well to capitalise when the marketplace does really start to hum. I think we are as well positioned as any publisher to really start to crank and make a lot of money with mobile. We are already so much further ahead of the marketplace.
JE: So how many clients do you have running on your network at any one time?
BC: It runs the gamut. It depends on the time of the year. In any given month between, I don’t know, anywhere between 500 and 700 campaigns running. Some big, some small. You know you’ve got, you’ve got some local advertising, you’ve got the big national brands, you’ve got regional brands. You’ve really got a broad swathe. That’s really our secret sauce, advertising-wise, we can play in all these different businesses.
JE: So how big is your ad salesforce?
BC: We’ve got about 515 employees in the company right now and I’d say you know almost half of those are dedicated to sales in some way shape or form. Whether that’s on the street or as a support person.
JE: Talk a little about creativity. One of the things that has impressed me about ads on Pandora is that, particularly in the last two years, the ad display, and the way it changes and the way it reacts to what you are doing, that has become a much richer, more impressive visual experience. Does mobile hurt that?
BC: We think mobile can be even more interactive than desktop. There’s a really key difference with mobile where is it’s not just sight, which is display ads, but there’s also touch. And unique to mobile is the phone and interactive calendar, and all these kind of additional interactive functions that the desktop will never be able to mimic. So, again in terms of are we bullish on mobile? We really are, but we think actually that mobile ads can be better than desktop ads if you create the right kind of ads. So we are really investing heavily in rich media to really make sure that we are giving the most robust interactive ads we can. So we are very bullish on what mobile can do. We have certainly seen from the click-through rates, the response rates — it’s way way above our expectations.
JE: Let’s talk about the big national brands rather than the local people. Are they running brand image campaigns or are they running sort of very specific direct response campaigns?
BC: You know, it really varies. We’ve had some clients that even in the same kind of campaign will have two different messages. One very DR focused, one very brand-focused. So, it really depends on what the objectives are. We’ve had several clients who look it at from both a DR perspective and a brand and image perspective.
JE: The key thing with Pandora that I cannot get past on the business model is, what’s going to happen to the royalty structure in 2015? If that goes wrong for you guys, you are in a lot of trouble. Do you have a solution to this? [Song royalty fees are set to go up that year fundamentally threatening Pandora’s profitability, unless the company can strike a new deal with the industry.]
BC: I think we’re, we’re happy with the business model we have. We are optimistic that in 2015, you know we’ll be able to negotiate the rates and be able to sustain the business and grow the business. It’s hard to predict the future. I wish we’re fortune tellers, we really can’t see completely in the future. But, it’s our hope that we think we have a great business model in place, and we’re not, we really relish the challenge of making the business growing even further.
JE: Do you hear from artists? Do you know what their opinion is? Because it seems to me, if I’m an artist, I’m like — on the one hand I would want to get paid a lot of money, you know — I wouldn’t want to give away my music for free. But on the other hand, Pandora is clearly a huge music discovery tool and as a band it might be worth my while to accept a lower royalty rate to keep my songs out there. What do artists say? Do you know?
BC: I do. And it’s probably one of my favourite things about Pandora, is getting that artist feedback. And I’m talking artists as big as, you know, you know, Adele, Jay-Z, down to your local garage band who is just kind of breaking out. They love Pandora because, for one, we do believe in paying the artists. We are not about, you know, we are just going to play your stuff for free.
JE: So what did Adele tell you about Pandora?
BC: I’m just using her as an example. We’ve had several artists that I can’t name specifically for confidentially reasons. But, you know, we’ve had several artists reach out to us and say look — how am I doing in the Midwest? Or how am I doing in the South? Because we have all this great user data, we can tell them exactly how many stations have been created in Atlanta for this particular artist, how many, how many, you know, listens are they getting. So, they really rely on us to some degree as a little of a data warehouse to kind of gauge, not their popularity, but just kind of how they are trending.
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