First to market means nothing

There are countless examples of ‘first to market’ not being a sustainable competitive advantage. Comparing the 2018 public offering of Spotify to Pandora’s original IPO in 2011 is a major example. Below are some excerpts from Pandora’s S1 (official IPO document filed with the SEC) that show its dominance at the time:

Pandora is the leader in internet radio in the United States…. In January 2011, we had over 80 million registered users and we added a new registered user every second on average. We have more than a 50% share of internet radio listening time among the top 20 stations and networks in the United States… Since we launched the Pandora service in 2005, our listeners have created over 1.4 billion stations… Our revenue was $55.2 million and $90.1 million in fiscal 2010 and the nine months ended October 31, 2010, respectively… Although Pandora has more than a 50% share of all internet radio listening time among the top 20 stations and networks in the United States, according to Ando, we estimate that we represent only 2% of total U.S. radio listening hours.

Clearly Pandora was the dominant player in streaming at the time. Funny enough, they even mention Spotify as a competitor, almost as an afterthought:

Our competitors include terrestrial radio providers such as CBS and Clear Channel, satellite radio providers such as Sirius XM, online radio providers such as iheartradio, Last.fm and Slacker Personal Radio, subscription online on-demand music providers such as RDIO and Rhapsody and potential U.S. market entrants like Spotify.

Fast forward to today. Pandora’s stock price languished for years at less than 1x revenue, annual revenue growth slowed to 3%, annual revenue prior to being acquired was about $1.6bln (Q3 2018 annualized), and annual losses were about -$82mm annualized. In September 2018, SiriusXM acquired Pandora for $3.5bln (~2x revenue). Meanwhile Spotify’s dominance is crystal clear. Below are excerpts from their S1:

We are the largest global music streaming subscription service…. With a presence in 61 countries and territories and growing, our platform includes 159 million MAUs and 71 million Premium Subscribers as of December 31, 2017, which we believe is nearly double the scale of our closest competitor, Apple Music…. Our Premium Subscribers have grown 46% year-over-year as of December 31, 2017 to 71 million. Our 159 million MAUs have grown 29% year-over-year as of December 31, 2017…. For the years ended December 31, 2015, 2016, and 2017, we generated €1,940 million, €2,952 million, and €4,090 million in revenue, respectively, representing a compound annual growth rate (“CAGR”) of 45%…. Spotify’s global streaming market share was approximately 42% in 2016 as determined by revenue, and we had market share of approximately 41%, 42%, and 59% in the U.S., Brazil, and United Kingdom, our three largest markets by MAUs, respectively. In addition, we accounted for greater than 95% of the streaming market in our home country of Sweden. We made up almost half of global revenues from paid streaming to record labels in 2016. Through December 31, 2017, we have paid more than €8 billion in royalties to artists, music labels, and publishers since our launch.

It’s clear first to market didn’t mean much in streaming music. I’m willing to bet that it doesn’t mean much in your industry either so if you’re a new player, don’t fear the big incumbents.

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