By pricing the service at $9.99 per month and not having an ad-supported model, Spotify, Pandora and others have little to fear. The ad-supported model has allowed Spotify to grow to over 24 million users, with over 6 million of those paying for the service. Yes, Google's "Listen Now" feature, which can suggest music to you based on your history, and allows you to combine your purchased music with the radio feed, is nice. But the short-sightedness to attack Spotify, Pandora and others where Google knows best (targeted ads), seems like a curious decision, and perhaps a mistake. Google shares were higher in Thursday trading, up 0.68% to $922.10.
Piper Jaffray analyst James Marsh notes that the subscription is more limited than the ad-supported base, so it seems as if Google is limiting itself in its approach to a streaming service. "[T]he subscription market is a more limited market, with roughly 20% of radio listeners willing to pay (Pandora's target market is really those they prefer to listen to ads rather than pay)," Marsh wrote in his note. He rates Pandora "overweight," and raised his price target to $20 from $17.
Google is clearly targeting Spotify with this model, but given Google's dominance in ad-supported businesses, one has to wonder why this approach was taken. Google didn't give users a huge reason to switch from Spotify and pay the $9.99 per month ($7.99 per month if users get it by June 30th). It's still obviously very early, with the service having launched in the U.S. just yesterday, but Google could've used its largesse and the fact it has its own operating system, Android, to really put the foot down on its competition.