Market Overview

Pandora's Newest Threat Is Spotify's Free Mobile Service

Spotify is rumored to be developing a new mobile app that will allow non-paying customers to stream music on their smartphones.

According to The Wall Street Journal, Spotify wants to release an ad-supported app for mobile users. Unlike the free desktop application that currently exists, users are not expected to have complete control over which songs they can play. But some songs will be available to play on demand. This could make the app very attractive to existing Spotify users, as well as those who currently rely on Pandora (NYSE: P) for online music.

That said, Pandora might not have much to worry about. The company has built the world's most successful online radio service. Even now, with other (and arguably superior) options available, consumers continue to use Pandora.

As of November 2013, Pandora had 72.4 million active users (a 16 percent increase from the year-ago period). 

If Spotify had already become a genuine threat, Pandora wouldn't continue to increase its number of active listeners.

Spotify is the new kid on the block, however. Americans have only had access to the service for just over two years. Pandora, on the other hand, has been around for roughly eight years.

This gives Pandora an inherent advantage, but that is not the only reason the service has remained on top. People generally seem to prefer radio over on demand forms of listening. That's why Sirius XM (NASDAQ: SIRI) Radio is so popular with drivers all across the country.

Related:Pandora Not Falling Victim to iTunes Radio

Spotify is great for users who know what they want to play, and for those who like to explore full albums at random. But Pandora has been much more successful at serving the millions of music lovers who want to kick back and let its radio service do all the work.

The free Spotify mobile app is expected to be somewhat of an online radio service. But without the Pandora brand name, it may only appeal to existing Spotify users and those who are looking for on demand options.

Disclosure: At the time of this writing, Louis Bedigian had no position in the equities mentioned in this report.

Louis Bedigian is the Senior Tech Analyst and Features Writer of Benzinga. You can reach him at louis(at)benzingapro(dot)com. Follow him @LouisBedigianBZ

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