Consumers prefer specialists

Pandora’s stock has taken a big hit in recent weeks due to rumors that Apple is considering entering the Internet radio space. Similar concerns have been raised about Microsoft recently “reentering” the space of Internet radio (actually, it’s already in and has been for years — it’s simply rebranding its less-than-stellarly-successful “Zune Music Pass” as “Xbox Music Pass”), about the fact that Spotify is offering radio channels, and about the possibility of Google competing in the music space.

In all of these cases, I think the alarm is over-exaggerated.

Here’s why: Each of those companies is competing in a different product category: Pandora is focused on offering a brand of personalized Internet radio to consumers. Apple, by contrast, is focused on selling hardware (iMacs, iPads, iPhones, iPads) and, secondarily, selling MP3 music files via its iTunes Music Store. Microsoft is trying to sell hardware (Xboxes and Windows 8 devices) and, secondarily, a music subscription service. Spotify is trying primarily to sell a music subscription service.

In all the cases except Pandora, each company may offer “radio” as a feature, but there’s no indication it will be a stand-alone brand or a major company focus in the same way that Pandora is a company that’s 100% dedicated to offering a BRAND of personalized radio to consumers.

Here’s a good parallel: McCormick & Schmick’s, the seafood chain, offers a couple of steaks on its menu — but that doesn’t mean it’s a steakhouse. People who are in the mood for a steak tend to go to a specialist (e.g., Morton’s The Steakhouse, Ruth’s Chris, Del Frisco’s). The steak on the McCormick & Schmick’s menu is to satisfy the odd-person-out at a table who got dragged along by others.

Similarly, Morton’s has a sashimi appetizer on its menu — but that doesn’t make it a sushi restaurant. Their decision to offer a sashimi appetizer is smart, it’s trendy, it’s an indication that sushi is getting more and more mainstream, but consumers who are in the mood for sushi would never in a million years decide to make a reservation at Morton’s.

Consumers prefer specialists.

Kurt Hanson