Business

Rdio Enters the Internet Radio Business with Free Listening Update

Cell phone and headphones, 2014.
Ezra Bailey/Getty Images

A woman relaxing at home listening to her phone.

The company looks to expand its subscriber base with a new free radio service aimed at Pandora -- and Spotify.

Music subscription service Rdio has finally followed its peers into Internet radio, a type of music service that has become a common tool for paid subscription services to attempt to attract more paying customers.
 
Rdio's free, advertising-supported Internet radio service will launch in 20 markets, including the United States. Built into the updated Rdio mobile app, the nameless service will feature advertisements procured through Rdio's partnership with Cumulus Media, the second-largest broadcast radio company in the United States.
 
Chief operating officer Marc Ruxin, who arrived three months ago with Rdio's acquisition of music discovery app TastemakerX, believes there's a lot of room to improve on existing Internet services. "Our epiphany was let's create a free product that's global that does a better job than the products that are out there."

  Rdio, launched in 2010 by Skype founders

and

, is late to the party. Competing subscription services are already trying to use Internet radio to attract listeners and eventually convince them to pay $9.99 per month for the unlimited on-demand service. Spotify has offered a free Internet radio service on its mobile app since mid-2012 and expanded the free mobile offering to all users in December. Rhapsody followed in July with unRadio , an advertising-free radio service priced at $4.99 a month. Apple took a different route, launching iTunes Radio first and then acquiring the subscription service Beats Music.

But the strategy just might help paid subscription services gain the momentum they need to become sustainable entities. It seems to have helped Spotify, whose chief executive Daniel Ek told Billboard in May its free mobile service had helped accelerate growth and accounted for 80 percent of new subscribers at the time.
 
Successful conversion will come down to the product. Rdio's radio service is more than adequate. It combines personalized stations with curated stations from Cumulus, NPR, Shazam and Paste. It also has a social aspect that allows users to select stations that are trending with both everyone and followed users. It enjoys catalog of roughly 30 million songs, although Pandora, which has fewer than 2 million songs in its catalog, has proved size of catalog is not a critical factor for Internet radio.
 
Compared to the standard bearer, Pandora, Rdio suffers from a typical problem -- too many steps are required to get from Point A to Point B. The small screens of mobile devices require simplicity, yet Rdio's radio service feels more like an on-demand service's first stab at a new, simplified type of listening experience. In some cases the extra effort is one tap on the screen. In mobile apps, however, the difference between an average and great user experience can be a single tap.

  Rdio is employing the same, funnel-like strategy common in e-commerce: Attract as many consumers as possible, get some of their email addresses and eventually convert some of them in regular customers. In the early days of subscription services -- think Rhapsody and Napster in the early- to mid-2000s -- the basic model called for heavy advertising spends, hardware partners and a $9.99 monthly fee to enjoy unlimited music.   The model began to change when Spotify, launched in Europe in late 2008, popularized a freemium model that uses a free, advertising-supported, PC-only service to attract listeners. In this model, success depends on some listeners paying a monthly fee to remove advertisements and enjoy unfettered access via mobile apps.   Internet radio is now part of the freemium model. Over the years, record labels have acquiesced to services' please for flexibility in their business models. As a result, a mobile app, once the paid tier's prime attraction, now offers free Internet radio too all comers. That gets people through the door, using the product and building a list of favorite music.   Rdio wants to "build the mass market then have a certain percentage subscribe," says Ruxin. Streaming music is a numbers game, and Internet radio has the numbers. Pandora alone has over 77 million monthly users -- 37 million more than Spotify has in dozens of countries. Internet radio, a mainstream product with proven demand, may be the best path to the mass market.