Apple Prepares to Disrupt Pandora Media With This Coming Move

Since you're most likely unaware, I've been following the massive run-up in Pandora Media's stock over the past 12-18 months with utter fascination, especially after the entry of Apple into the streaming space late last year.

Pandora shares have outperformed both the S&P 500 and more tech-centric Nasdaq Composite since Apple officially launched iTunes radio on September 18, and Pandora's growth metrics haven't been derailed by the advent of iTunes Radio, as some had speculated. Overall, it appears things have been business as usual at Pandora. 

However, one recent report detailed yet another way that Apple appears to be preparing what should be its best offensive to date against Pandora's streaming radio leadership later this year.

Source: Pandora

What song is that?
According to reports, Apple is working to integrate song recognition technology into the update to iTunes and iTunes Radio, possibly as soon as its World Wide Developers Conference in June.

These same reports suggest the technology powering Apple's song recognition would license directly from, or prove quite similar to that of, leading music-recognition company Shazam's popular app. Furthermore, Apple also apparently plans to utilize voice-powered queries as well, courtesy of digital assistant Siri, naturally. 

This might seem like an insignificant move on Apple's part, but it's actually more relevant than many realize. By integrating song recognition technology into iTunes Radio, Apple will, for the first time, be able to offer something that Pandora's own streaming radio service doesn't. Perhaps the meaning is more symbolic than relevant to this specific instance, but it could represent a changing tide in the battle for user adoption between the two providers, as song recognition alone probably isn't compelling enough to drive Pandora users to iTunes Radio.

However, this move highlights the fact that Apple, aside from Pandora's historical lead, is ideally positioned to compete with the streaming upstart. Apple's deep pockets, and equally deep engineering bench, enable it to form deals to integrate disparate technologies into its streaming offering. Apple could buy or license a cool, somewhat accretive technology from a company like Shazam for, say, $100 million without batting an eyelash, whereas that same $100 million theoretical deal would cost Pandora roughly one-third of its total available cash.

Is Apple set to take the lead from Pandora?
Apple's scale advantage mattered less even as recently as even a few months ago, when iTunes Radio was just coming to market.

However, going forward, this key advantage for Apple could begin to influence consumer behavior if the company continues to add features to iTunes Radio that Pandora simply can't match.

Apple's rumored overhaul of iTunes in the coming updates to its iOS mobile software could have already carried some negative implications for Pandora. Rumor has it that Apple is considering untethering iTunes Radio from the iTunes app, and instead releasing it as a stand-alone app. That would also allow Apple to position the independent iTunes Radio app in a more prominent position on the iPhone and iPad homepages, which could help spur adoption and threaten Pandora's user base.

These are all still rumors at this point, but it's looking as if Apple has every intention of closing the gap, and then outdoing Pandora in the coming iOS update. Considering its sky-high valuation and possibly moderate growth, Pandora investors should certainly pay close attention, as this possibly game-changing story unfolds later this year.

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Andrew Tonner owns shares of Apple. The Motley Fool recommends Apple and Pandora Media. The Motley Fool owns shares of Apple and Pandora Media. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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