Can Pandora Do Hyperlocal Ad Sales?

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I’ve commented before about Pandora, one of my favorite online radio plays, and its foray into hyperlocal adverising. When I spoke to company founder Tim Westergren a few years back, he told me it was coming. About six months ago, I speculated about whether Pandora would go seriously hyper-local after it got some IPO cash to build up a sales force. Now Pandora is finally taking aggressive steps into the hyperlocal ad market.

In its most recent earnings announcement and conference on Nov. 22, Pandora’s CEO Joe Kennedy discussed the online music discovery company’s burgeoning local strategy that enables sales of radio spots down to the city and, in some cases, down to the small town, neighborhood or zipcode.To do this Pandora uses the IP address of the device and maps it back to a location. This is standard geotargeting and other local advertising plays are tapping into the same idea. But the question is whether Pandora can push through with this strategy successfully by priming the sales pump with a local sales force. This is inherently an expensive strategy, as the larger daily deal sites can attest to, because salespeople cost a lot of money in salaries, office space, benefits and other accouterments.

The acknowledgement of a local sales force is also an acknowledgement that this is not, in the short-term, a self-service model. The history of self-service radio advertising is not auspicious. In Feb. 2009 Google shut down a radio ad venture that sought to aggregate remnant radio slots and sell them via an aggregated online portal. This came only a few years after the company paid $102 million for dMarc Advertising, which formed the technology core of the business.

That being said, I think Pandora has more than a fighting chance to make this work. First of all, the local ad market is slowly growing more sophisticated. While tons of smaller businesses still don’t even have websites, let alone online advertising presence, the arrival of Facebook has served as an onboarding ramp for many SMBs. Oddly enough, I also think that Groupon and LivingSocial have awakened many local businesses to the possibilities of the Internet for drumming up foot traffic. Pandora also will get a nifty boost from what will likely be a quite spirited election cycle this year and what promises to be record political spending.

What I have not yet heard about, however, is the most promising part of Pandora ads. That would be combining local targeting with behaviorial targeting of some sort. Some of this may be sort of obvious. A skateboard shop is not going to buy ads against, say, streams built by Mozart lovers on Pandora. But over time Pandora could figure out ways to track back actual efficacy of ads – perhaps through coupon codes, perhaps through some sort of SMS-driven offers available only to listeners – that will close the loop on the efficacy of ads. Unlike radio, a Pandora stream is connected to an Internet enabled device, meaning that clicks or actions are more easily tracked and opportunities for interaction simple to realize.

And that, in turn, could drive even more finely grained targeting – and better values for merchants. Already, Pandora’s response rates are well above what most online ads see and probably ahead of radio ads (it’s very hard to track radio ads because no one can click on them). Look for Pandora to really break open the local market for Internet audio – even if they have to do it with a sales team – and set a whole new standard for audio add accountability.

Alex Salkever’s Personal Fight column appears every Friday on Street Fight.