Key takeaways:

• “Stacking” ticketing onto streaming creates a new type of music company, the full-stack streaming company, where Ticketfly gains access to Pandora’s user base of 81 million monthly listeners.
• Pandora can leverage its listening—22 billion hours in 2016—and listener data to deliver hyper-focused messages and win incremental ticket sales.

Until a few years ago, ticketing and music streaming existed in entirely separate verticals. Since the late ’00s, dozens of ticketing companies have sprouted to challenge the traditional ways venues and promoters sell and market tickets. At the same time, streaming services had changed how people listen to music, all the while growing into mainstream products with many tens of millions of listeners. Because their businesses had some overlap, ticketing and streaming companies would often partner to, say, display tour dates on streaming services. But although they undoubtedly had customers in common, these companies never officially tied the knot.

This standard relationship changed, however, in 2015 when Pandora dove headfirst into ticketing with its acquisition of Ticketfly, an eight-year-old company across the Bay from Pandora’s Oakland headquarters. Pandora’s goal with the purchase was to build a new type of music company that would improve the user experience and help artists reach fans. In doing so, this became the first, and still the only, combination of a streaming service and a ticketing company — and a music-focused ticketing company at that.

Enter the term “full-stack digital music.” A full-stack digital music company combines products that complement and add value to one another. (The term has been used by Songkick founder Ian Hogarth to describe the convergence of music streaming and ticketing. It’s a take on the term “full stack developer.”) Stacking one company atop another brings to mind the vertical integration, a combination of companies from different stages of production; think of a paper manufacturer buying a pulp mill. In the case of this digital music stack, the streaming service creates new sales by connecting listeners to concerts where they live. If not for Pandora, the listener may not have found out about a show. Further, Pandora can leverage a decade of listening data to market at a granular level.

Some early results show the full-stack potential. In the first full year after the acquisition, Ticketfly’s gross revenue grew 25 percent year-over-year to $86.6 million. As CEO Tim Westergren said during the fourth quarter earnings call on February 9th, targeted messaging is “a remarkably effective driver” of ticket sales. To his point, Pandora become the 5th-best traffic source to Ticketfly by the end of the year. In another case, Pandora and Ticketfly partnered with Riot Fest to raise awareness and drive ticket sales for its 2016 festivals in Chicago and Denver. The campaign had 23 million impressions across Pandora and Ticketfly and accounted for 12 percent of online tickets for the Chicago concert and 14 percent of sales for its sister event in Denver.

The full-stack digital music company was a sensible, perhaps inevitable, outcome of a competitive environment. In the early days of music streaming, services’ marketing to consumers often emphasized size of catalog. (First it was a few million. Then 10 million, 15 million, 20 million. Now it’s over 40 million.) With the quantity of songs being less important, services shifted their focus to personalization, recommendations and ubiquitous listening on a variety of devices. Now, larger steps are being taken. One option is a new product category. Pandora is taking this step with its launch of Pandora Premium (there will be a limited release in March). Another option for growth is an acquisition, ideally one that creates opportunities not available to either standalone company and builds a unique product. Pandora also chose this route, believing its footprint — now 81 million monthly listeners — and its listener data — favorite artists and user location, for example — would help unlock value in Ticketfly. The phrases “one plus one equals three” or “greater than the sum of its parts” are appropriate here.

Ticketing checks a number of boxes. Pandora becomes a more diversified, fuller company that can build on its 22 billion listener hours in 2016. Another benefit is Pandora can become a better place to experience music. The “discovery” aspect of music streaming can extend to live music. Listeners will be able to find concerts during the 22 hours they average each month (as of December 2016). The acquisition also gives artists another tool on the Pandora platform to help their careers. Additionally, the acquisition creates a mutually beneficial relationship. Yes, Pandora can help Ticketfly — sell tickets, attract and retain clients — but Ticketfly can also send its customers to Pandora. Complementary services are able to assist one another in this way.

Full-stack companies are actually common in the wider music industry. Take the major labels. Companies usually called “record labels” are often full-stack companies that can include publishing, merchandise, distribution, music production, live music, and in years past, manufacturing (which has since been sold off). Sound recordings have been stacked upon music publishers. Label services have been stacked on digital distributors. But until 2015, streaming services, the younger of the music companies, had been rather single-minded in approach.