For Pandora, one of the biggest players in Internet radio, figuring out the future is both challenging and intimidating. If the regular challenges of growing a new company aren’t enough, Pandora also faces a market that is reeling in turmoil. In the new digital world, the way people listen to music continues to change dramatically. It seems likely that Pandora will either lead the changes or fall victim to them. Pandora was founded just over a decade ago. At that time, a vast majority of music listeners were still getting their groove on in one of two ways: They either popped a CD into their home, car, or personal CD player or they turned on the old AM/FM radio. But the advent of digital formats like MP3s has had a huge impact on CD sales and has drawn people away from what is now called “terrestrial radio.” Moreover, like the music business, the radio business has faced major changes of its own. The Telecommunications Act of 1996 reduced limitations on the number of stations that one owner could hold. This led to huge ownership groups that consolidated and standardized listening formats. The result is less diversity on the radio, with shorter playlists and fewer artists represented. From one city to the next, all across the United States, radio stations have started to sound more alike. Both these trends – combined with the explosion of Internet usage and changes in online technologies – have led to a deluge of companies trying to capitalize on the future of music distribution.
This includes download services such as iTunes, subscription services such as Rhapsody and eMusic, an endless number of Internet radio stations, and even satellite radio network SirriusXM. Today, with an ever‐growing list of listening devices and cloud music services that store personal music libraries so they can be accessed anywhere by any device, listening trends continue to evolve. But one thing about the future is certain: The business of listening to music is full of disruption and confusion. Things are changing fast and the winning products and services—indeed, the survivors—are yet to be determined. The Power of People Amid the chaos, Pandora has carved out its own niche, setting itself apart as an automated music recommendation service. It isn’t a play‐on‐demand service, where members can simply choose the exact song and artist they want. Rather, listeners enter an artist or song suggestion. The playlist starts with a track by the requested artist and inserts additional songs by that artist every once in a while. But in between, Pandora cues up songs by other artists similar in nature to the requested material. If an unliked or unwanted song plays, the listener can click the “thumbs down” icon or just skip the song and it will be removed from the list. Users can also create stations by browsing artists alphabetically, or they can tune in to pre‐made genre stations or to other users’ stations. Listener’s can create as many stations as they wish, each oriented around the initial input. Lots of online services employ similar recommendation features (think Netflix and Amazon). But Pandora has set a precedent by the predictive power of its recommendation software. The Pandora software is amazingly precise at choosing material that fits with what the user wants. According to Tim Westergren, founder and Chief Strategy Officer for Pandora,