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Summary:

Tim Westergren’s Pandora is going to go public later this week. His story is fascinating and ultimately inspiring, with several simple yet fundamental lessons to be learned: the importance of not giving up, taking risks and — the biggest of them — making your luck.

music

Sometime this week, if all goes well, Pandora will start trading on the NYSE at a rumored $2 billion market cap under the “P” ticker. The “P” could very well stand for “pivot.” Most people nowadays think of Pandora as the personalized streaming radio service or app. But it actually started out as Savage Beast Technologies, which licensed music recommendation technology to retailers like Best Buy.

It oversaw the Music Genome Project, an ambitious, even quixotic attempt to comprehensively analyze music according to its attributes or “genes.” It was all very “dot-com.” We at Live365, another Internet radio effort, were aware of Pandora as a little startup in the music recommendation space. There have been many music recommendation companies, but few of them have achieved much traction. And so it was for the Music Genome Project.

In 2004, as I was in the process of leaving Live365, Larry Marcus, of Walden VC, asked me to have dinner with Pandora’s CEO, Joe Kennedy, in case there was a role for me. Walden had just put some money into the startup with Joe and a management team coming in to run it. They’d decided to use the music genome that they’d spent millions developing to create a personalized radio service. But I was having none of it at the time. Jaded from dealing with the intractable Recording Industry Association of America and the record labels, and in the process of moving east, I wished them luck. And how.

The ensuing years were rocky, to say the least. As the New York Times article points out, Pandora didn’t sell its first ad until December 2005. Then came the internet radio royalty rulings, which threatened Pandora’s business, along with that of everyone else in the industry. But they persevered, borrowing some pages from our playbook in getting their listeners to lobby Congress, ultimately resulting in lower rates. And then, in 2008, things finally started breaking Pandora’s way, with the launch of the iPhone App Store.

The holy grail during my time at Live365 was always when internet radio would get “off the desktop,” when IP connectivity would be commonplace in the car. Fast-forward several years to the rollout of 3G and the advent of the smartphone, which made it all feasible. Pandora jumped on this, saving the company in the process.

It launched its first iPhone app in 2008, and the app immediately took off, generating 35,000 sign-ups a day. Distribution deals with set-top boxes, car manufacturers and others would follow, and the rest, as they say, is history. Today Pandora has a multibillion dollar valuation clocking $51 million in revenues in the first quarter of 2011 alone. The Pandora story is fascinating and ultimately inspiring, with several simple yet fundamental lessons to be learned:

Don’t give up. The company had many near-death experiences. What didn’t kill it only made it stronger. Tim Westergren, the founder and public face, should rightly be applauded for his grit and perseverance.

Take risks. Larry Marcus, the partner at Walden VC, is one of the unsung heroes of this story. It took guts to put millions of dollars into a struggling music recommendation company in 2004 to fund its shift to internet radio, itself an unproven medium.

Make your luck. The company “got lucky” with the launch of the iPhone App Store. But it deserved it by virtue of having survived and then taking advantage of the transition to mobile and ubiquitous connectivity. Kennedy, Tom Conrad and the rest of the team should be commended for their relentless execution on optimizing the product, on gaining distribution and growing revenues.

But the team is not out of the woods. Indeed, as they go after the big players such as Clear Channel, CBS Radio and Sirius, they will have to deal with the increased scrutiny and expectations of public investors raising serious doubts about their business model. Also gunning for them are a raft of nimble startups such as 8tracks (see disclosure) and turntable.fm, all vying for “ear share” if not mind share.

Do I look at Pandora and think, “That could have been us at Live365″ (which, incidentally, continues to be a going concern)? Of course I do. But I don’t lose sleep over it. Alas, we didn’t have the wherewithal to do what Pandora did, and I have no regrets about leaving digital music to join the founding team at video startup Brightcove, which has been immensely fulfilling in a number of ways. And so, despite having an interest in one of Pandora’s competitors, I’ll be rooting for “P” this week.

Disclosure: I am an advisor and investor in 8tracks, a Pandora competitor. At the time of writing, I am not planning on taking any position in Pandora stock when they start trading. All of the opinions expressed are my own and not that of any companies I’m affiliated with.

Rags Gupta is currently VP at Brightcove, based out of London. He was an executive at Live365 from 1999–2004.  He can be found at www.twitter.com/ragsgupta and www.ragsgupta.com.

  1. Great story! Nice to hear good guys win for change..

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  2. I agree! Great story, and good learnings. And it’s great that we came that long a way in terms of enjoying music online, it’s easy to forget the hard work that’s been put in over the years.

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  3. I loved Live365!, at least for awhile. It was somewhat primitive and damned ugly, but it gave me what I wanted and no one else seemed to offer it. I’m sorry that it hasn’t taken off, though it’s understandable (music royalties, RIAA, streaming costs, user acquisition costs — I’m guessing at these). I actually don’t use or like Pandora that much. But Live365 Internet Radio crowd-sourced deejays … it was (is) cool.

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  4. Wonderful article, Rags. Pandora has earned everything positive they have received. Good People DO Win!

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  5. Putting aside the IPO itself (and overall valuation) — the ultimate take-away here (i.e., perseverance and tenacity) are worthy of deep reflection and absolutely dead on for any entrepreneur.

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