Pandora Radio CEO Gives Danville Audience an Inside Look at the Company

On a rainy evening last Thursday, around 150 people ventured out to the to listen to Joe Kennedy, CEO and president of Pandora Radio talk about the evolution of the company.

Kennedy, a 13-year Danville resident, spoke as a special guest of the and the .

Over the course of two hours, Kennedy shared with the audience what he characterized as “the Russian novel” version of the story of how Pandora got its start, as well as insight into how the company grew to command 70 percent of Internet radio's listeners. He also fielded questions and feedback from the audience in a far-ranging open Q&A.

Kennedy said Pandora originated from “the spark of an idea” by founder and current Chief Strategy Officer, Tim Westergren.

Westergren, a Stanford graduate, played professionally with his band, Yellowwood Junction, formed in 1993, and had steadily built an audience through regional touring, while also working in the film industry as a film score composer.

Out of those experiences, came the “crazy idea” that he thought might solve a problem that was “near and dear to him”: how do bands connect with people and build their audiences, and how do listeners discover new music that matches their individual musical tastes?

With a small amount of funding to get it going, Westergren launched the Music Genome Project in 2000.

The concept involved utilizing human musicians “with a deep background in music theory” to systematically categorize individual pieces of music in all genres into a sophisticated hand-made taxonomy made up of over 400 attributes. Once the music was categorized, complex algorithms were applied to predict and match a user’s unique listening preferences and suggest other musical choices.

Kennedy likens how the multi-functional algorithms work to a bonsai tree. People start out with a similar tree, but through their thumbs up and thumbs down interactive feedback, the tree grows new limbs, or the user trims and reshapes the tree.

The company experienced some early success with their concept, and was featured on kiosks in select Best Buy stores. While it was successful in increasing sales, by 2002, the music business was fundamentally changing, and consumers increasingly moved away from buying CDs to downloading music.

While Westergren’s idea was sound, the business model was not. Pandora was running on fumes.

Kennedy said the company had “even exhausted the fumes” of their initial funding by 2003, and faced eviction from their decrepit Oakland office building. A dedicated core group of 20-30 people remained, who had been working without pay for two years.

Pandora may have gone the way of so many other start-ups with great ideas but execution problems had it not been for the fortuitous connection between Westergren and an angel investor, Larry Marcus, with Walden Venture Capital.

Marcus, who was himself a drummer, recognized that Westergren had a “great piece of intellectual property, but in the wrong business."

Marcus took a big chance and invested $8 million, $2 million of which immediately went to pay back wages to the employees that had remained with Pandora while it struggled for life.

Kennedy, who had a background in building consumer businesses, and other executives were brought on board in 2004 to reconfigure the company’s management team, allowing Westergren to focus on strategy.

They retooled the company’s business vision towards interacting directly with consumers rather than businesses, and worked on developing “one-click, customized radio.”

Kennedy said he never thought that he would join a music company, and the opportunity “came out of left field.”

He said he decided to join Pandora because he “fell in love” with the people, their sense of purpose and passion, and the vibe of the company. Westergren was “the most likeable guy he ever met on the planet,” he said.

But, Kennedy's “left-brain MBA” business sense also told him that Westergren had possibly solved the huge and nearly universal problem—perhaps the last big problem—of overcoming overwhelming choice as a barrier for music and music lovers to find one another.

Pandora immediately took off, and fueled solely by word-of-mouth created by its growing legion of fans, it grew “like wildfire.” In fact, Kennedy said they didn’t need to spend any traditional marketing dollars; the buzz took on a life of its own.

During Thursday night’s talk, Kennedy relayed the further twists and turns and “amazing luck and serendipity” that have accompanied Pandora’s rise. These included a “shadowy cyber squatter;” a nearly game ending blow dealt by the federal government who moved to triple licensing rates in 2007; and the introduction of Apple’s “transformative” iPhone.

Receiving advance word of the opening of the new iPhone’s App Store, led the team to make the “best business decision they ever made,” said Kennedy. They decided "to drop everything" and develop a Pandora application in 10 weeks time for the opening of the store.

Pandora’s app is now the No. 2 most downloaded in the App Store’s history, second only to Facebook.

Today, Pandora has 125 million registered users in the U.S., and signs on a new user every two seconds, said Kennedy. The company went public last year, and recently posted its first full financial accounting, reporting $275 million in revenue, doubling the performance of the previous year, according to Kennedy.

In the future, Kennedy said the company’s goals include continuing to make their intellectual property better.

They collect and analyze a huge amount of data, some 15 billion thumbs up and down, to continue to fine-tune the users’ individualized and dynamic experience. A curation team scours music blogs and other “under the radar” sources to continually find new artists and music to add to the service, including bands like Danville’s own .

Another strategy they are pursuing is “Pandora everywhere.” Seventy percent of their users currently engage with Pandora on mobile devices. They are also working with carmakers to ensure that new vehicles integrate with their service.

Making Pandora available internationally remains another key goal.

Although the service initially was available worldwide when it first launched, for about 18 months, it is currently only available in the United States because of copyright and licensing roadblocks.

Kennedy acknowledges is a frustrating challenge for a company built on the concept of freely connecting people and music. Pandora is actively working towards once again serving its many international fans whose profiles are saved and waiting for them, he says.

Fun facts:

• Pandora is not the company’s original name; it was originally called “Savage Beast Technologies.” The Pandora name was “scribbled on the back of a Billboard magazine” while they were brainstorming new names for the company in 2005.
• The very first song to be categorized by the Music Genome Project was “Dancing Queen” by ABBA.
• Pandora plays 500 million songs each day, streaming a petabyte, or as much as the entire U.K. does in one month.
• You can have up to 100 stations on Pandora, but they are never deleted, so if you decided to bring another one back into rotation, all your preferences are still intact.
• Pandora users interact with it on an average of seven times per hour.

Correction: A previous version of this story incorrectly stated profits of Pandora. This article corrects that error.