Tim Westergren, founder and chief strategist of Pandora was struggling to balance the interests of investors while staying true to his dream for Pandora. As the company stood, they were going to run out of cash by the end of the following year and Westergren had to decide if he should pull back on growth and raise just enough money to stay afloat for long enough to reach an exit, or if he should go full throttle with viral growth and exploit the first mover advantage, raising a more significant amount of capital with the hopes of a possible future IPO?
Pandora was created by Westergren and two friends with the Music Genome Project, a music discovery engine designed to connect listeners with artists. Each song was analyzed for its' "musical DNA" and entered into the music library. This analysis determined what songs This was how the Pandora team would be able to determine what users were listening to and recommend artists and songs based on each users' likes and dislikes.
However, Copyright Royalty Board instituted a major increase in royalties to be paid by internet radio stations for streaming music during 2007–2010. Westergren felt that the royalties would put an end to internet radio, including Pandora. Westergren sent a letter to all listeners, in response to the increase in royalties, requesting them to sign petitions to urge Congress to take action in order to save internet radio.
During this time, CD's were becoming obsolete because downloading music from the internet and iTunes was growing at a rapid rate. In addition, radio, satellite radio and iPods were becoming the main players in the distribution of music.
RecommendationIf Westergren and his team raise a sufficient amount of money, the risk will be worth the reward. The industry is in the midst of transformation, listeners are no longer buying CD’s and they do not seem to be happy with their existing radio offerings. An increasing amount of people are switching to satellite radio and internet radio. The internet radio offers a broad offering of music with customizable stations. We are moving into a digital age where consumers want to be able to customize as much as of their consumption as possible, why not offer customizable radio? Pandora should find ways to generate money with more advertisements, subscriptions, concerts, shows and sponsorships in order to gain more capital.