April 11, 2011
Pandora Radio: From Rags to Riches to Federal Investigation?
By Brittany Schweiker
Pandora Radio has always done a great job forming and presenting their image to the public. Taking co-founder Tim Westergren’s
“Music Genome Project” and turning it into the most popular consumer based internet radio, the company has created their brand as being cool, innovative, grassroots and most importantly, user focused.
Their back story is a good one too. Created in 2000, the project has been a rags to riches type tale. Along the way Pandora watched as other music services such as Napster and imeem all met their slow and painful demise, but still they persevered. Westergren maxed out twelve credit cards, had no means to pay employees for two years, and failed on 383 pitches to gain any investor interest in the organization. That was until his 384th pitch in early 2004 to Larry Marcus, a musician and venture capitalist, who decided to endow $9 million into the project. It was all they needed. Listenership quickly rose, and in 2005 they sold their first ad.
As the site’s popularity grew so did their headaches. In 2007, the federal royalty board significantly increased the rate paid by online radio stations to musicians. After two years of lobbying and uncertainty in the company’s future, Pandora and the royalty board reached an agreement on a still high, but lower rate. Pandora could no longer provide a “free” service, but they were able to alter their structure with little effect on their user base. Presently, users are permitted 40 hours of music per month at no cost. After hitting that 40 hour mark, registrants are given the option to pay .99 cents to go unlimited for the remainder of the month – a pretty good deal if you ask me.
It wasn’t until 2008 that business began to surge. Realizing that the internet was moving beyond a computer screen, Pandora was one of the first companies to use developing technologies to integrate their business into their consumers every day, or should we say every hour, life. First was the release of their mobile app, which allowed consumers to stream music to their mobile devices. Almost immediately, user registration doubled, averaging some 35,000 new users a day.
They didn’t stop there. A few months later Pandora announced they were teaming with automotive companies like Ford, Mercedes Benz, Toyota and Hyundai to offer drivers the ability to sync their mobile Pandora app to their car radio by use of their smart phones. Since the announcement, other electronic companies like Samsung and Vizio are also working to integrate Pandora into their blu-ray DVD players, TVs, and music stereos.
But Pandora has more than just a cool brand, a great back story and product integration, they have user loyalty. There are plenty of other music services that offer things Pandora does not: specific song selection, 1 million + song catalogs or completely free services, yet Pandora continues to be overwhelmingly the most popular choice. Which is why plenty were shocked when just last week the Wall Street Journal broke news of a federal investigation into whether or not Pandora, along with other app publishers, were collecting and distributing private user data without proper consent.
Software analysis firm, Veracode, publicly confirmed that both Pandora’s Android and iOs app logs and transmits a user’s GPS coordinates, age, gender, unique mobile code and birth date to several advertising firms. While each independent piece of information does not seem significant, when grouped all together it is definitely viable to determine the kind of person that specific user is – scary. Pandora claims that the subpoena was delivered “on an industry-wide basis to the publishers of numerous other smartphone applications.” Makes sense I suppose, but other apps like Twitter and FourSquare tend to make it pretty obvious that they are tracking user data like location, birthdate, and interests to enhance the user experience. But who would of ever thought that a company like Pandora would sneakily be distributing such specific personal data without user consent?
The investigation centers around the Computer Fraud and Abuse Act, a law created to prosecute hackers. If found guilty, the consequences and legal matters could potentially shut down a company indefinitely. How can Pandora, an organization only just beginning to reach a comfortable financial position, reflect, or if proven guilty, rebound from these allegations? Will Pandora’s good image and public trust be affected by the investigation? Should we as app users be concerned with this matter, or is it a price we pay for a free service?