As our readers know, Vator has started a series called When they were young.
It’s a look back at the modest days of startups, what traction they had in their first few years, and how they evolved. In the end, we hope to provide a glimpse into what great startups looked like in their first three years.
Stories like these are always well received because it reminds us that anyone, regardless of pedigree and environment, can rise above the noise and have great influence. They show us the value of being resilient, persistent, and committed. If we can follow their footsteps, maybe we too can have similar success.
This segment is on Pandora.
— Pandora’s First Year —
Founded: January 2000, as Savage Beast Technologies. The name is an allusion to the phrase, “music hath charm to soothe the savage breast.”
Founders (ages at the time): Will Glaser, Jon Kraft and Tim Westergren (34)
Initial company description: The founding idea for the company was to be a recommendation engine. Retail stores would integrate Savage Beast technology into their websites and in-store kiosks to help drive music sales.
The idea grew out of Westergen’s experiences as a musician, and as a film composer, where he learned to understand what kind of music people, in this case directors, wanted and liked.
“I had this idea to codify that genomic approach to understanding musical taste and leveraging technology and the Web to build a recommendation engine,” Westergren said at Vator Splash in 2011.
“The initial thesis of the company was we would build this intellectual property and license it out to this growing array of music properties, portals and websites, etcetera. CDNow, eMusic, IUMA, this generation of new music businesses. And, through an API, we’d become a licensed technology.”
Product, at less than one month from founding: On January 14, 2000, Westergren, Kraft and Glaser, along with Jeffrey P. Stearns, file a patent for The Music Genome Project, the company’s core technology, which allows it to match songs based on characteristics such as tone and harmony.
“A database of multiple items such as songs is created. Each song is also represented by an n-dimensional database vector in which each element corresponding to one of n musical characteristics of the song. An n-dimensional source song vector that corresponds to the musical characteristics of a source song is determined. A Distance between the source song vector and each of database song vector is calculated, each distance being a function of the differences between the n musical characteristics of the source song vector and one of source database song vector,” is how it is described in the patent.
The company initially hires a few dozen musicians to listen to songs, and analyze them manually, assinging a number to each attribute. Computer scientists then attached to that the algorythm to connect songs.
The first song that the team types into the search engine, after analyzing a few thousand songs, was a Beatles song, which the Music Genome Project matches to The Bee Gees.
First funding, at two months from founding: In March 2000, Savage Beast raises $1.5 million from undisclosed investors.
Launch, at 10 months from founding: In November 2000, Savage Beast Technologies launches, noting its “music discovery technology that enables music distribution channels such as Web and brick-and-mortar retailers, record labels, music portals, digital music sites, electronic jukebox providers, and Internet radio sites, to provide an exciting music discovery experience that is compelling, fun, and educational to consumers.”
Tower Records and Riffage, a digital music company, represent two of Savage Beast’s charter partners.
— Pandora’s Third Year —
Traction, at two years and five months from founding; one year and six months from launch: In June 2002, Tower Records becomes the first company to pilot a self-service Music Discovery Center kiosk in its stores.
The kiosks, deployed in three New York, Los Angeles and San Francisco stores, are designed to help consumers navigate Tower’s catalog of music by allowing customers to explore and discover music tailored to their own individual tastes.
— Pandora’s Fourth Year —
Traction, at three years and one month from founding; two years and three months from launch: In February of 2003, Savage Beast reaches a deal with AOL Music to power navigation and personalization features across AOL’s network of music properties.
AOL members are able to use are Savage Beast’s recommendation engine to search catalogs for songs musically similar to their current favorites, build custom playlists based on particular songs or use Savage Beast’s software to design a personalized search engine based on a custom set of musical criteria.
“By integrating Savage Beast’s technology, AOL will begin to deliver on the long awaited promise of personalized music on the Internet. By placing control in the hands of the consumer, Savage Beast has created something truly unique. This remarkable software will enhance the programming strengths of AOL to expand our current services, help attract and retain AOL Broadband consumers, and further our ability to provide unique value to artists and label partners,” Kevin Conroy, then Senior Vice President and General Manager at AOL Entertainment, says.
Traction, at three years and nine months from founding; two years and 11 months from launch: In October of 2004, Savage Beast reveals that it has added its 350,000th song to the Music Genome Project.
— Pandora’s Fifth Year —
Second funding, at four years and 10 months from founding; three years from launch: In November 2004, after pitching the company 348 times over three years, Savage Beast raises $7.8 million in funding from Labrador Ventures, Selby Venture Partners, Walden Venture Capital, Peter Gotcher and Robert Kavner.
Larry Marcus of Walden Capital is credited with the idea of changing the company’s business model from B2C to B2B through the introduction of an Internet radio service.
“I remember the first time I saw the beta version of it, I thought, ‘Oh, we’re home,’” Westergren says in the Wall Street Journal in 2015. “‘This is what we should have been doing all along.’”
Leadership, at three years and 11 months from founding; three years and one months from launch: On December 14, 2004, it is announced that Joe Kennedy has replaced Westergen as Savage Beast’s President and CEO. Westergren becomes Chief Strategy Officer.
Westergen eventually takes over the role of CEO again in early 2016.
— Pandora’s Sixth Year —
Rename, at five years and six months from founding; four years and seven months from launch: Savage Beast changes its name to Pandora Media. According to the trademark application for the Pandora name, it is first used on July 16, 2005.
The new name is suggested by Kennedy, who discusses the reason for the shift from Savage Beast to Pandora with Vator founder and CEO Bambi Francisco in 2009.
“The problem was that music sales were declining big time and so you can’t chase after a business opportunity in a market that’s falling off a cliff. That’s pretty fundamentally flawed. It was bad timing and the timing only got worse. It was a mediocre idea with terrible timing,” he says.
“I think also what is vitally important in a young company is founding sense of purpose. We want to enable people to discover and enjoy music that they’ll love. That founding purpose, we never moved away from it.”
Product, at five years and seven months from founding; three years and eight months from launch: On August 29, 2005, Pandora becomes available to the public, after a five week preview release.
Features include: complete station history, the ability to rate and buy any song and a URL interface for creating stations from users blogs and websites. The company gives listeners 10 free hours and then charges $36 a year for the service.
Traction, at five years and seven months from founding; three years and eight months from launch: Within its first few weeks, Pandora has 100,000 people sign up, though most listen to their 10 free hours and then leave.
Third funding, at five years and 10 months from founding; four years from launch: In November 2005, Pandora raises $12 million from Crosslink Capital, Labrador Ventures, Selby Venture Partners, Walden Venture Capital and Hearst Ventures.
Business model, at five years and 10 months from founding; four years from launch: Pandora siwtches to an ad-based model rather than a subscription model.
“The truth is that when we were just getting around to launch the product, we were running out of money, and none of us had experience running an ad-supported business. We were slow to see that ad supported was a big opportunity partly because it wasn’t our experience that we were afraid to see ad supported as a big opportunity,” Kennedy later says.
“Fortunately along came a new investor who not only brought the money but brought the perspective that the big opportunity is ad supported.”
Revenue, at five years and 11 months from founding; four years and one month from launch: In December 2005, Pandora sells its first ad.
— Pandora Today —
After raising over $56 million, Pandora went public in 2011, valuing the company at $2.56 billion.
In its most recent quarterly earnings, the company reported revenue of $393 million, up 17 percent from the same time the year prior.
