Among the many companies that have benefited from the transition from PC's to smartphones and tablets has been Pandora.
Since the launch of the iPhone, the Oakland-based Internet radio giant has seen its registered user base swell from around 10 million users to more than 200 million, and its sales jump from less than $15 million to more than $425 million last year, with most of its new users and revenue coming from mobile devices. According to industry figures, its service accounts for 70 percent of all the time consumers spend listening to Internet radio.
But the company has some big challenges -- and big opportunities -- ahead. Internet radio still comprises just 7 percent of total radio listening, so the company has plenty of room to grow. However, it faces a powerful new challenger in Apple (AAPL), which plans to launch its own Internet radio service later this month, and in a recent filing for a new stock offering, it warned of slowing growth and continuing losses. Meanwhile, the company is going through something of a corporate transition: It just named a new CEO to replace its retiring longtime leader Joe Kennedy.
Late last month Tom Conrad, Pandora's chief technology officer, who has been with the company as long as Kennedy, spoke with this newspaper about how Pandora's service has changed, the market for Internet radio ads and the looming threat of Apple. This is an edited version of the interview.
Q: How has Pandora's radio service changed in choosing which songs to play for particular users?
A: When we launched, the company had spent the previous three years building something we called the Music Genome Project, which is our handcrafted, song-by-song analysis of well over a million musical works. We then mixed that system with your individual thumbs up and thumbs down feedback and algorithms that shape the station to your particular tastes.
Now we have north of 30 billion thumbs up and thumbs down, all placed in a particular musicological context, all tied to the registration data that we have about our listeners -- how old they are, what part of the country they live in, their gender and so forth. What that allows us to do is to begin to look at the other dimensions that matter in music. There are cultural dimensions. There are social dimensions. We're able to use this vast store of thumb data to begin to tease apart some of those other dimensions.
We have, at any given time, dozens of experiments running that take some small fraction of our audience and algorithmically work to improve variety on Pandora or to accelerate personalization, to bring in more discovery or to, in some instances, dial up familiarity.
So, Pandora today sounds materially different than Pandora did certainly a year ago.
Q: By trying to make Pandora even more personalized, by consciously tweaking the service so that listeners hear the songs they like, you're betting they'll tune in longer.
A: That's right.
Q: Can you talk a little bit about what you guys are doing on the ad front? It seems to me, just as a listener, that you guys are playing a lot more ads these days than you had in the past.
A: We've really begun to find scale in the traditional audio buying community. Increasingly, the ads you hear on Pandora come from the same kinds of advertisers who might have bought on terrestrial radio.
There's approximately three opportunities for us to run an ad an hour. And those ads range from 15 to 30 seconds. So that means, if they're all 30s, you might hear 90 seconds of ads in an hour today, compared to -- I think the average is something like 13 or so minutes of advertising an hour for terrestrial radio.
Q: Do you see an opportunity to bump up the number of ads?
A: I certainly think that opportunity exists. But we are still in a period of tremendous growth, in terms of the number of hours of Pandora that are generated by our listeners each month. So, I think we're bounded today more by our ability to fill the hours that we have versus making any conscious decision about what the right ad load is from a consumer standpoint.
Q: Apple is going to launch its own radio service soon. What does that mean for Pandora?
A: These kinds of launches have been part of the whole history of Pandora. When we launched in 2005, Yahoo (YHOO) had Launchcast and AOL had AOL Radio and Microsoft had MSN Radio, and these were the gorillas of that era.
And we've had, it's probably not an exaggeration to say, hundreds of other competitors enter, broadly, the digital music domain over the years. So having competitors on the field is not a new experience for us.
Q: But isn't Apple different from the other competitors you've had? The company has long been a dominant player in digital music.
A: I think Apple is different in the sense that, unlike Clear Channel or even Spotify, their ambition is about selling hardware, not transforming music entertainment.
At the end of the day, these systems are judged by our listeners ears and the thumbs they give. So I think the experience will just simply be better at Pandora than what they get from these other offerings, because we've been at it longer, we're more committed to solving it well, and we're far from done.
And there's just lots and lots of users who won't have access to Apple's products. It will be different in that sense too.
Contact Troy Wolverton at 408-840-4285. Follow him at www.mercurynews.com/troy-wolverton or Twitter.com/troywolv.
Five Things to know about Tom Conrad
1. During his first month at Pandora -- then Savage Beast Technologies -- his most significant accomplishment was installing 20 music kiosks at a Borders in Kansas City.
2. He works with and advises ScholarMatch, an organization that helps pair college students needing financial support with donors.
3. A self-described music "geek" since childhood, he owns a collection of more than 1,000 CD's and LP's, but the only "instrument" he plays well is his stereo.
4. He holds four patents in the areas of playlist personalization and user interactions.
5. While at Apple he designed the feature in OS X that automatically opens folders when you drag a file to them with a mouse without releasing its button. The feature is still a part of the operating system and influenced the design of folders in iOS, the software that underlies the iPhone.
Name: Tom Conrad
Birthplace: Columbus, Ohio
Position: Chief Technology Officer and Executive Vice President of Product, Pandora
Previous jobs: VP of engineering, Kenamea; senior director of engineering, Pets.com; technical director for video game series "You Don't Know Jack"; senior engineer, Apple
Education: B.S. in computer engineering from the University of Michigan
Family: Married to Kate Imbach, head of marketing at ShowYou
Residence: San Francisco
Other interests: Board of directors, ScholarMatch, adviser to charity: water