Pandora's Long Strange Trip

Online radio that's cool, addictive, free, and-just maybe-a lasting business.

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Tim Westergren is due to take the stage in an hour, yet he seems half asleep. His shoulders are rolled forward, his hair floppy and unbrushed, and he's wearing loose blue jeans and scuffed hiking boots. He ambles around the auditorium he's rented at the San Francisco Museum of Modern Art while the staff of Pandora, the online radio company he founded, buzzes around him. The salespeople smile at the advertisers, the biz-dev folks pump the arms of partners, the engineers form a nervous little knot. Meanwhile, the crowd gathering outside the auditorium doors keeps getting larger.

Pandora has been around in one form or another since 1999 and has spent most of its existence on the brink of shutting down. Yet Westergren has always found a way to rescue his company and infuse it with new hope, new direction. Tonight is one more of those times: Pandora's biggest product launch since its debut. The company is announcing a move into mobile products, which will let listeners access their personalized radio stations over Sprint (NYSE:S) phones or Sonos and Slim Devices in-home music players.

Finally, at 6:45, the doors open and Westergren, 41, snaps to life. Most companies have customers. Pandora has fans. Nearly 300 of them stream in to hear what Westergren has to say. There are guys in short-sleeve button-downs, a red-haired middle-aged woman who's brought her digital camera, a man with long ropey dreadlocks, a girl with highlighted hair and precise bangs, and a couple with a tiny baby sucking a pacifier. They look more like they're headed to a downtown wine bar than to a high-tech product launch. The fact that they've given up their Tuesday night to listen to Westergren suggests that he has built something unique.

With almost all the seats filled, Westergren takes the stage. He's donned a jacket for his moment in the spotlight, although it's teal, zip-up, and made of fleece. "I'm Tim Westergren, and I'm the founder of Pandora," he says. The audience claps and shouts. "So I've done a bunch of these town halls, and I am jacked up," he says. "Ask any questions you have about the company. The more we can, sort of, talk to each other, the better." He means it. As Westergren details the battered history of his company, the crowd laughs and claps and oohs and aahs. Westergren has that rare talent of seeming chatty and intimate with an audience of hundreds. Listeners raise their hands and suggest ways that Pandora might outwit regulators; others volunteer to view more ads on their Pandora radio players if that will help the company make money. It's tough to imagine even the most rabid consumers, like Apple's customers, offering to view more advertising. Now it's up to Westergren to turn that adulation into action to save his company once again.

He's in a common enough position. He's trying to make a real business of this product he passionately believes in, but he's never quite gotten his baby out of start-up mode. Still, after eight years of being tossed around, Westergren isn't talking about just making Pandora turn the corner. He wants to make it huge.

Pandora has developed a proprietary method to analyze music--Westergren calls it the music genome--that lets users create online radio stations generated by the software's recommendations. Tell Pandora your favorite song is "Casey Jones" by the Grateful Dead, and within seconds it will create a station--Casey Jones Radio--that streams nonstop songs from artists such as the Youngbloods, the Byrds, and the Beatles, along with stuff you might not expect, like R.E.M., the Jam, and Tom Petty. It's undeniably cool and completely addictive, but Pandora has never quite found its footing as a business. Indeed, the company has been through an almost unbelievable number of setbacks, a series of blows that would make the most determined entrepreneur throw in the towel. Westergren has run out of money, which forced to him to lay off his entire staff (except for those willing to work for free). He's been rejected some 350 times by venture capitalists. He has faced bankruptcy, haggled with anxious creditors, and been sued by employees. Deal after deal has fallen through at the last minute.

Yet somehow Westergren has managed to amass more than eight million very enthusiastic listeners, advertisers like Microsoft and Lexus, and a database of some 500,000 songs. Over the years, he's raised more than $30 million in funding, most recently an undisclosed amount from Hearst Interactive Media, the media company's venture capital arm, in 2006. "I've got to give Tim the all-time award for persistence. I probably turned him down at least three or four times," says Peter Gotcher, a venture capitalist who eventually participated in a $12 million round in 2005. "I liked his passion and entrepreneurial spirit." Call it passion, spirit, an obstinate refusal to quit. It's kept Pandora alive.

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