Westergren started composing scores for low-budget independent films, and that's when he began thinking differently about music. He'd ask directors about the sounds they were searching for and listen as otherwise articulate, creative people struggled to find the right words, usually falling back on descriptions like "something like Natalie Merchant, but more scary." Sitting at his piano, trying to evoke a frightening Natalie Merchant, Westergren thought about what terms such as "scarier" and "darker" and "happier" meant in purely musical terms. Would changing the rhythm, the melody, or the alto sax arrangement produce the desired result? If so, then wouldn't it be possible to create a giant database of music based on its underlying characteristics, which would make it easier for listeners to find exactly what they were looking for?
Around the same time, he read an article about the plight of singer-songwriter Aimee Mann. Though Mann's two previous records had sold a respectable 227,000 copies and won critical acclaim, her record label was refusing to release her current effort; it was focusing instead on blockbuster artists with sales in the millions. For Westergren, Mann's story brought back bitter feelings about Yellowwood Junction, which had built a strong following in the western United States but had no way to get its music out to larger audiences. "All the ideas that had been swimming in my head coalesced at that point," he says.
Lucky for him, it was 1999, and everyone in the Bay Area seemed to be starting a company. Westergren founded his, Savage Beast Technologies, with two friends, Jon Kraft and Will Glaser. Kraft, who'd already started and sold a tech business, helped Westergren sketch out a business plan, Glaser worked on the software, and Westergren worked on the music.
His premise was that music could be broken down in an objective way by trained musicians; he called his effort the Music Genome Project, a riff on the drive to map human DNA. Westergren began by thinking about how any musician would describe a piece of music and came up with about 600 qualities. He hired a professional musicologist to refine the approach and Glaser created an algorithm based on the work. The system now includes about 400 different "genes" for each genre (pop, classical, jazz, and hip-hop) that break down the music's form, the instruments used and their tone (is the saxophone gravelly?), the level of virtuosity, and the overall mood and style. (For classical music, is the mood pastorale, giocoso, or agitato? For jazz, is there an R&B or a smooth jazz influence?) It analyzes lyrical content, along with harmony, rhythm, and pretty much any other factor you can think of. Westergren was insistent on having humans analyze each song, arguing that computers alone would not be able to pick up the nuances and mood. Analysts rate each song on a 10-point scale on each of the 400 attributes. Those ratings constitute the song's musical DNA, which is entered into a database. The goal is to point listeners toward music they might enjoy based on an analysis of what they already like.
The question was how to make money with this thing. In 2000, Westergren pitched the company as an e-commerce site that would recommend music based on the genome, and in March he raised $1.5 million in venture capital. Two weeks later, the stock market crashed, rendering an underfunded e-commerce site a very bad idea. The next four years saw a plethora of different business plans for Pandora. "The first day I started, I sat down with Tim and I said tell me about the product," says Dan Lythcott-Haims, who joined Westergren in 2000 and is now Pandora's creative director. "He said, 'No, you tell us about the product.' There was no product, just a loose idea." Westergren set out to license the genome to other sites as a recommendation engine, but after more than a year his efforts resulted only in a meager $20,000 development fee from Barnes & Noble.com. His next idea was to put the technology into in-store kiosks at music retailers. At the end of 2002, Westergren reached a licensing deal with AOL Music, and Best Buy (NYSE:BBY) chose Pandora over 15 competitors to run a trial kiosk program. Both deals stretched payments out over a few years.
But Pandora already was deep in debt and the cash problems continued to mount. By this point, Jon Kraft had left and Westergren had about 15 employees and 30 part-time music analysts on staff. He paid office rent from his own checkbook. The only solution he could think of was asking employees to defer their salaries. "There was this core group of people that just believed in it. There was no quitting," says Lythcott-Haims. Westergren, meanwhile, kept knocking on the doors of VCs. He's a likable guy, casual and well-informed, but the VCs objected to his business plan, in its third iteration by now. Gotcher, for example, thought there were only a handful of customers in either the licensing or the kiosk business. "But I also thought Tim was a refreshing entrepreneur," he says. "Most entrepreneurs, if you bring up a flaw in the business model, will just adamantly try to claim they've got it all figured out. Tim said, 'Well, that's our best idea right now.' It was a good reaction."
But the situation at the company was increasingly dire. At the end of 2003, four former employees slapped Pandora with a lawsuit. They'd discovered that deferring salaries was illegal, a possibility Westergren hadn't even considered. He had to argue his case before the California Division of Labor Standards, which forced him to settle with the employees with the last of his remaining money. He let the rest of the employees go, though a few true believers continued to pitch in.
By now, Westergren had pitched Pandora to venture capitalists about 350 times and had finally learned to hint that his was a hot investment, that other VCs were about to pour money into it. The Best Buy trial was also showing good results, and Westergren convinced Walden Venture Capital to lead an $8 million round in 2004. The money meant that Westergren could hand out salary checks for $60,000 or $80,000 to employees who had been working for free. Meanwhile, he and the board decided to bring in a new CEO. They tapped Joe Kennedy, a former Saturn executive, in spring 2005. Hiring a CEO with consumer experience turned out to be a prescient move. Six months after Kennedy joined, deals with Borders (NYSE:BGP) and Best Buy fell through, and the company once again had to reinvent itself. Having exhausted their business-to-business ideas, Kennedy and Westergren turned to the consumer market, where online radio was an obvious option. The company decided to develop a website offering personalized radio stations and charge $36 a year for subscriptions.
