NEW YORK (TheStreet) -- It's almost surreal. Watching a company define double-edged sword. Witnessing how a stubborn hyper-focus on past and present success runs the risk of crushing not only long-term prosperity, but viability.
That's the crossroads Pandora (P) operates from at the moment. Does it pivot and seize the opportunity it created for itself and still has the ability to own or does it permit what has become an unhealthy confidence -- arrogance -- to determine its fate?
In recent weeks I have seen nothing from the company that gives me the confidence to support the either on the front end of that or. In fact, Pandora's recent actions -- which I can only describe as bizarre -- make it impossible for me to do anything other than abandon almost all bullishness. A bullishness I adamantly articulated as Pandora's stock rose from the dead, more than quadrupling from lows in the high single digits.
I was there most of the way -- from 8 to $36 a share -- and I'm telling you this is a different company as it enters what it defines as its "next phase of growth." Unless Pandora changes course in a major way, you should read different in the worst possible way.
Pandora's Bizarre Public Actions and Statements
A few weeks ago, Pandora named a new Chief Strategy Officer. In the press release announcing the news, there was zero mention of the company's co-founder and now former CSO Tim Westergren.
Pandora says we shouldn't read anything into this. And part of me feels like Westergren just didn't want to steal the spotlight from the new hire. But the part of me that thinks with my brain, unencumbered by my heart, doesn't feel quite the same way. If you forced me to place a wager, I'd have to take the side that something's up, but Pandora's not talking. It's just too strange to not even mention Westergren in a press release where he probably should have had a quote.
Why does Pandora require an outsider to head up strategy? It makes no sense. Multiple sources at Pandora tell me Westergren "remains as committed as ever ..." that "he's still fully in the game." But these responses reek of everybody getting on the same page to tote a company line. To cover what could be a more concerning underlying story.
Part of me wonders -- and not without basis -- if there are not factions within Pandora frustrated with Westergren. Upset that, as the company's ultimate leader, he's not moving fast enough in areas where others appear to be taking charge. We'll explore that later, but, at this juncture. I just have a difficult time believing that A) Pandora needed a new CSO if all is well with Westergren and B) he would be absent from the public announcement that somebody nobody's ever heard of before had been tapped to replace him.
But that was just the beginning of the bizarreness.
A couple days later, Pandora worked more PR spin. This time on me. You can read the smoke and mirrors Pandora pulled with respect to its plans to leverage (or not) the full power of its data in Exposing a Pandora Article That Reads Like a Press Release.
Finally, this past Thursday, two bizarre things went down that even people who can see still see the turnip truck's brake lights could see right through.
First, Pandora took us all for fools with the way it spun its decision to stop reporting monthly listener metrics. Pandora told us that it had only been releasing these numbers for advertisers. And now that advertisers can see how Pandora ranks against broadcast radio in other, more formal ways, there's no longer a need to reveal the statistics every thirty days.
You know as well as I -- and so does Pandora -- that the company made these numbers public for investors, not just advertisers. In fact, I would argue it was more a vehicle to drive positive thoughts in the investment community than the advertising one.
But now that it's more difficult to explain moderating growth (which really doesn't negatively impact Pandora's core narrative), Pandora doesn't see the need to be quite as transparent quite as often like it was when it was growing exponentially.
We might be stupid, but we're not dumb. And we're sure as heck not going to fall for typical tricks borne out of corporate PR departments.
But the award for complete cluelessness, total inanity and pathetic smoke and mirrors goes to Pandora's new CEO Brian McAndrews. If he actually believes what he said Thursday about Spotify's purchase of The Echo Nest the man is certifiably inane and not fit to lead Pandora.
On a conference call to spin the decision to stop reporting the monthly listener data, McAndrews said ...
We don't see (the deal) as a significant development for us ...
That comment could mean one or more of several things. But from any perspective it holds that McAndrews is nuts or simply jive talking us.
If the development is not significant because Pandora doesn't care about doing something with its data other than using it to sell targeted advertising, then I guess McAndrews made a technically correct, even if horribly misguided statement.
If it's not significant because McAndrews thinks it's immaterial to Pandora's business then he doesn't understand A) what Pandora's business is and B) what Pandora's business not only should be, but absolutely has to be going forward if it wants to maintain its stronghold as Internet radio's unprecedented leader.
If Pandora's talking about the Spotify/The Echo Nest hookup internally at more than a surface level -- which I have to think it is -- McAndrews could give Netflix's (NFLX) Reed Hastings a run for his money as top jive-talking CEO.
I'll get into how all the bizarreness connects to Pandora's business model later in this article, but first ... something positive, which makes part of the aforementioned bizarreness even more bizarre.
Pandora Does Not Have a Growth Problem
The fact that growth is slowing/moderating at Pandora doesn't concern me at all. Not one bit. The way the company decided to handle this reality baffles me, but the reality itself -- it's truly immaterial.
Because, as I detailed late last year, Pandora has been telling us for years that growth would moderate. In fact the company's former CFO Steve Cakebread discussed this with me in 2011. But that's back when Pandora was a straightforward company, not one that employs thin PR spin.
Pandora can't possibly command every household in the U.S. as a listener. It's already a wild leap to say it is has 250 million users. Back out pets, duplicate accounts, dormant accounts and such and the number would be much lower. And that's OK.
That said, Pandora still has massive scale. And it has the tools necessary to more than convince advertisers that they should send considerable portions of their budgets Pandora's way. If Pandora stopped growing -- and simply maintained its present core audience (but got it to listen longer) -- I still wouldn't worry. Nobody can come to advertisers with a stronger pitch than Pandora.
However, as we connect the dots throughout this article, I'll argue that broadcast radio (that's traditional radio) appears to finally be getting its act together. It, unlike Pandora, believes in and is beginning to use the power of the data it collects in innovative ways. Being the Internet radio leader going forward will mean more than getting the listener experience right and having an effective sales department. Interestingly, Pandora will likely maintain the largest market share of all the Web radio players for some time, but that won't matter much unless it gets serious about expanding and specializing its now non-existent data business.
Pandora's Not Fully Embracing the Amazon Way
McAndrews foolish comment -- We don't see (the deal) as a significant development for us ... -- should win him a permanent spot on Jim Cramer's CEO Wall of Shame.
When I first heard Pandora CFO Mike Herring not-so-indirectly refer to doing things the Amazon way, I bought it:
... Setting aside my very appropriate obsession with data, Pandora absolutely still has enormous opportunity to seize in the advertising space, particularly mobile.
Next time I see Herring I will kiss him. It's about time somebody borrowed the pair Jeff Bezos walks around with and used them for some good in the broad tech space.
The fact that Herring was allowed to make that comment gives me great confidence that the entrepreneural culture remains intact at Pandora (which makes me think the company is probably on the same page with me on the data obsession !). Not that there was ever reason to doubt it.
But I then I checked myself, particularly the Setting aside my very appropriate obsession with data part. And I said NO! I can't set my obsession with data aside. I would be as negligent as Pandora is.
You can't just halfway embrace the Amazon way. If you do, then, for all intents and purposes, you're not actually embracing the Amazon way.
For Pandora to largely reinvest its resources -- and, possibly, forsake some profit -- in just one part of its business (targeted advertising) would be like Amazon setting aside Amazon Web Services and/or only aggressively building out one or two parts of its wide-ranging e-commerce ecosystem.
I'm not saying Pandora should just jump willy nilly into a million areas. Not at all. Amazon doesn't do that.
Lately Amazon has gone balls to the wall on fulfillment centers, streaming content and hardware to drive e-commerce, while moving with more caution on grocery delivery (it's only available, as Amazon Fresh, in the Seattle and Los Angeles areas). But, in areas where the meat's already on the table, you don't see Amazon hesitate. It wastes no time conquering and taking ownership of opportunity.
With respect to data, the time is now. But Pandora just doesn't seem to understand that there's a world in data that lies beyond what is the company's present-day bread and butter. When I question Pandora about its lack of initiative on data, I'm told, Yeah, but, we're doing lots with data with respect to advertising.
That view shows a fundamental misunderstanding of where things are, where things are headed and the massive opportunity for Pandora to assume a leadership role. It runs the risk of turning Pandora into an Internet Radio relic.
It's Not About Music or Radio, It's About Data
I wish I would have screen captured it the other day, but, when I was scrolling through my Facebook (FB) mobile newsfeed, an advertisement popped up for Beats Music.
It focused on the notion that Beats reigns superior because, I think it was, 300 "music professionals" curate it playlists. Beats seems to think people -- on a mass, mainstream scale -- actually care about this. Recent research suggests otherwise.
Listeners lay back. And this is one reason why they like Pandora. Because Pandora has developed the ultimate lay-back music listening experience. As I explain in the above-linked article, you have the option to interact with Pandora. And when you do that's when the Pandora's real business kicks in. The business of data. Don't get me wrong, Pandora needs to be good at determining what to play. And it absolutely is. Way better than Beats in fact.
But, ultimately, it's not about radio. It's not about music. These things put the puck in the slot, but it's the data that will put it in the net with authority.
Pandora has proven this by using its data to create what's turning into an advertising powerhouse. The company will, probably in the next year or two, bill $1 billion in advertising sales. It can accomplish this because of the way it uses data. But the thing is, Pandora has merely scratched the service on what it can do with data.
However, it's going to grow more slowly as an overall business if it doesn't take things to the next level.
The advertising business can operate on something that resembles autopilot. As Pandora expands its sales infrastructure, it's basically replicating and building on what it has already accomplished. The model's in place, now it just needs more feet on the ground and additional creative ways to make and keep the sale distinct from what everybody else, particularly Pandora's main target, broadcast radio, can offer.
Spotify and The Echo Nest Could Be an Actual Pandora Killer
Contrary to what McAndrews, the Pandora CEO, thinks, Spotify joining forces with The Echo Nest is a brilliant move that could have terrifying repercussions for Pandora.
First, Spotify might have just generated a whole new line of revenue for itself. There should be about zero concern over The Echo Nest customers leaving because of the acquisition. The ones that do leave end up biting the hand that feeds them out of spite. Companies such as Rdio have no leverage whatsoever and should be even more pumped than they were when Spotify and The Echo Nest were separate. If I'm at Rdio I am begging for a buyout.
And I love Rdio's service. I would hate to see it go away. I use it a lot. As much, if not more than I use Pandora. But, again, it's not about radio or the music. It's about who can establish a position and an initial core business in these spaces -- the way Pandora and, to a similar extent, Spotify have -- and then take things to the next level.
That's precisely what the Spotify/The Echo Nest marriage does. It opens the door for the combined company to get even more creative with data. Yes, to create a better listening experience at Spotify and elsewhere, but, more importantly, to start marketing music in ways we have never seen before. By providing record labels, bands and brands with capabilities they have never had to inform and better monetize what they do.
Pandora could be all of this and more now. It could have been doing amazing things with data (outside of standard advertising) for years and, most definitely, over the last year.
But, as Pandora sat idle, terrestrial radio has started to show signs of life, Twitter (TWTR) has smartly jumped in the game and the Spotify/The Echo Nest love fest is about to chart new, exciting and very profitable territory.
TheStreet's Carlton Wilkinson will speak with Jim Luchese, The Echo Nest's CEO at SXSW this week. I expect to spend some time with him shortly thereafter. I expect Luchese to confirm what I already know.
While he's not the type to call Pandora out by name (though maybe he will), it's quite clear that he will (as he already has in comments since the deal) speak to ground Spotify will now cover thanks to its acquisition of The Echo Nest. And it's exactly the ground Pandora's CEO doesn't consider "a significant development" for his company.
He's too focused on an unnecessary redux of what has become the type of stuff complacent companies say because they like hearing themselves talk.
Pandora will remain focused on redefining radio.
What a shame that it feels the need to limit itself.
But that's OK.
OK for the sake of the music industry. OK for the sake of advertisers who hope to do more with music as a marketing tool beyond simple 15- and 30-second spots and basic sponsorships. And OK for the sake of big music data, a multi-billion dollar enterprise set to explode.
It's OK because if Pandora refuses to lead, somebody else will. The players are lining up while Pandora sleeps with a seemingly disingenuous, if not incompetent CEO.
Given the present mindlessness at Pandora, I couldn't, in good conscience, suggest doing anything other than selling. If you have profits banked from the stock's meteoric rise, it's a no-brainer. If you're chasing it, I have to think better situations exist where you might want to allocate some risk.
In fact, with the developments of the past few weeks in mind, it might make sense to put together a little cash stockpile to hop on Spotify when it goes public. I'd be surprised if that doesn't happen sometime in 2014 or early 2015.
--Written by Rocco Pendola in Santa Monica, Calif.